U.S. debt default would make big impact on local economy

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(ABC 6 News) – As the United States quickly approaches the June 1 deadline to strike a deal on the debt limit, finance officials are warning the President and congressional leaders that time is running out.

Negotiations are ongoing between President Biden and House Speaker Kevin McCarthy and, as of Tuesday, there are signs of progress. Meanwhile, the President says he plans to cut his upcoming meetings with G7 leaders short so he can be back in time for any final negotiations.

Republicans want to see spending cuts in exchange for agreeing to lifting the debt limit – targeting federal food stamps and Medicaid programs. But democrats are calling that proposal “a non-starter.” And as the American, and possibly the global economy hangs in the balance, what would a default mean for our local economy?

These closed-door conversations in Washington can feel really far away, but if lawmakers don’t raise the debt ceiling, It’s the working people and the people living paycheck to paycheck that will suffer the most, according to economic experts.

“It looks like a bad situation this time,” said Dennis Lawler, economics professor at Rochester Community and Technical College.

Local exerts are saying the impact could be catastrophic.

The U.S. has never defaulted on its debt before, and a default now could send shockwaves through the global economy – potentially lowering the value of the American dollar.

According to Lawler, similar to a credit card, banks and other foreign economies would view the U.S. as having bad credit.

“If we’re not seen as reliable anymore, people will not want to bring their money into the United States and will instead take it out,” Lawler said.

This would trickle down all the way to Southeast Minnesota because businesses, large and small, will have to pay more to get loans. That means businesses have less money, which means firing more workers.

Lawler estimates if we default June 1, there would be widespread layoffs by the middle of the month.

“We’d all be poorer. That’s the point of this…the danger of the default.”

Federal Assistance such as unemployment, SNAP and Social Security would be delayed or cut off. And local federal employees could miss out on paychecks. That’s everyone from U.S. Customs and Border Patrol at the Rochester International Airport, to the Federal Medical Center.