Debt Ceiling: Default Could Hit GA Household Wealth, Benefits

GEORGIA — Hundreds of thousands of Georgia residents could see delays in Social Security and Veterans Administration benefits — and, if they’re soldiers or working federal jobs, their paychecks — if Congress fails to raise the nation’s borrowing limit of $31.381 trillion.

If President Joe Biden and congressional leaders of both parties are unable to come to an agreement in a high-stakes meeting this week, the government may run out of money to pay its bills as soon as June 1. It would be the first time in history the United States has defaulted on its debt.

Treasury Secretary Janet Yellen said on ABC’s “This Week” Sunday there are “no good options” for the United States to avoid economic “calamity” before the Treasury Department runs out of “extraordinary measures” it has been using to operate under the debt cap, which was reached on Jan. 19.

“Whether it’s defaulting on interest payments that are due on the debt or payments due to Social Security recipients or to Medicare providers, we simply would not have enough cash to meet all of our obligations,” she said. “And it’s widely agreed that financial and economic chaos would ensue.”

If Congress can’t come to an agreement, it doesn’t automatically mean government checks won’t be issued or that a loss of income would be permanent.

But for the 67 million Americans who receive Social Security benefits every month, any interruption can be painful.

In Georgia, about 1.9 million people depend on their Social Security benefits, according to 2022 data from the Social Security Administration.

About 5.2 million veterans and their survivors receive either pensions or benefits, according to the Veterans Affairs Administration.

In Georgia, there are about 72,000 of the nation’s estimated 2 million federal civilian employees, according to the U.S. Office of Personnel Management. About 1.4 million active-duty military personnel, including 69,391 from Georgia, could see their paychecks delayed.

And, the White House said anywhere between 200,000 to 8.3 million jobs could be lost depending on the length of a possible breach.

The Georgia Department of Labor in its latest report said the state’s unemployment rate of 3.1 percent entered its eighth month as of March. April’s unemployment rate has not yet been released.

Labor officials said jobs were up by 7,600 in March and up by 133,400 so far in 2023, an all-time high.

Democrats and Republicans are at loggerheads over whether the debt limit should even be the subject of negotiation. GOP lawmakers, led by House Speaker Kevin McCarthy of California, are demanding spending cuts, while Biden has said the threat of default shouldn’t be used as leverage in the budget cuts.

Raising the debt ceiling doesn’t authorize more spending. It only authorizes the federal government to pay for what Congress has already approved. Since 1960, the debt ceiling has been raised 49 times under Republican presidents and 29 times under Democratic presidents, according to the Treasury Department.

On Tuesday, Biden will meet with McCarthy, House Minority Leader Hakeem Jeffries (D-New York), Senate Majority Leader Chuck Schumer (D-New York) and Senate Minority Leader Mitch McConnell (R-Kentucky). It will mark the first substantive talks between Biden and McCarthy in months.

House Republicans passed the Limit, Save, Grow Act of 2023, in what U.S. Rep. Rick W. Allen, a Georgia Republican, said would be the solution to raise the debt ceiling into 2024 without defaulting on national debt.

"This administration and Washington Democrats’ excessive spending spree has increased our national debt to unsustainable levels, and we owe it to the American people to act immediately. Today’s passage of the Limit, Save, Grow Act shows the American people that House Republicans are working to avoid a default on our debt while President Biden continues to do nothing," Allen said in a May 1 statement.

“Our sensible approach would rein in reckless federal spending that has caused inflation to skyrocket, save taxpayers nearly five trillion dollars over the next ten years, and strengthen the U.S. economy and workforce. While President Biden remains on the sidelines—despite Members of his own party encouraging him to return to the negotiating table—House Republicans are hard at work on behalf of the American people. Our national debt is one of the greatest threats facing future generations, and I thank Speaker McCarthy for bringing a fiscally responsible bill to the House floor that addresses the root of the problem: Democrats’ wasteful spending.”

In a letter to McCarthy last week, Yellen warned that failure to increase the debt limit “would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.”

Analysts have also warned if the government doesn’t approve more borrowing, Americans would take a direct hit in their investment portfolios. Even if it is resolved, a few weeks of impasse would mean stocks could lose about a third of their value, which would wipe out about $12 trillion in household wealth, according to Moody’s Analytics.

Treasury yields, mortgage rate, and other consumer and corporate borrowing rates would spike, at least until the debt limit is resolved and Treasury payments resume, according to Moody’s.

“Even then, rates would not fall back to where they were previously,” Moody’s said in a report when the debt limit was reached in January. “Since Treasury securities no longer would be perceived as risk-free by global inventors, future generations of Americans would pay a steep economic price.”

The Associated Press contributed reporting.