MARYVILLE, Tenn. (WATE) — A possible federal shutdown is looming, which could impact not only certain federal employees but also most Americans, according to an assistant professor at Maryville College.
On Monday, senators couldn’t agree on a bill that would have funded the government and raised the debt ceiling. Reeves Johnson teaches macroeconomics. He said not raising the debt ceiling is the bigger issue.
He said the U.S. has never not raised the debt ceiling, which would lead to the government defaulting on it’s loans. Johnson said if the government can’t pay back its debts, there would be a huge ripple effect.
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“The federal government, when it spends, it either issues debt or it uses tax money, essentially,” Johnson said.
If Congress does not raise the debt ceiling, then the federal government would have to find other ways to fund costs while also paying past debts.
Johnson said with the pandemic requiring more spending and fewer taxes going to the federal government, our country’s debt has increased significantly.
“(The government) would have to use money that is raised from taxes. It has it’s own account where it keeps that money. And that money is obviously finite and it could dwindle down to possibly zero,” Johnson said.
He said never in history has the U.S. defaulted on its debts via not raising the debt ceiling. He also pointed out that there are only two countries in the world that have a debt ceiling – United States and Denmark.
“It’s kind of unfathomable to think that the government wouldn’t pay you back, and that’s this risk that we’re apparently facing,” Johnson said.
Johnson said if Congress doesn’t raise the debt ceiling, then just about any American with a loan could be impacted.
“Those interest rates would go up on the government’s debt, but with that, also interest rates on mortgages because they’re very closely related to the interest rates on government debt; the interest rates on car loans,” Johnson said.
He said it could also negatively impact retirement savings. In addition, he said global stock investors would most likely sell their stocks and buy back into their own country’s currency.
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“Because now, the U.S. dollar is worth less than before. It’s no longer deemed to be the world reserve currency,” Johnson said.
Johnson noted this was a political fight, but he believes Congress will somehow resolve the issue before the government’s fiscal year ends at midnight Thursday, Sept. 30.
