Security patrols at the nation's borders could be dramatically reduced, airports and post offices shuttered, and interest rates on credit cards, mortgages, car payments and student loans may skyrocket. And Social Security checks for the elderly and disabled could stop.
In Connecticut, the financial services industry in Fairfield County and insurance industry in Hartford could collapse, creating a "catastrophic domino effect" that could ruin the state's top credit rating and send unemployment numbers soaring even higher.
Those are just some of the possible scenarios if President Obama and Congress fail to make a deal on the federal debt ceiling by the Aug. 2 deadline, say state officials and the Connecticut Congressional delegation.
U.S. Rep. Jim Himes, D-4th District, says Congress must find a way to avert a first-ever U.S. financial default, which would impact the global, national, state and local economies.
"Most people don't realize the kind of devastating impact this could have on them," Himes said in a telephone interview Wednesday from Washington, D.C.
"Since it's never happened before, who knows what the federal government would be able to pay for," Himes said. "But if we go past Aug. 2 without a deal, there is a real possibility of a credit rating downgrade in the United States, which is like a nuclear bomb going off in the financial system."
In Greenwich, three major areas could be impacted if the federal government does not reach a decision to raise the debt ceiling, according to Stephen Walko, chair of the town Board of Estimate & Taxation.
The most immediate effects would be on Medicaid and Medicare reimbursements to the towns nursing home, Nathaniel Witherell Rehabilitation and Nursing Center. The two payer sources constitute 75 percent of the centers total business, Executive Director Allen Brown said.
Also, if the stock market suffers a downturn, town pension funds would lose value. In turn, a greater contribution would be needed for the pension fund, at the cost of funding for operations or capital projects. Weve seen the effects of that just in the recession, said Walko. We contribute more to the pension fund, but were still being asked to provide the services.
Any income cuts as a result could lead to delays in paying taxes. You would then have a tax collection rate that would presumably decrease, which would cause shortfalls, said Walko.
If shortfalls occur across the board, Greenwich would have to determine its priorities. Is it to keep taxes at a moderate and predictable increases, or would it be to protect the programs and services at any cost? Walko asked hypothetically.
Himes insisted the crisis has been brought about by politics. The right wing of the Republican party has driven us to this in its anti-tax fervor, Himes said. With the state of our economy this would be the worst possible moment imaginable for the Unites States to default. Obama is supporting Senate Majority Leader Harry Reids plan that would trim $2.7 trillion of government spending over 10 years.
State officials say the crisis could cost the state more to borrow money. Ben Barnes, secretary of the state's Office of Policy and Management, said Connecticut could be hurt even if there is a deal avoiding default.
"Defaulting would be a disaster, but I am also deeply concerned about some of the deals being considered," Barnes said. "It could have a terrible impact on Connecticut if there are cuts to much needed upgrades in transportation, education and the environment."
Himes said he expects a deal to be worked out between the president and Congress as the two sides "work feverishly over the weekend."
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