Currently, the United States Congress and the president are locked in a battle over raising the debt ceiling for the government. It seems to be yet another partisan squabble, but the consequences could include Social Security and other payments could be defaulted on if the debt ceiling isn’t raised.
Congress to forgo Fourth of July recess to work on debt issue
One of the biggest political and economic issues to arise in the past year or so has been the national debt ceiling, essentially the credit limit of the United States government. The government is not allowed by law to exceed more than $14.3 trillion in debt, according to Reuters, which was reached in the middle of May. Yet the government has been making payments on it through last-minute measures.
Some members of Congress, mostly comprised of Congressional Republicans, have been refusing to raise the debt limit without substantial changes to fiscal policies. Senate Majoirty Leader Harry Reid Leader has announced that the Senate is going to forgo the traditional week-long recess after the Fourth of July holiday in order to work on the debt ceiling, reports CBS. It has to be raised before August 4.
Warnings issued against default
Though there is nearly a month to forge an agreement to raise the debt ceiling, there are already warnings being issued against allowing the federal government to default on its debt. Besides a potentially catastrophic effect on global financial markets, credit rating agency Standard & Poor’s has warned that default on debt would result in currently maturing U.S. Treasury bonds being issued a “D” rating if those bonds are not paid out on August 4. The U.S. has $30 billion in interest payments due on short term loans acquired through sale of Treasury bonds. Chairman of the Federal Deposit Insurance Corporation Sheila Bair has warned Congress that they are getting into “a dangerous game,” according to NASDAQ, should they fail to successfully raise the debt limit.
Potential fallout in case of default
The American government is currently borrowing 40 cents of every dollar it spends, and in August of 2011 alone, the government is slated to spend $134 billion more than it will take in, according to USA Today. Up to 44 percent of government payments could be missed. Granted, this may seem a faraway issue to some people, but the largest and most urgent payments could hit the most vulnerable citizens where it hurts. Social Security payments to retirees, disability benefits, Medicare and Medicaid benefits and other forms of social aid such as welfare and food stamps may go unfunded. Federal employees may also be furloughed and contractors, including defense contractors, may go unpaid or have their contracts cancelled.
It is projected that there won’t be sufficient funds for the $23 billion payment to Social Security and Social Security Disability Insurance, or SSDI, recipients on August 3. Social Security represents 50 percent or more of all income for 53 percent of all couples aged 65 or older and 73 percent of all people over the age of 65.