5 Consequences If America Doesn’t Raise the Debt Ceiling

By Peter Gorenstein

PostsWebsiteBy Peter Gorenstein | Daily Ticker – Fri, Jul 22, 2011 12:15 PM ED

America's finances are a mess. The federal government spends too much, and the debt burden is too high.

These are givens, and they are the reasons for public outrage. However,
it doesn't mean the government shouldn't raise the debt ceiling.
Standard & Poor's warns there is a 50% chance it will lower the U.S.
government's AAA credit rating by one or more levels within three
months. S&P said yesterday that even if Congress raises the debt
limit in time to avert a default, it might lower the U.S. sovereign
rating. Meanwhile, only 55% of respondents in the latest Wall Street
Journal poll "say that failing to raise the debt ceiling would be a real
and serious problem."

Today's Daily Ticker guest David Walker -- the former Comptroller
General of the United States and head of the Government Accountability
Office -- says it's imperative both sides of the aisle find a compromise
that also sets conditions to lower our long-term debt and get us back
on track. If they don't, the rest of us will pay.

Here's what he says will happen if the federal government can't reach a deal:

1. $4 billion-plus a day will come out of the economy.

2. Government and civilian military workers will be laid off
temporarily. That will result in penalties for late payment, to be paid
by taxpayers.

3. Social security payments will be delayed.

4. No one knows how bad the reaction will be, but Walker is confident it will be negative for the stock and bond markets and the economy.

5. Interest rates will rise. For every 1% rise in interest rates,
taxpayers will be on the hook for an additional $150 billion in debt
payments.