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Though debt crisis could trigger 2nd recession, most Americans not worried

Published: Sun, June 26, 2011 @ 6:16 a.m.


It might be time for another midnight ride by Paul Revere, this time warning "the creditors are coming."

Americans seem not to have awakened to the fast-looming debt crisis that could summon a new recession, imperil their stock market investments and shatter faith in the world's most powerful economy. Those are among the implications, both sudden and long-lasting, expected to unfold if the U.S. defaults on debt payments for the first time in history.

Facing an August deadline for raising the country's borrowing limit or setting loose the consequences, politicians and economists are plenty alarmed. The people? Apparently not so much.

They're divided on whether to raise the limit, according to an Associated Press-GfK poll that found 41 percent opposed to the idea and 38 percent in favor.

People aren't exactly blase. A narrow majority in the poll expects an economic crisis to ensue if the U.S., maxed out on its borrowing capacity, starts missing interest payments to creditors. But even among that group, 37 percent say no dice to raising the limit.

(See: Europe debt crisis shadows Fed meeting on economy)

In Washington's humid air, talk of a financial apocalypse is thick.

There are warnings of "credit markets in a state of panic," as the House Budget Committee chairman, Rep. Paul Ryan, R-Wis., put it, causing a sudden drop-off in the country's ability to borrow and pushing the government off a "credit cliff."

He was characterizing a report by the government's nonpartisan Congressional Budget Office that warns of a "sudden fiscal crisis" in which investors might abandon U.S. bonds and force the government to pay steep interest rates and impose spending cuts and tax increases far more Draconian than if default were avoided.

The dire warnings appear to be falling on unconvinced ears, at least so far.

Call it doomsday fatigue.

(See: VWilliams overcomes Date-Krumm in 3-set thriller)

In recent times, Americans heard that things were going to go haywire with the turn of the millennium, and they didn't. They were primed for post-Sept. 11 terrorist plots that did not unfold.

They've seen Congress, a lumbering body that gets fleet of foot at the last minute, come to the brink time after time, only to pull something out of its hat. Recently, a partial government shutdown was averted in that manner.

To Robin Knight, 50-year-old teacher from Gilbert, Ariz., who's trying to stay informed on the debt crisis, Washington's tendency to cry wolf and stage histrionics on issues of the day isn't helping.

"It should be very easy to understand," she said, "but I think there are so many skewed views and time given to people screaming that it can be hard to follow."

As during the lead-up to the government shutdown that didn't happen, tortured negotiations are under way.

(See: Cigarettes will carry grisly new warning labels)

Republican leaders are insisting on huge spending cuts as a condition for raising the debt limit. This position finds solid support from Republicans in the poll and backing from a plurality of independents.

President Barack Obama is pushing for increased tax revenue to be part of the deal, and that insistence led House Republican leader Eric Cantor of Virginia to walk out of the negotiations this past week.

About half of Democrats in the poll said the debt limit should be raised regardless of whether it's paired with a deal to cut spending.

The survey found no significant differences by education, age, income, or even by party, in perceptions of whether a crisis is likely if the limit is not increased. There was widespread dissatisfaction with how Obama is dealing with the deficit - a new high of 63 percent disapproval on that subject - and an even harsher judgment of how both parties in Congress are doing on the issue.

A deal would permit the government to resume borrowing more than $100 billion a month to pay its bills. Paradoxically - or "perversely," as Federal Reserve Chairman Ben Bernanke put it - the absence of a deal would not stop the nation's debt from climbing.

Bernanke said the stain on U.S. creditworthiness would drive up deficits simply by saddling the country with higher interest rates on borrowing.

Deficit hawks at the Committee for a Responsible Federal Budget say a 1 percentage point jump in interest rates paid by Washington would increase deficits by $1.3 trillion through 2021, essentially adding a year's worth of red ink.

Although people in the poll betray plenty of concern about the debt, the prospect of a calamity-triggering default if the debt deadline is not met in August clearly is not dominating their calculations.

