By NEMS Daily Journal
Congressional leaders and President Barack Obama are currently involved in negotiations on a budget deal that would allow for the nation’s debt ceiling to be raised by an Aug. 2 deadline. Otherwise, the U.S. could default on its debt obligations. Daily Journal Editorial Page Editor Joe Rutherford asked Mississippi Banking Commissioner John S. Allison about what such a default would mean to the state.
Q. What is a default?
A. I think in the simplest terms default is defined as a failure to perform a task or fulfill an obligation, especially failure to meet a financial obligation. Therefore, supposedly on Aug. 2 the federal government will default, because of lack of revenue, on its debts, i.e., Treasury Notes, Bills, Bonds, etc., which are some of the main sources that the government generates funds.
Each month the government ascertains its revenue (from the aforementioned bonds, etc. as well as received taxes and fees) in order to pay its obligations. These instruments or obligations, as one could imagine, have different due dates. Some are due within days and some extended several years. The default could occur in at least two ways, 1) some of the bonds, etc., have interest only due and a nonpayment of the interest could result in a default causing the entire amount to be due and 2) the entire bond is due causing a default. Also, the other “debts,” such as obligations to pay social security benefits, for example, could be in default when there is not sufficient revenue.
Q. Who would be most impacted?
A. I would think everyone would be impacted to some extent. However, the most impacted would be the ones that are more dependent on government-type assistance (Social Security, Medicare, VA hospitals to name a few).
Q. What would happen in Mississippi in case of a federal default?
A. Mississippi would see a tremendous cut in funds coming from Washington. Funds used to support food stamps, Medicaid and highways, here again naming a few situations. Mississippi would be faced with the dilemma of how to continue such programs. Would Mississippi raise taxes, fees or issue more bonds to support programs traditionally funded by funds that are supplied by the federal government? This could only create further hardships on Mississippi and its citizens.