Debt Ceiling Negotiations Continue - How Could You Be Affected?
Thursday, July 14, 2011
Aired 7/14/11 on KPBS Midday Edition.
Debt ceiling negotiations continue -- but how will it affect us locally? It could mean those depending on government checks may have to wait.
Debt ceiling negotiations continue in Washington -- but how could this impact San Diegans? Those receiving federal government checks are concerned there could be a delay in getting their check if a debt deal isn't reached. Local seniors are worried they won't get their monthly social security check - and what about local businesses? There may also be consequences for U.S. bonds resulting in a trickle-down effect locally.
SDSU finance professor Dr. Dan Seiver tells Midday Edition there is concern an agreement won't be reached in time.
"Normally, we would assume that when a car gets next to the cliff, somebody is going to hit the brakes. But there are no guarantees. And we've got -- we're getting close enough now that I think the rest of the world and Americans have to consider this a possibility, that we won't get any kind of an agreement," said Seiver.
Paul Downey, the executive director and CEO of San Diego Senior Community Centers, says the low income clients they serve are fearful.
"I can't walk through any one of our facilities without being asked, well, are you going to evict me if I don't have the rent money at the first part of August? And we assure them that, no, we're not going to be evicting. If I can't make a contribution toward my meals that we provide, are you going to not feed me? They are worried. And also medication. That's a big one," said Downey.
Dr. Dan Seiver, Finance Professor, San Diego State University
Paul Downey, Executive Director, CEO, San Diego Senior Community Centers
ST. JOHN: The influence over rising the debt ceiling is all over the news. What does it mean for us at the local level? San Diego's largest school district is trying to write its ship after evidence of misuse of public funds. This is KPBS Midday Edition. Today is Thursday, Julyh, I'm Alison St. John in for Maureen Cavanaugh. It seems that's a new twist every day this week to the drama going on in Washington over whether to raise the debt limit. Many while, analysts are beginning to anxiously consider the implications if a deal is not struck and the debt limit is breached. What would it mean for you and me and our neighbors here in San Diego? We want to know what you think. 1-888-895-5727. And here with us today, we have doctor Dan Seiver, who is a finance professor at SDSU to explain some of the financial implications. Thanks so much for being with us.
SEIVER: Glad to be here.
ST. JOHN: And also we have Paul Downey who is executive director and CEO of the San Diego senior community centers, who's got a very specific concern about how it'll affect the community he serves.
DOWNEY: Good afternoon.
ST. JOHN: Hi Dan. Doctor seizer, let's just start with you. What is going on and why is it so crucial?
SEIVER: The United States has a triple A credit rating, and that allows us to borrow at relatively low rates from the world for a long time. And if we were to lose that credit rating, that triple A rating, it would actually hurt -- probably almost everybody in this country. And the damage would be significant because interest rates would be higher, and we're in hock to the rest of the world to the tune of trillions, and they would be less likely to lend funds to us, for the short or long run.
ST. JOHN: Put this in a historical context. This is not the first time, obviously. Is it worse?
SEIVER: I think it's worse because most of the political center seems to have disappeared. We have extremists on both ends. And the other thing is, we owe the world a lot more money than ever before. So the stakes are much higher than they used to be.
ST. JOHN: Let's get down to the brass tacks. I think a lot of people you watched on the television, you hear people talk about it, you don't know how it actually -- how could it actually affect us? What are the possible scenarios you could see here in San Diego?
SEIVER: The sun is still going to rise on the morning of August the. People are still going to go to work. It's not as if some black cloud is gonna descend on us. The effects are vital more subtle than that. But it wouldn't be unlikely if the increase in interest rates helped push the economy back into recession. And we've just recently recovered from a really horrible recession. And the last thing we want given that the economy is stuttering right now is to go back into recession. And something like this could tip us back in.
ST. JOHN: We'll talk more about the specific effects of that. Paul, I want to draw you in and ask you 'cause you are really concerned about this, aren't you? Talk about how it could affect your work.
DOWNEY: In the short term, we see at senior community centers about 1800 seniors through our doors a day, 90% of whom are at or below the federal poverty level, which means they're making about $11,000 a year, most of that Social Security. Right now, there is enormous fear and anxiety, particularly when you hear the president saying he can't guarantee that Social Security checks will go out on August. Whether that's a political posturing or whether that's real, we could probably debate. But from their perspective, it's real. They are concerned, and for someone who is worried about am I going to have enough money to pay my rent, to stay where I'm living, do I have enough money to buy the groceries, to pay for medicine or over the counter medications? When they're literally waiting for that check to arrive on the third of the month, what happens if the check doesn't get there, and what happens to organizations that have to try to step in and take care of them? It's real concern right now. And so I think when I talk to the seniors, they're pushing and saying, we gotta get this thing solved. Set the politics aside and get it solved. And end the fear.
