What will happen if the debt ceiling isn't raised?

What would it mean for the average American?

It would not surprise me if [interest rates] went up 5 percent because this would be a serious violation of a premise that's been in the financial markets for a long, long time.

— Mac Clouse, professor of finance at the University of Denver. 2

If the debt ceiling isn't raised, nearly half of all government checks won't get paid. That means that people depending on those checks — including active-duty soldiers, veterans, federal workers, and citizens waiting for tax refunds — may be out of luck. 1

Credit card & auto loan interest rates would rise. Because the nation wouldn't have enough cash to pay its creditors, global financial ratings services would downgrade America's current top-notch AAA rating, which would likely translate to increased interest rates, higher fees, and market that makes credit harder to come by. 2

What about the long-term costs?

"If foreigners began curtailing their investment in Treasuries as a result of a default, Treasury rates, and thus Treasury's borrowing costs, would undoubtedly rise. A sustained 50 basis point increase in Treasury rates would eventually cost U.S. taxpayers an additional $75 billion each year."

— Matthew E. Zames, a managing director at JPMorgan Chase and the chairman of the Treasury Borrowing Advisory Committee 3.

It's difficult to predict the exact economic repercussions if debt ceiling isn't raised, but it's likely to end up costing the U.S. money in the long run.

Recently, Portugal voted against legislation that was necessary to avoid a European Union bail-out. The effect was similar — because it effected the country's credit rating, Portuguese borrowing costs skyrocketed. They will likely still have to pass similar legislation, and in the meantime it has cost Portuguese taxpayers about €15,710,000 — about 22 million U.S. dollars. 4

What about the rest of the world?

U.S. Federal Reserve chairman Ben Bernanke has stated that if U.S. became financially unreliable it "would throw shock waves through the entire global financial system." 5 Markets react to crisis situations in irrational and unpredictable ways, and because the U.S. is still central to the global financial system its effects would be felt globally.

What can I do?

It's not too late for Congress to find a compromise that doesn't end in default. If you're a U.S. citizen, use the information below to contact your representatives and let them know how you feel about the debt ceiling.

Contact your representatives

Let your elected representatives know that it's important to you to raise the debt ceiling.

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