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As negotiations continue on whether and how to raise the debt ceiling, it is important to keep in mind housing market impacts that could occur due to the some of the possible outcomes being discussed in Washington. Under the present law debt ceiling, the federal government may not borrow more than $14.3 trillion. The effect of this limit is that on August 2 the federal government won't be able to pay all its obligations with cash-on-hand and incoming tax receipts. For example, to run even with current tax receipts would require a 40 percent cut in current government expenditures. Most analysts expect the debt ceiling to be increased under a plan that cuts a significant amount of government spending. Negotiations are occurring today that revolve around rival plans championed by Speaker of the House John Boehner and Senate Majority Leader Harry Reid. But what impacts could the housing market experience if these negotiations fail to produce legislation that lifts the debt ceiling? Most experts believe the government would continue to pay interest/principal on outstanding debt first, followed by expenditures like social security payments. Last in line would be certain discretionary government payments, perhaps including wages of federal employees. The loss of these payments would certainly have a significant short-term contractionary impact on the economy. This kind of anti-stimulus would be particularly harmful at this moment. |
