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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