Tri-State economist reacts to US reaching national debt limit

Evansville, Ind. (WFIE) – As the national debt reached its ceiling Thursday, lawmakers continued to tussle over the national budget as a high-stakes fight has some worried the U.S. could default on its debt for the first time in history.

[READ MORE: US Treasury buys time for Biden and GOP on debt limit deal]

As the national debt hits its $31.7 trillion ceiling, US Treasury Secretary Janet Yellen issued a letter to Congress saying that the measures being taken to keep the nation financially stable will only be effective until June 5.

Matt Finn, chief economist at Old National Bank, says that may be a conservative assumption.

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“Realistic estimates suggest it will probably be mid-August,” Finn said.

Regardless of when the situation gets really dire, the clock is ticking to move the debt ceiling. Congress is in crisis, says Finn.

“We have two things here, we’ve got the debt ceiling and we’ve got the budget,” Finn said.

Republicans, who have a slim majority in the House of Representatives, are refusing to raise the debt ceiling unless Democrats agree to cuts in the national budget. Democrats are refusing to do that.

If the ceiling holds firm over the summer, the United States could default for the first time in history.

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“Disaster is a very strong word, but it can potentially mean one time that eventually has to be resolved, but at least one time if you have a government bond, you might not pay,” Finn said. “It cannot be redeemed in time.”

This means general instability for the entire economy of the nation.

Finn says it’s important to keep some perspective. These talks come at a more volatile time than in the past, but these talks happen every few years.

“It happens every few years, and we get through it,” Finn said. “But sometimes brinkmanship is worse than others. It’s a little bit more unusual before we start that election cycle in 2024.

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Most of the problems that can arise from default affect investments and broader financial institutions, says Finn.

To keep government operations funded over the summer, the US Treasury Department did a few things.

Officials will begin selling existing investments and they will stop reinvesting in civil servant retirement and disability funds, as well as post office retirement funds.

It does not affect federal employee retirement funds because the funds must be reinvested after the debt issue is resolved.

Until then it is now in the hands of legislators.


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