Cut, cap and balance. Obama’s “Grand Compromise” Plan. The Reid Plan. The Boehner Plan. The Gang of Six. A short-term “Kick the can” deal. The “fallback” hybrid.
With each of these proposed solutions to the United States national debt crisis in turmoil, citizens nationwide – and investors across the globe – are waiting to see if officials will find an answer before the Aug. 2 debt deadline, which is four days away.
But what happens to our economy if leaders fail to make a deal?
“There’s almost an infinite number of ways to answer that question,” said Michael Toma, professor of economics and director of the Center for Regional Analysis for Armstrong Atlantic State University.
“It’s important to remember that the federal government doesn’t completely run out of money on Aug. 2,” he added. “So some of their obligations will be taken care of, and some of them will not be.”
If legislators do not come up with a plan by the deadline, the act of appropriating the rest of the funds would fall on President Barack Obama and Secretary of the Treasury Timothy Geithner, according to Chris Crawford, spokesman for U.S. Rep. Jack Kingston (R-Savannah).
The government is likely to protect the national credit rating by paying off its obligations, which could result in short-term shuttering or reductions to national programs, Toma said.
“For example, it might mean that the National Park System might shut down … and this is all speculation because the federal government has not made public what its priorities are in the event of a default,” he said.
“We have no idea how the federal government will prioritize its obligations, they haven’t said one word about that,” he added. “Those conversations are taking place behind closed doors, and I’m sure there are contingencies in place.”
While he emphasized that these ideas are based on speculation, it is possible that residents could get hit in their own pocketbooks, he said.
“Under extreme circumstances, it’s possible that Social Security checks might be delayed or partial payments sent out,” he said.
The Army could also suffer a loss of appropriations.
If that happens, effects on Hinesville could be devastating, according to City Councilman David Anderson, chairman of the Hinesville Military Affairs Committee.
“If you live in Hinesville, you can’t go two houses without finding someone who’s military or retired military,” Anderson said.
Cuts could affect military employees, retired military personnel and disabled veterans. The impact would reduce buying power throughout the city, with consequences on consumer spending, healthcare payments and even on rents and mortgages, he said.
According to a 2010 Fort Stewart/Hunter Army Airfield Command Data Summary, last year the posts paid $96,091,164 to 1,404 appropriated-fund, civilian employees who live in Liberty County and another $12,387,821 to 181 who live in Long County.
As for Army salaries, Toma said it is more likely that people will see payroll reductions than suspensions, but special projects, especially construction, could “grind to a halt.”
“We don’t know what we don’t know,” Fort Stewart spokesman Kevin Larson said. “Just like the rest of the nation, we’ll have to wait and see what happens.”
In the event of financial trouble, soldiers and their families can seek guidance, counseling and assistance in the form of grants and low-interest loans from Army Emergency Relief Services, which can be reached at 767-5058, he said.
Disabled American Veterans Chapter 46 Commander Walter Helmick said he does not like the situation at hand. He expressed frustration that his organization is likely to be affected by cuts, but he also added that his knowledge could only lead to speculation at this time.
“Why make the senior citizens and veterans pay for the government’s mistake?” Helmick said, adding that he was expressing his own opinion and not speaking on behalf of the organization. “To me, why don’t they start trimming the fat around their own pockets?”
Toma stressed that most cuts are likely to be short-lived.
If the government was to default on its bonds, interest rates would rise and the stock market would see a short period of “extreme volatility,” Toma said. “Equity prices would fall dramatically at first but then they’d begin to recover as confidence returns.”
“Everybody’s borrowing costs would be higher, and that would be disadvantageous for the U.S. economy and the local economy,” he said. But once constituents start “howling” about program cuts, the government will be forced into finding a solution. Immediate problems would be corrected quickly if the federal government were to start missing payments, but an increase in borrowing costs for households, businesses and governments would have longer lasting effects.
In the event of a default, Toma does not believe the dollar’s standing as a reserve currency would be seriously undermined in the long-run because the government is not likely to default on its debt obligations, he said.
“I don’t believe that it would cause investors around the world to dump all their dollar holdings,” he said. “If you’re not going to invest in the U.S. economy, where’s a better place to invest your funds? The European economy has been growing more slowly than the U.S. economy and has been for years; the Japanese economy has basically been treading water for 20 years … and it’s not likely that people are going to invest in China’s economy because it is a communist country and no one knows when it might nationalize foreign investments.”
As of press-time Thursday, the House of Representatives was slated to vote around 6 p.m. on the proposed Boehner plan, which would raise the debt ceiling with two steps. In the Senate, Sen. Harry Reid’s plan, which calls raising the debt limit by $2.4 trillion and about $2.7 in spending cuts over the next decade, was still hanging in the balance.
Crawford said that Kingston was still reviewing the Boehner plan but was leaning toward voting for it.
“If the House, for a second time passes a bill, I think the onus is on the Senate to either find something that will pass the Senate or take up our bill,” he said.
The Associated Press contributed to this report.