Voices of our Generation: The Danger of Default
by Thomas Grant | University of Notre Dame
In his address to the nation last Monday, President Obama jarringly referred to Congress as a “three-ring circus” as he discussed the importance of passing legislation to raise the debt ceiling. If you know me personally, you know that I don’t wholeheartedly agree with the President on a lot of matters, but in this case, I am more than happy to stand behind his analysis.
My frustration is preventing me from being particularly eloquent on this subject – and, I think, I’m perfectly justified in that regard. At the time this piece is published, we will be less than a week away from defaulting on our national debt. So-called ‘conservative’ and ‘tea-party’ freshmen Republicans in the House and Senate (and even a few veterans) have consistently refused to negotiate in efforts to raise the debt ceiling, claiming that we ought to stop the growth of the debt immediately and begin funneling as much of the budget as possible into paying off our debtors. They claim this is a ‘sober’ and ‘responsible’ plan when compared with allowing the debt to rise even farther.
When I read through or listen to these claims, my eyes invariably widen in shock. “Have they no conception of economics,” I ask? It’s as if they’ve never even bothered to read a blurb about world economics, let alone study the subject seriously as any responsible policymaker should. And the rest of the GOP and the Democrats deserve just as much blame. Though they don’t openly endorse such ridiculous ideas, their supercharged political agendas are preventing them from doing the job we elected them to do: pass legislation. As I will show, this legislation, the legislation that would increase the debt ceiling, is absolutely necessary – not something we can allow ourselves to screw around with.
To default on one’s debt, at the national or individual level, is to fail to meet one’s legal and/or contractual obligations in the repayment of that debt. It is a term that applies to anything from missing a payment to outright refusing to repay one’s debtor.
In any event, when an individual defaults on their debt, it adversely affects their credit score. That is, after the default occurs, any individual or organization that receives a request for credit from the defaulter will notice the default on their record and be hesitant to extend credit. To have a default on one’s record suggests that one is financially irresponsible, and any organization evaluating someone with a default on their record is going to view that person as a risk. To mitigate that risk, the organization will charge them a high interest rate on any credit extended, if credit is extended at all.
Now, some Republican leaders such as Michele Bachmann have aggressively argued that the debt ceiling should not be raised, allowing the country to default on its obligations – and then, they claim, we may begin repaying our debtors. And the rest of Congress, though they claim to understand the importance of raising the debt ceiling, consistently show their ignorance through the cavalier dismissal of this threat inherent in their inability to pass the legislation. I must ask – have the majority of our Congressmen and –women any idea of how credit works?
If the American government defaults on its debt, then international investors will no longer feel that owning a piece of the government’s debt is a safe investment. In fact, they will look to the default and see American government debt as a risky investment, one that demands higher interest rates if it is to be made at all. The dollar will become severely devalued on international markets, foreign investment will decline, and interest rates will skyrocket. In short, our domestic economy will suffer, and our strength in international markets will be shattered. Furthermore, those skyrocketing interest rates that default would bring will severely constrict any attempt to actually repay the debt.
Now, I am economically conservative, just as any good libertarian is. If we were to balance the federal budget and use the surplus to begin paying down the national debt, it would be music to my ears. But the idea of this nation defaulting on its debt scares me, just as it should scare any American. It would forever change the landscape of international economics, and likely remove us from any place of importance therein. We need to begin repaying our nation’s debt now, but allowing ourselves to default in order to do so cannot be an option.
Thomas Grant is a NextGen Journal Editor and a sophomore Philosophy major at the University of Notre Dame. His interests include experimental music, ancient and medieval philosophy, and Irish language.