What does a possible default in the debt ceiling mean in northeast Arkansas

Published: May. 17, 2023 at 5:50 PM CDT
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JONESBORO, Ark. (KAIT) - As the U.S. government deals with a deadline to increase its debt ceiling, economists in northeast Arkansas are worried that a possible default could have disastrous economic consequences.

The Treasury Department spends the maximum amount authorized under the ceiling. Congress must vote to suspend or raise the borrowing limit, but if they don’t come to an agreement by the deadline, we go into default, having major consequences.

Gary Latanich, a former economics professor at Arkansas State University, said the money wouldn’t be there anymore, which could kill jobs.

“If your jobs depend on government funding, you may be out of a job,” Latanich stated.

If the government does go into default, it means jobs are not the only thing taking a major hit.

“If you had an increase in your social security check, it may not come. If you are on a government program, like food stamps or agriculture support, in a sense that we won’t be able to fund those programs,” Latanich said.

In simple terms, a default would be Washington declaring it can no longer pay its debts, and if people start losing jobs, Latanich is concerned it could lead to a snowball effect around town.

“Since you don’t spend the money you would at the local store, they don’t have it. They lay off workers and, therefore, money they wouldn’t spend. One job lost would create three or four jobs down the road,” Latanich said.

According to Third Way, a default could cause the loss of three million jobs, add $130,000 to the cost of an average thirty-year mortgage, and raise interest rates enough to increase the national debt by $850 billion.