The Debt Debate and You

Why has "default" been the dirtiest word in Washington's debt ceiling debate?

"Default is not an option."

It would be a first-of its kind financial event for the U.S., but Joe Magyer, Motley Fool Senior Analyst, offers this analogy --

"It would be like if you had a car, and you took all of the oil out of the engine. That would basically be the equivalent of what would happen to the financial system"

Economists project a default would hit the wallets, the bank accounts, the checkbooks of nearly every American.

Market turmoil could sink the value of 401k's and retirement investments, and the U.S. dollar too, potentially adding a premium to anything on store shelves that's imported.

There would be higher prices across the board, and it would be more difficult to get loans for individuals, for small businesses.

Mortgages would be virtually out of reach, slowing down an already-sluggish housing market.

There wouldn't be any liquidity. What that means for consumers is that interest rates would skyrocket, you wouldn't be able to borrow money.

Higher interest rates would make loans for everything from cars to college education more expensive.

That's going to add up over time and it's going to affect people's mortgage rates, it's going to effect their credit card rates, it's going to affect everything that they pay that's any kind of loan.

And the government would face tough decisions about who to pay with its cash flow, including checks for social security, and military pay.

All part of the worst-case scenario many hope to avoid.

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  • by Reagan Republican on Jul 14, 2011 at 11:01 AM
    Mal: The problem is the choices of the Federal Goverment to spend more money than it takes in every month. We have done it for so long that now the debt is not sustainable for the future and drastic cuts to the budget have to be implemented. Are you really defending the decisions and leadership of Pres. Obama over the last 2 1/2 years?? Get your head out of the sinking sand! We need to STOP spending money that we are borrowing. It is very simple and I am at a total loss as to why this can not be accomplished for the good of America.
  • by David Location: tallahassee on Jul 14, 2011 at 10:26 AM
    stop raising the debt level now: this out of control govt spending has got to stop balance the budget and cut expenses: we have to bite the bullet sometime or armageddon will be here sooner than later be responsible washington politicians
  • by Cat Location: Tallahassee on Jul 14, 2011 at 09:31 AM
    Default on our obligations is a red herring. More than enough tax money comes into the treasury every month to cover our debt obligation and social security payments with billions left over. If any interest payments are missed it is by Obama's choice, not necessity. Should retirees not get their social security check it is by Obama's choice, not necessity. The real problem here is to assure the reelection of Obama in 2012.
  • by tom Location: madison on Jul 14, 2011 at 08:31 AM
    Urban Meyer inherited a bad football team and identified weaknesses and made good changes and turned the team around. Jimbo inherited a bad team and made good changes and turned the team around. Obama inherited a bad economy and everything he has promised to fix it has actually not fixed anything and put us much farther in debt so he blames Bush. America needs a new coach.
  • by Franklin on Jul 14, 2011 at 08:06 AM
    We do not have to default. We can quit spending money on things that are not necessary and move that money to our loans. We ARE spending other peoples money, so just stop spending on whatever you were borrowing it for. Problem solved. The bigger problem is when our politicians (mostly democrats)gave away money that was designed for future annuities to those who paid into the Social Security system, in order to expand their voting base and thus, run our country into the ground.
  • by gaboy Location: ga on Jul 14, 2011 at 07:06 AM
    election time....the american people are not stupid like you think obam....scaring the american people will not work.....WE DO NOT NEED TO KEEP BORROWING MONEY....bring the troops home, patrol our borders..stop the illegal magration to this country.. send the illegals home so americans of all nationallities can go back to work...stop all the BS in more parties do what is right for this country and not whats right for wallstreet!!!!! quit sending any money to other countries....put that money to work here in this country.... give the american people money like yall been giving to afganhastan, pakistan etc. keep it here.... simple solutions to simple problems...cut out all these handouts force folks back to work...why work when you can get free money.....thats a no brainer
  • by Valerie Location: Daytona Beach, FL on Jul 14, 2011 at 06:59 AM
    This article is very frightening. Everything that anyone has aspired to have or be would be gone. The darkages would have returned. Very frightening indeed. What are we going to do?
  • by mal Location: Tallahassee on Jul 14, 2011 at 06:19 AM
    At the very base of this fiasco is Eric Cantor's ambition to replace John Boehner as Speaker of the House AND to have a TEA Party president replace President Obama. NOTHING could be worse for the United States! Cantor's views are somewhat to the right of Attila the Hun.
  • by Willam Jefferson Location: Quincy on Jul 14, 2011 at 05:55 AM
    Obam will save us. Obama is always right! why can't you just do what he says?
  • by Moishe Location: Tallahassee on Jul 14, 2011 at 04:56 AM
    Read the article. All of the problems that they list are already happening. The current economic situation hurts now. If you are lucky enough to have some savings check the interest rate. Bank loans are hard to get, if not impossible. Also, if we default on the loans it will be due to the fact that the government chooses to. The no social security check malarkey would only occur if the Treasury Department, on Obama's orders, decided not to send them.
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