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So if the debt limit doesn't get raised, won't the interest rate we pay go up and increase our debt anyway?

And how is it better to pay higher interest? Won't that only limit our options further?

10 Answers

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  • 1 decade ago
    Favorite Answer

    If the debt ceiling is not raised then the US is in default. Moody's will reduce our credit rating from AAA, making us a bad credit risk and devaluing our currency. As a result, the US will not only have to pay more (higher interest rates) to borrow, but also the interest on our existing debt will increase dramatically. Not to mention that other countries would pull their money out of the US. It's not a pretty picture and will throw us into deep recession very quickly. Portugal is going through this situation now, having had their Moody's rating reduced twice within the past 2-3 months.

  • 1 decade ago

    Yes, but interest rates going up quickly will be just 1 of the problems. Borrowing would effectively come to a stop, except for outlandishly high rates. Most home mortgages are currently insured by the government. That would stop the ability for people to buy new houses or refinance, and the struggling housing market would collapse much further. Those with variable rate mortgages would see their mortgages zoom up to the legal maximum. And, that's just 1 aspect of not raising the debt limit.

  • Anonymous
    1 decade ago

    If interest rates are raised, it will drive down the price of bonds in the secondary market, but will have absolutely no effect on debt already in the hands of creditors. When government bonds are sold, they are sold at fixed interest rates.

  • ?
    Lv 6
    1 decade ago

    The interest rate is based on our credit rating, not our debt level. Our credit rating is determined by our quantity of debt and our ability to pay it back, so actually, a higher debt ceiling gives us the potential to take on more debt--which we have a history of doing--and will in turn hurt our credit rating.

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  • ?
    Lv 7
    1 decade ago

    The debt and deficit were lowered by the agreed budget - I can't imagine why they would have to raise it, except maybe short term.

  • Anonymous
    1 decade ago

    If the debt limit is not increased, the federal government will have to prioritize to live within the existing cap. In my opinion, this would be a good thing.

  • ?
    Lv 7
    1 decade ago

    Our money will be further devalued. The US dollar will not longer be used as a standard world currency. It is going to be another country's soon.

  • Anonymous
    1 decade ago

    If it isnt raised it will be like a nuclear bomb going off in the economy.

  • Anonymous
    1 decade ago

    Yes. Therefore its a game of chicken.

  • 1 decade ago

    Yes. Trust in the US govt will crash.

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