Congress and the White House are fast approaching the expected June 1 deadline to reach an agreement on the debt ceiling.
If the federal government fails to increase the United States’ borrowing limit, the country will no longer have the ability to pay its bills. The national debt has already surpassed $31 trillion.
“When we think about the things that impact the world and impact countries, we also have to think about how it impacts counties, and how it impacts us,” said Leonard Lane, a professor at the UC Irvine Paul Merage School of Business.
Orange County boasts the third-largest economy in California, with an economic output valued at around $221 billion in 2021. If OC were a nation, it would have the 49th-largest economy in the world.
Expert consensus is that nobody really knows what will happen, since the U.S. has never hit the debt ceiling.
“This would be a totally new world that we would be living in,” said Ed Coulson, an economics professor at UCI Merage. “Yes, the Orange County economy is huge and very vibrant. But, you know, it’s not going to be an easy time if this debt ceiling negotiation doesn’t get worked out.”
The impacts felt by Orange County and across the country will, for the most part, hinge on two things: whether or not the potential debt-limit breach is short-term or long-term, and how the Department of the Treasury chooses to prioritize payments, said Jeff Ball, president and CEO of the Orange County Business Council.
“Are there certain arbitrary spending decisions that can be withheld so that others that are deemed more pertinent can go forward? Or are they going to do across-the-board reductions? The answer to this is going to be entirely dependent on how long and then how the Treasury chooses to prioritize their payments,” Ball said.
Here are some ways Orange County residents could be affected:
Higher mortgage rates
One primary ramification of a debt-limit breach would be higher interest rates, Coulson said.
“We’ve been looking forward to a recession for quite a while now, as the Fed has on its own, increased interest rates. This would just add to those interest rate pressures,” he said.
And because the interest rate for every kind of borrowing will spike, mortgage rates will go up, Coulson said, directly affecting people who are looking to purchase a home, since the interest rate that they will have to take on will be higher.
The high borrowing costs would also affect people trying to purchase a car.
Cheaper gas
On the flip side, Orange County residents could see a drop in gas prices — as they did during the COVID-19 pandemic — as a potential recession looms.
“A similar mechanism was at work there, people didn’t drive as much so gas prices went down,” Coulson said. “You would normally expect a recession to deflate gas prices because less economic activity means less demand for travel. And so less demand for gasoline. And so lower gasoline.”
Payment delays
It’s up to the Treasury to pick and choose what things will get paid for from ongoing revenue and what things won’t, Coulson said.
“The case probably is that they will do their utmost to pay off the debt. And then comes other things. It could be that government salaries and Social Security payments are pushed back,” he said.
Federal tax refunds for late filers could also be at risk of being delayed.
To qualify for Social Security, one must be age 62 or older or have a disability. In Orange County, roughly 15.7% of the total population, or 495,000 residents, are age 65 or older, and according to data from the Orange County Strategic Plan for Aging, just under 10% of county residents have a disability.
“Any business that has revenue dependent upon federal sources of income could potentially see funding delays,” Ball said. “My anticipation is most of the basic services would likely have priority funding, but it remains to be seen.”
Program cuts
“I think you’re more likely to see them pull back on certain funding, for example, around infrastructure projects and other types of obligations that go directly to consumers,” Ball said.
One example is potential cuts to veteran spending. On June 1, the federal government is scheduled to pay $12 billion in military and civilian retirement benefits.
Orange County is home to one of the largest veteran populations in Southern California, and one OC lawmaker expressed his concern over cuts to veteran spending. Rep. Mike Levin, who represents Camp Pendleton in California’s 49th congressional district, said he is “deeply concerned” about how the debt crisis will impact veterans.
“If the Department of Veterans Affairs’ budget is cut by 22 percent, it would devastate the country’s ability to take care of our veterans,” he said. “We’d see funding for housing vouchers for up to 50,000 homeless veterans eliminated, 30 million fewer outpatient medical visits for veterans, and an increase in wait times for benefits like pensions and life insurance.”
Source: Orange County Register
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