The Obama Administration is pushing congressional leaders to agree to a deal that will reduce the national deficit by July 22. The administration believes the government’s borrowing limit must be raised by this date to avoid default in early August, according to a Wall Street Journal report.
Government Only Needs Two Weeks to Pass Legislation
The WSJ reported President Barack Obama and Senate leaders have created an outline of an agreement to cut federal spending by about $1 trillion over at least 10 years. However, the two parties are deadlocked over whether to include tax hikes that Democrats want–or cut taxes as Republicans want.
Lawmakers in Congress have already agreed to cancel their recess July 4 recess to continue discussions on how they can reduce the federal debt owed. One official noted in the WSJ that the government needs a week or two to write and pass the legislation needed to avoid missing a payment.
The Obama Administration has already expressed that there is no reason lawmakers can’t come to an agreement before or by July 22. Doing so will help the country avoid the Aug. 2 default deadline issued by Treasury Secretary Timothy Geithner after the national debt hit its $14.3 trillion ceiling.
The Consequences of Default
According to the WSJ article, many still disagree about what could happen if lawmakers are unable to reach a deal because the country hasn’t defaulted in modern times. Some of the consequences predicted around include:
- Soaring interest rates
- Investors questioning the value of U.S. Treasury securities
- Loss of AAA ratings
- A repeat financial crisis
Some top officials at the Treasury Department and Federal Reserve have said the consequences of failing to raise the $14.3 trillion debt limit by the Aug. 2 deadline would be catastrophic. Thousands of businesses would have to file for bankruptcy and hundreds of thousands more people would lose their jobs almost overnight.
The International Monetary Fund went further to say that failing to raise the ceiling would send “a severe shock to the economy and world financial markets.”
The true impact that a default could have remains to be seen. Those who could be severely impacted hope that we never have to see those consequences.
