Roanoke College assistant professor shares insight on potential impact of U.S. debt default

SALEM, Va. (WDBJ) - U.S. elected leaders have still been unable to come to an agreement on raising the debt ceiling, continuing to create worries about a default for the first time in American history.

WDBJ7 spoke with Justin Garrison, an associate professor of political science at Roanoke College, to hear about the potential impacts a default would have.

Can you walk me through a little bit about where we are, at least up to this point?

“The latest that I’ve seen is, both of the sides are really focusing on whether or not they’re going to be able to either freeze or reduce non discretionary, non defense discretionary spending. So basically, everything you think about when you think about government, except the military, that’s a pretty small chunk of the federal budget. But they haven’t really been able to get any common ground on bigger issues like Medicare, Social Security, and so forth.”

Can you walk me through what a debt ceiling would do to specifically retirement benefits, whether it be 401k, whether it’s social security, whether it be government employees pensions?

“401k can be significantly impacted in a negative way, because of the likely significant implications for the stock market. We had really significant impacts on 401k programs during the mortgage crisis in 2008, so there are kind of indirect problems associated with even a partial default. And then, of course, when you’re looking at more immediate things, like social security, which is a type of pension program, payments could either stop, be delayed or be on time, but be reduced, which is a significant problem for people on fixed incomes.”

What are other countries’ potential trade partners thinking as they’re watching this happen?

“I think it would have a really significant impact on the future standing of the United States, politically, as well as economically. I mean, so much of the global economy is plugged in to not just the American economy in the abstract in terms of Americans having a lot of spending power and participating in the economy. But so much of the financial system throughout the world is tied to what happens in the Treasury Department and if that implodes, it wouldn’t be unreasonable for people to think about looking at other ways of protecting their own investments.”

I hear you talking about it (a debt default) being partial or complete, can you explain that to me?

“If it’s only a few days, there may be bills, the United States can’t pay for a few days, but all bills aren’t due on the first. So if you went into a default for a short period of time, it could be a significant problem, but would not be the same thing as simply like the governmental version of declaring bankruptcy, where you’re claiming, I have no capacity to pay anything for the foreseeable future. Something like that, to me, seems extremely unlikely, precisely because of the terrifying consequences of that kind of a massive problem.”

Everyday Americans and elected leaders will continue to have June 1 on their mind as leaders work to complete a deal to raise the debt ceiling.

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