Senate announces tentaive debt-ceiling deal

October 16, 2013

So what would happen if lawmakers were to remain at an impasse through a debt ceiling deadline?

Both lawmakers and the White House said the impact of a U.S. government debt default was unthinkable. What might have happened? And is this a crisis averted or a crisis merely delayed?

Like a car running on fumes, a lack of government borrowing authority would have put the engine of the country's economic recovery on borrowed time.

"I think it would have been a crisis in the true sense of the word. The economy would have been more severely damaged because of it," said Professor David Merriman of University of Illinois-Chicago.

Failing to raise the debt ceiling would have left the government with 70 cents for every dollar needed for mandated spending.

The Bipartisan Policy Center, which studied potential impacts, says starting in November, social security and Medicare and Medicaid payments could have been delayed for days or weeks.

"I have to eat, I have to pay my rent. It would be a disaster. I have no other way of getting money, I'm too old to work," said Edna Madlock, a social security recipient.

Investment Banker Martin Cabrera says Treasury bill rates likely would've spiked almost immediately impacting mortgage rates and making it more expensive to buy a home or refinance.

"That's going to take more money out of your pocket, but also you're not going to be able to help the rest of the economy grow by making other purchases," said Martin Cabrera, Jr. of Cabrera Capital Markets.

Congress and the White House appear headed for a resolution, merely moving the goal posts.

"It doesn't cause clarification for the markets, so the markets will continue to be in limb, anticipating that we're going to have to go through this all over again come January," said Cabrera.

Stocks today soared on news of a potential deal. But observers say that even the market, which has been on a tear for the last several months, could take a hit at some point if this government dysfunction continues. It's hard to see any winners in all of this.

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