- By Natalie Sherman
- Business Reporter, New York
May 20, 2023 at 5:45 am BST
image source, Getty Images
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The idea of default is almost unimaginable
The US is faced with dire warnings that a political deadlock over the debt ceiling could unleash unprecedented economic chaos. But few in the country, where nearly half the population depends on government funds to make ends meet, are making backup plans.
At the base of a tower near the Brooklyn Bridge, half a dozen white-haired men and women gathered for their monthly book club.
Members who count on monthly payments from Social Security, America’s retiree program, are concerned about what might happen if President Joe Biden and Republican leader Kevin McCarthy cannot reach an agreement before the US runs out of money to pay its bills .
Authorities have warned that the moment could come in less than two weeks.
But when asked if they had any precautions in case the US state bankruptcies hit and their Social Security benefits didn’t arrive, the seniors seated around the plastic table gave a sea of blank stares.
“That’s never going to happen,” declared 82-year-old Norman Manning. “It would be disastrous.”
Mr Manning isn’t the only one betting on a deal going through that will allow the US to borrow money.
Financial markets also appear broadly optimistic, despite some signs of concern from investors, including a slowdown in demand for some types of US debt.
Even after the top Republican negotiator walked out of a closed meeting with White House officials during talks to avoid a default, shares only fell.
But Ian Bremmer, president of policy consulting firm Eurasia Group, warned that even if both sides can agree to a deal, it will likely require significant argument before Republicans in Congress vote for it — which could push the US into risky territory.
“This is going to get worse before it’s fixed,” he said.
Without an agreement, the White House warned that if the government defaulted, there would be significant disruptions to government functions and the pay of retirees, government employees and military personnel. The financial markets are expected to go haywire.
Analysts believe this could trigger an economic downturn on the scale of the 2008 financial crisis, when millions of people lost their jobs and trillions of dollars in wealth were wiped out in financial markets.
A recent Ipsos/Reuters poll found that three out of four Americans fear the personal financial consequences of such an event.
Barring dire predictions, no one knows exactly what would happen if a default were to occur — and neither are government agencies giving much guidance as to whether or how they are preparing for it.
Asked whether the Social Security Administration had alerted the more than 60 million people who receive Social Security benefits to the risks, she referred the questions to the Treasury Department. The Treasury Department did not respond to a request for comment. So is the Department of Health and Human Services, which administers food grants for the poor and other programs.
Unions representing government employees said their members had not received guidance on what employees should expect.
“I don’t think the government itself knows exactly what would happen,” said Daniel Horowitz, associate legislative director of the American Federation of Government Employees, which represents 750,000 federal and DC government employees. “At the moment the Titanic is on its way to becoming an iceberg.”
Max Richtman, president and chief executive of the National Committee to Safeguard Social Security and Health Insurance, said he was not surprised that the government did not want to unnecessarily worry seniors when an agreement to raise the debt ceiling was a foregone conclusion.
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Arzu Deiker says she worries about what might happen to her if the government defaults
But his organization is still trying to educate its millions of members and supporters about the potential risks.
“What we’re telling our members is to save some money and have a cushion in case something doesn’t work out over the next few weeks,” he said.
Robin Warshay, one of the book club’s members, said if her Social Security payment doesn’t come in on time, she’d have to fall back on savings. But she said she was “hopefully optimistic”.
“If they want to be re-elected, they had better reconcile,” she said.
Analysts warn that even a deal, depending on what it includes, could pose economic problems.
Republicans are calling for tough spending restrictions and changes to some benefit programs.
While Mr. Biden has rejected many of their proposals, he has also laid the groundwork for a compromise, saying, “We will come together because there is no alternative.”
Arzu Deiker, a home care worker in New York who receives government assistance to buy groceries for herself and her three children, said she was concerned about the threat to that assistance — whether it be in the form of a default or a deal.
“I’m scared,” said the 29-year-old. “It would touch me very much.”
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