The AP-GfK poll, as do many surveys over time, points to a divide in how people see the country and their own lives. The poll was conducted June 16-20 by GfK Roper Public Affairs and Corporate Communications. It involved landline and cellphone interviews with 1,001 adults nationwide and had a margin of sampling error of plus or minus 4.1 percentage points.

Although 80 percent ranked the economy as poor, 63 percent also said the financial situation in their own household was good. Also, 70 percent predicted the economy will improve or stay about the same in the next year. A majority says it's a good time to put money into real estate.

Altogether, it's not unlike the bumper sticker sported on some cars when the world as we know it was supposed to end back in May: "After the Rapture, can I have your car?"


1piak(508 comments)posted 4 years, 10 months ago

Considering that we are in a recession at this very moment, what is meant by a "2nd recession"?

Raising the debt limit means we print more money not backed by specie. Those bills of currency we pull out of our wallets to pay for "stuff" are actually a promise that our Government stands behind that piece of paper. But in 1933 under FDR, we got taken off the Gold Standard. So nothing really backs it up.

The currency is "inflated". And that drops it's value. Ask yourself, "What can I buy for a dollar?" Outside of going to one of the newly opening Dollar stores in the valley, most other stores haven't anything for a buck. I remember buying a new car for $5500 dollars; today, that same car would be close to $30,000. And all the new bells and whistles on the new one would no way justify that high an absurd increase.

If we don't take RESPONSIBLE steps and do this soon, our money will likely be worth the same as Monopoly money, right out of the game box.

To say that people are not worried is maybe misreading things. My impression is they are worried, but the situation is not in their hands to solve. It would be interesting if today a plebescite were held and Americans had to vote on two questions. 1. Do we increase taxes and 2. do we go after entitlements?

The results would be interesting. They would bear on the whole concept what the budget must be.

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2Education_Voter(1112 comments)posted 4 years, 10 months ago

How about what the Democrats suggest?
Raise taxes somewhat on the highest tenth of earners.
Cut the militarism on credit. Start paying for the wars. It's been ten years.
Make cuts to Medicare, not social security.

To maintain that we should default on our bonds? Over what? Continued tax cuts for the wealthiest Americans?

If an individual wants to get out of debt, he doesn't only cut spending. He goes out and brings in more revenue through getting a second job or selling belongings.

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3InColumbiana(63 comments)posted 4 years, 10 months ago

@piak - if we raise the debt limit, we would not have to print as many dollars (we would borrow the amount from other countries instead). If we do NOT raise the debt limit, then printing money (and the associated inflation) is a bigger option, BUT the world economy would not take that well... especially countries like China who hold a large store of US dollars.

As it stands, if China were to start dumping their dollars, we'd see the same inflationary effect as if we gunned up the printing presses at home.

IF we default and employee pay rates do not adjust upward for the devalued dollar, it would be pretty bad for the American worker (the $500/week today would buy only $250 worth of fuel/food tomorrow). Essentially, it would put the US on the fast track to becoming a third world country... which in the long run (e.g. after homeless camp sites are the norm)... could cause manufacturing to return to the US.. think sweatshop $5/day type work...

Think of a default as the Republican way of turning us into the next China like labor market.

If you want to be safe, liquidate your 'cash' assets and move it into something that will hold value. I personally think gold is super inflated and would look at something else... something that would be sell-able and NEEDED by people who do not have much money to spare... maybe move it into corn futures?

If interest rates go up (and they usually do in inflation), real estate values will go down... ask any real estate agent about it.

I personally believe that if they don't want to raise the debt ceiling... they should

(a) start bringing the troops home this week and they should bring them home as fast as they can be transported. That is our biggest expense right now.

(b) immediately suspend ALL corporate tax loop holes and kill all special interest give-away programs... GE getting a rebate and oil companies getting 4 billion in corporate welfare is rediculous.

(c) put capital gains tax at 50% for investments held less than 2 years and inhertance tax at 50% on everything over 1 million.

--- oh, but the jobs, the jobs.... well, when people have NO disposable income and can't afford fuel to go to work, they're not going to be buying a whole lot of anything... if interest rates go up, they're not going to be financing anything... they'll all be defaulting on current debts... so a default will be a big job killer in and of itself... and the Republicans know that.

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