Failure to meet the national debt ceiling would be catastrophic for small businesses

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Here we go again. It seems that whenever this problem arises, lawmakers seem intent on putting the U.S. economy and small businesses at risk.

Sadly, U.S. Treasury Secretary Janet Yellen said the federal government would be cash-strapped on October 18 if the debt ceiling was not raised. The government reached its debt limit at the end of July and the Treasury took steps to avoid default. If the debt ceiling is not raised in the coming weeks, the United States will default on its debt for the first time in its history and it will be catastrophic for small businesses.

There is no doubt that our national debt must be addressed in the years to come with a mixture of income increases and spending cuts, as the Clinton administration did in the 1990s. However, to default on debt is not the answer. This will not be a good time to learn about government spending. Instead, it will have unnecessary and irreversible consequences for almost all Americans. A Navigator survey also found that 58% of Americans are in favor of raising the debt ceiling. Unfortunately, it has become a political issue. Just days ago, Senate Minority Leader McConnell prevented Democrats from using a simple majority to achieve this.

Why? Republicans may want to use this as a campaign problem against Democrats this fall trying to pretend they are increasing the national debt. But, the real story is that the national debt has gone up, no matter which party is in control. There will be a time when Republicans are in the driver’s seat and need to raise the debt limit, and hopefully Democrats get beyond politics because playing “chicken” with the debt limit is not an issue. good policy, not good for small businesses, not good for our national security, and not good for the economy. In fact, an analysis by Moody’s Analytics chief economist Mark Zandi estimates that a default on the national debt would kill up to 6 million jobs and wipe out $ 15 trillion in household wealth.

“We cannot stress enough how dire it would be for Congress to consider a government shutdown if consensus cannot be reached before the funding deadline. Small businesses are particularly vulnerable and many would not survive a government shutdown at this time due to the pandemic, especially with the rapid spread of the Delta variant, and trying to move from crisis to recovery, ”he said. writes Candace Waterman, President and CEO of Women. Impacting Public Policy, in a letter to leaders of the United States House and Senate.

Here are five ways defaulting on the national debt would hurt the country’s main streets.

1. More expensive small business loans

A majority of rating agencies give the US federal government an AAA rating, the highest level. A default would lead to an automatic downgrade in the country’s credit rating, pushing up interest rates for all Americans. Small business loans will become more expensive as private lenders are forced to raise their interest rates. Even loans guaranteed by the Small Business Administration (SBA), which are often less expensive and more accessible but still reflect market conditions, will become more expensive.

2. Higher interest rates on credit cards

Many small business owners use their personal credit cards to cover business expenses and manage debt. As with loan rates, interest rates on small business credit cards and personal credit cards will also rise, reducing the amount of capital small business owners have to work with and potentially causing them to go into debt. any further.

3. Tense credit markets

You can look at the stories of Argentina and Greece to see what happens to a country’s credit markets when it defaults on its debt. The same will be true of the United States if they follow suit. Credit markets will tighten and U.S. banks will prioritize lending to companies they have pre-existing relationships with, which are more likely to be larger than small ones. Small businesses, especially unbanked ones and those in underserved communities, would be severely disadvantaged when they have the least financial cushion.

4. Stock market plunge

The Moody’s report estimates that stock prices would likely fall by a third, causing a $ 15 trillion loss in household wealth. It would be a blow to small business owners who would see their own retirement savings dissipate and then lose customers of consumers who now have to deal with their lost nest egg. In turn, large SOEs could lose value, making it more difficult to integrate small businesses into the supply chain of their suppliers.

5. Deferred payments from the Consolidated Revenue Fund

The Treasury Department has taken steps to meet its obligations, including payments to households such as Social Security. If the United States defaults on its debt, the government should immediately stop more than 40% of expected payments, including Social Security and other household income. This would have a number of downstream effects on small businesses, including losing customers and putting pressure on business owners and employees who are now taking steps to make ends meet for themselves and their loved ones.

The American economy and its main streets are going through their biggest crisis since World War II. The two are still standing, but a default on the national debt would be a fatal blow. Let’s stop playing politics and raise the debt ceiling. Once that is done, we can get back to the important work of pushing through an infrastructure bill that can pave the way for the next generation of American small businesses and entrepreneurs.

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