White House takes over debt ceiling talks
U.S. President Barack Obama speaks on the economy following a tour of Cree, Inc., a manufacturer of energy efficient LED lighting and a meeting with President's Council on Jobs and Competitiveness, in Durham, N.C., June 13, 2011.
JEREMY HOBSON: Today is the day President Obama takes over the stalled negotiations aimed at raising the federal debt limit in exchange for spending cuts. The President will meet separately today with the Senate's top democrat and republican. If there's no deal in the next month or so the federal government could be in a whole lot of trouble. But what's at stake for the rest of us?
Marketplace's Nancy Marshall Genzer joins us live from Washington with that story. Good morning.
NANCY MARSHALL GENZER: Hey. Good morning, Jeremy.
HOBSON: So Nancy, would consumers -- ordinary Americans -- feel it if the U.S. defaulted on its debt?
GENZER: Yes. In several ways. First of all Jeremy if you've invested in U.S. bonds, you'd take an immediate hit. The Treasury Department says Congress has to vote to lift the debt ceiling by August 2 or the U.S. will default. And Jeremy, the closer we get to that deadline, the bigger the risk that credit rating agencies will lower the government's credit rating. A decrease in Uncle Sam's rating would cut the value of U.S. bonds immediately. In fact there's a new study out today from McGraw-Hill says bond investors could lose up to $100 billion.
HOBSON: OK but, what about the Americans who are not invested in the bond market? Should they worry about a potential default?
GENZER: Right, the rest of us. Chances are you're going to need a loan at some point. To buy a car, or a house, or a semester at college. If the government defaulted, or even came close to it, it would pay more to borrow money. And guess what? That would trickle down, or maybe I should say up, to you and me.
I talked to Russ Roberts about this. He's an economist at George Mason University.
RUSS ROBERTS: In general consumer rates are going to be higher because there's even more uncertainty about my ability to repay than the government's.
So you'd pay a higher interest rate for your car loan. People with adjustable rate mortgages would have to pony up more cash each month. Your bank would jack up the interest rate on your credit card.
HOBSON: Marketplace's Nancy Marshall Genzer in Washington laying out one possible scenario -- the one where Washington doesn't reach a deal, thanks Nancy.
GENZER: You're welcome.
JEREMY HOBSON: Today is the day President Obama takes over the stalled negotiations aimed at raising the federal debt ceiling in exchange for spending cuts. The president will meet separately today with the Senate's top democrat and the Senate's top republican.
Marketplace's Nancy Marshall Genzer joins us live from Washington with the details. Good morning.
NANCY MARSHALL GENZER: Good morning.
HOBSON: Well Nancy, Republicans walked out of debt talks last week -- has anything happened since then?
MARSHALL GENZER: Not much Jeremy. And just to recap, the Treasury Deparment says Congress has to vote to lift the debt ceiling by August 2 or the U.S. will default. Republicans are insisting they won't agree to let the U.S. borrow more money until the deficit is cut. Nobody's saying much about today's meeting. Republican Senate Leader Mitch McConnell spoke about the chances of an agreement yesterday on ABC's "This Week."
MITCH MCCONNELL: I think both the Democrats and Republicans would like to come together and finish this negotiation and finish it sometime soon. It need not necessarily go to the 11th hour.
HOBSON: And Nancy, do we know anything more about what happens if Congress does wait until the 11th hour?
MARSHALL GENZER: Well, Jeremy for one thing the U.S. could lose its triple-A bond rating. If the rating were downgraded, it would cost us more to borrow money. A new report from McGraw-Hill estimates borrowing costs would increase as much as $4 billion per year. Because you pay more to borrow if your credit rating is cut.
HOBSON: And what about consequences for ordinary Americans? Would there be any?
MARSHALL GENZER: Absolutely. The private market follows government trends. So if the government is paying more to borrow, the rest of us will , too. Your adjustable rate mortgage would go up. It would cost more to borrow money to buy that new car you need. And the stock market probably would take a hit. So your 401K would be affected.
HOBSON: Marketplace's Nancy Marshall Genzer in Washington, thanks.
MARSHALL GENZER: You're welcome.