‘It’s like a game of chicken’: UAH professors explain debt ceiling amidst deadline

WAFF 48's Matthew King reporting
Published: May. 22, 2023 at 6:26 PM CDT
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HUNTSVILLE, Ala. (WAFF) - University of Alabama in Huntsville professors Dr. Wafa Orman and Dr. Brinda Mahaligham say lawmakers have three options to handle the issue with the debt ceiling: raise the debt ceiling before the June 1 deadline, raise the debt ceiling after a potential government shutdown or default the nation’s debt.

“When they do not make enough tax revenue to pay the bills, then there’s an accumulation,” Dr. Mahalingham said. “Just like you and I, we borrow to pay off some of our debts.”

When the government reaches its maximum debt limit, lawmakers have to decide whether to increase the government’s debt limit or not. Dr. Wafa Orman said this practice is commonplace for a government.

“Private citizens or corporations, when we borrow money, we eventually expect to pay it off in full,” she said. “If you have a 30-year mortgage, you still expect to be done with it in thirty years. Because we expect governments to live forever, the government never actually pays its debt off in full. It’s always just rolling it over, and getting new debt.”

Dr. Orman said the debt ceiling negotiations are a ‘game of chicken’, with lawmakers needing to pull away before an economic disaster.

“There [are] people driving at each other at full speed,” she said. “The crash would be that they don’t reach an agreement, and we actually do default on our debt.”

She said in the past, the government has chosen to shut down and re-negotiate its debt ceiling, instead of defaulting. That would allow it to save and move some money around but at the cost of paying some federal workers and potentially losing government services.

If the government defaults, Dr. Mahaligham said it could lead to a recession or even a depression.

“Since it’s such a massive part of financial markets, the financial markets, in general, will collapse,” she said.

Both professors said it is unlikely for lawmakers to default on the debt. They said the most likely result is that a decision will be made before or after a government shutdown.

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