Americans starting to fear a debt default’s effect

WASHINGTON — Politicians in Washington may be offering assurance that the government will figure out a way to avert default, but around the country, economic anxiety is rising and some people already are adjusting their routines.

Government beneficiaries, social service groups that receive state and federal subsidies and millions more across the country are contemplating the possibility of massive and immediate cuts if the U.S. were to default on its financial obligations.

Treasury Secretary Janet Yellen warned last week that a default would destroy jobs and businesses, and leave millions of families who rely on federal government payments to “likely go unpaid,” including Social Security beneficiaries, veterans and military families.

“A default could cause widespread suffering as Americans lose the income that they need to get by,” she said.

The number of people potentially affected is huge. According to the Census Bureau, in 2020 roughly 35% of U.S. households included someone receiving Social Security benefits, 36% received Medicaid benefits and more than 13% of the total population received food stamps.

A recent poll by The Associated Press-NORC Center for Public Affairs Research found that 66% of Americans said they’re very or extremely concerned about the impact on the U.S. economy if the debt limit is not raised and the government defaults, though only 21% said they’re following the debate closely.

Negotiations between the president and congressional leaders are down to the wire as they try to break an impasse. GOP lawmakers have been pressing for spending cuts in exchange for agreeing to increase the government’s borrowing authority, and President Joe Biden wanted a “clean” debt ceiling increase without conditions.

Without a deal, the U.S. could default as soon as June 1, according to Yellen.

Clare Higgins, executive director of Community Action Pioneer Valley in Massachusetts, said demand at the organization’s food banks has skyrocketed since the start of the pandemic, and is growing again.

With a possible debt default, she said, she’s seeing more demand for food from the three pantries that the organization either runs or financially supports.

“Yes, demand has gone up — but it was already up before,” she said.

“We’re already behind the eight-ball in what we’re able to pay teachers,” she said of the organization’s head start and early learning programs. “And the inflation that has happened in the economy has already reduced our ability to stretch the dollar.”

William Howell, a political science professor at the University of Chicago Harris School of Public Policy, said the notion of older people and recipients of government benefits doomsday prepping for disruptions every time budget season comes around is symptomatic of a “dysfunctional” democracy.

“It’s not how a healthy democracy handles its business,” he said, adding that the consequences of the brinksmanship will affect the government’s ability to function and plan in coming years.

“In this era of hyper-polarization, the way you get compromise is walking right up to the edge of economic catastrophe and threatening default — on the other side we have a president almost threatening to invoke the 14th Amendment to do away with the debt ceiling,” he said. “This is the stuff of partisan politics.”