Party Leaders Dismiss Rival Debt Plans as Debate Hits Home Stretch


07/25/2011 - As lawmakers and the White House struggle for a solution to a debt ceiling deadline, what do Americans have to fear if an agreement isn't reached in time? Gwen Ifill discusses the impact on Americans if a deal is not reached with IHS Global Insight's Nariman Behravesh and the Pew Center on the States' Kil Huh.

GWEN IFILL: So as Washington struggles for a solution, what might Americans have to fear if an agreement isn't reached in time? For that we're turned by -- joined by Nariman Behravesh, chief economist at IHS Global Insight, an economic and financial forecasting company, and Kil Huh, director of research at the Pew Center on the States. Nariman Behravesh, we are talking about consequences tonight. We seem to move a few steps forward, a few steps back. Which of the consequences do we keep hearing about are theoretical and which ones are real?

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KIL HUH: They are. What you have to remember is, if the federal government defaults, the safest government asset worldwide would get downgraded by the major credit agencies. And that is going to have a downstream affect. It could become much more difficult for states and localities to borrow. They might have a lack of access to the market or they might pay more in order to borrow in the long-term if a federal default takes place.
 
GWEN IFILL: When we hear ratings agencies threatening to -- or at least considering downgrading the federal debt, how does that affect the states?
 
KIL HUH: Well, you have to remember, states borrow for economically productive purposes, by and large. They are very different than the federal government. The federal government borrows to operate, to keep the lights on and the doors open.
 
But the federal -- but the state governments and the local governments borrow for financing of long-term projects like bridges and tunnels and infrastructure and things of that nature. Those projects are economically productive. They create jobs in the communities.
 
And if they have to postpone those projects because they can't access the credit markets in an affordable way or they can't access them at all, that's going to have a consequence for them.
 
GWEN IFILL: How tightly -- tightly is their ability to borrow tied to the federal ability to borrow?
 
KIL HUH: Well, as I mentioned, the federal government is -- the U.S. treasuries are the safest asset worldwide.
 
GWEN IFILL: Right.
 
KIL HUH: Fifteen other states out of the 50 have a AAA rating like the federal government, but Moody's, as well as other credit agencies, have said that they would put even the AAA-rated states under review if the federal government were to default and then subsequently get downgraded. There are states whose economies rely on federal spending and have a large concentration of federal facilities, employees and things of that nature. So it's going to have an impact.

Watch the PBS NewsHour video and read the full transcript.

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