Default would have major impact on Americans

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Default would have major impact on Americans

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Across the United States, local politicians are braced for the effects of a possible default by the federal government if there is no deal on the budget.

It would lead to higher interest rates and as a result states, cities and towns would have to shell out more on the money they borrow.

Credit cards are also linked to the interest rate set by the US central bank, the Federal Reserve, so using a credit card could cost consumers more.

Unable to borrow money the US government would not be able to pay soldiers’ wages. Also unpaid would be pensions, and health care programmes for the elderly and poorer Americans.

So could it trigger the kind of financial meltdown we saw in 2008?

Analyst Robert Hoew of Geomatrix does not believe so: “I don’t think people will think that it is going to be a cascade like Lehman Brothers. But, it certainly does worry the markets. In Asia there is a feeling of this as sort of a confirmation that it’s a turn from an American decade to an Asian decade.”

With no national health system in the US, the elderly and poor Americans are treated at so-called non-profit hospitals that are reimbursed by the federal government. Without a budget deal they may not get paid.

Those in higher education could also suffer if the crisis is long lasting as it would push up the cost of federal student loans.

With the White House warning of “catastrophic” consequences if a deal is not reached, all eyes are on the US Congress.