Media Tip Sheet: U.S. Debt Crisis Impact

May 25, 2023

Joe Cordes

The U.S. may be roughly a week away from defaulting on its debt, but negotiations between House Republicans and the Biden administration remain deadlocked. A solution to the debt crisis will be brokered by elected officials who are motivated as much by politics as they are by policy. Even if the U.S. avoids an unprecedented default, this latest flirtation with fiscal disaster could have serious and wide-ranging consequences.

Joseph Cordes is a professor of economics, public policy and public administration, and international affairs at the George Washington University. Cordes is an economist who possesses decades of experience working with and for several federal agencies, including the U.S. Department of the Treasury and the Congressional Budget Office. Professor Cordes shared his thoughts about the possible effects of a U.S. default on the D.C. area, the nation, and the world.

How severe could the impact of a debt ceiling default be?

It could be quite severe, but the severity will depend on how long of a problem we have with this. Even a short period of time would be significant. [During the 2011 debt ceiling crisis] interest rates went up, the stock market went down for a bit, the economy didn’t grow as fast as it would have.

If we had a more protracted period this time, it would definitely affect the world economy because the dollar is so important. Both the dollar and the creditworthiness of the Treasury are linchpins of the current world economy.

How would a default affect the Washington, D.C. region?

The most direct effect would be if we had to suspend or delay payments for a while in order to have enough cash to avoid going into default. People who are counting on their paychecks now have to find other ways to pay the bills. So it would not have a particularly desirable effect on the D.C. area. That would be true even if we were not defaulting, if instead we are delaying payments in order to not default.

How does the current debt ceiling impasse compare to previous standoffs?

The last one we had was in 2011 and, looking back on it, that was relatively mild. The main difference is a political one, I think. The actors in 2011 were not as dug into their positions as they seem to be right now. So I would say this is more serious.

There are clearly deals to be made here, but each side has to be willing to give something. The decision to give, and what to give, is fundamentally a political decision, not necessarily an economic one.

To schedule an interview with Professor Cordes, please contact GW Media Relations at [email protected].