Photo: Getty Images
AMES, Iowa -- Congress and the White House are days away from a deadline to reach agreement on raising the nation's debt ceiling.
"I think the cost of defaulting is extremely high, and I think most people agree that the cost is extremely high, and it's not temporary--it's a permanent cost in the U.S. economy. That's just not something that I think either political party ought to be thinking about," says Iowa State University economics professor Peter Orazem.
He says default means more than the federal government's inability to pay the financial commitments it's already made.
"The big ticket items are going to be things like Social Security, so you might get your Social Security payment at a later date. Also, and this is what most people are concerned about even more, is that it may cause a default on interest payments on the (national) debt," Orazem says.
He says that puts the nation's credit rating at risk.
"We get a lot of benefits from the fact that people want to hold U.S. dollars, because dollars are considered secure. If suddenly dollars aren't considered secure, then our cost of borrowing is going to go up. You're going to see a sudden surge in interest rates, and that could be--for all intents and purposes--permanent," Orazem says.
The U.S. Treasury Department says the Congress and the White House have until June 1st to raise the debt ceiling, or risk putting the nation in default--unable to pay for financial commitments that have already been made.
The U.S. has never before defaulted on those financial commitments.