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Impact Of Defaulting On Federal Debt



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With less than 48 hours before the federal debt ceiling deadline is reached, the U.S. is dangerously close to defaulting on its debt.

"It ultimately comes down to politics," said Dr. Robert Wright, Nef Family Chair of Political Economy at Augustana.

The fate of the economy rests in the hands of two opposing parties, trying to negotiate towards raising the debt ceiling before it's too late.

"If the debt ceiling is not raised and the U.S. Government defaults, it could lead to catastrophic economic problems," said Dr. Wright.

Dr. Wright believes it would be unconstitutional to purposely default on federal debt.

"This will just be more evidence that Washington is dysfunctional, and that they just kick the can down the road rather than addressing the structural problems with the government, and with the economy," said Dr. Wright.

While raising the debt ceiling might not sound like much of a solution, Dr. Wright says the pros will outweigh the cons.

"It'll probably be good. It would probably help because it would relieve the uncertainty that many businesses and individuals are feeling," said Dr. Wright.

If the debt ceiling is not raised, local retailers and their shoppers could start to see negative effects.

"The value of the dollar on international markets would collapse," said Dr. Wright.

This means major corporations such as Walmart, or Target, would have to pay more for goods manufactured in foreign countries, and customers would be charged more.

However, raising the debt ceiling does come along with some long-term setbacks.

"The long term effect is that we would have to raise taxes in the future," said Dr. Wright.

Dr. Wright says lawmakers will have to decide between what is right for their party, and what is right for the American people.

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