ST. JOHN: The fear. I was going to ask you, what is the mood down at senior community centers? How are people taking this?
DOWNEY: Fearful. I can't walk through any one of our facilities without being asked, well, are you going to evict me if I don't have the rent money at the first part of August? And we assure them that, no, we're not going to be evicting. If I can't make a contribution toward my meals that we provide, are you going to not feed me? They are worried. And also medication. That's a big one. Where they may have a small co-pay or over the counter with, they don't have the money. Can I buy a bus pass? Am I essentially immobilized if I don't have the money? I think there's a -- there's probably a real issue as to whether it's gonna happen or not. But right now, the perception is that it's going to happen, and they're treating it as if it's a fact.
ST. JOHN: And these are questions that you are probably having a hard time answering. But is your organization taking any steps in case? To prepare for the worst?
DOWNEY: Yes, what we're doing, particularly with housing -- we operate 350†units of supportive housing. And we are assuring all of our residents that they're not going to be evicted, not going to have late fees if they don't have money to pay their rent. And from the food stamp point, we are making a commitment that we are continue to feed people regardless of whether they're able to contribute anything toward those meals. But we can't take care of the bus pass, and the medications, and some of the other things that they're worried about. And literally most of the folks we see, by the end of the month don't have any money in their pocket. So if that check doesn't come in, they continue with no money into August.
ST. JOHN: And you're not the only landlord.
DOWNEY: That's the concern. The concern is that our mission is to take care of low income seniors. But a for- profit landlord out there may not be so generous with forgiving late rent.
MAUREEN ST. JOHN: So doctor seizer, from the financial perspective, what are the chances that this thing won't pass? What's your take?
SEIVER: Normally, we would assume that when a car gets next to the cliff, somebody hey going to hit the brakes. But there are no guarantees. And we've got -- we're getting close enough now that I think the rest of the world and Americans have to consider this a possibility, that we won't get any kind of an agreement.
ST. JOHN: You really do?
SEIVER: I used to, well, sure we'll make a lot of noise and settle it. But it's getting awfully close.
ST. JOHN: 1-888-895-5727 is our number. Caesar is on the line from San Diego.
NEW SPEAKER: Thank you. With all due respect to the seniors out there, I'm a small business owner, and I'm deeply troubled because of two things, most of which -- those of us who own homes on adjustable rates, I have a conversation with a bank executive who assured me that my rate will go up substantially because it's tied to the government's ability to borrow money. And secondly, as a small business owner, they talk about increasing taxes and killing jobs, well, my line of credit -- I called my bank up, and my line of credit will either disappear or go beyond a price that I could continue to afford to borrow against because it's a line of credit that I use as a need it to upgrade the business. So the cost of funds would be so high that I won't be able to afford to borrow against it.
ST. JOHN: Caesar, thank you for bringing that up because doctor seizer did mention this briefly. Can you expand a bit on that about how this would affect interest rates and whether his concerns are justified?
SEIVER: Well, we borrow a huge amount of money every year. Much of our annual deficit is now being covered by foreign firms, foreign governments, lending us money.
ST. JOHN: China.
SEIVER: China in particular. China has trillions of dollars of foreign exchange reserves, most of it is in U.S. debt. And even the Chinese have said, the United States needs to be responsible here. But we're at the point where we're getting lectures from countries like China telling us we have to be responsible with our debt. And we borrow money for 30†years at 4.2% as of this morning. And I think given our fiscal irresponsibility, it probably is foolish to lend us money for 30†years at 4.2%.
ST. JOHN: Moodies is already talking about lowering the U.S. bond rating. Does this affect everybody who is saving for retirement?
SEIVER: If you're actually saving, it's not a bad thing because you're get a higher interest rate. It's all the people who are borrowing. People who want to buy houses and cars. People who needs to borrow.
ST. JOHN: Like cities and counties and the state?
SEIVER: Of course. If all of those interest rates go up, that will hurt everyone who wants to borrow. The retirees are trying to live off their interest. We're getting very little, they actually will get slightly higher interest.
ST. JOHN: Is the news already affecting the bond markets?
SEIVER: There's no sign of it yet. The bond market is still assuming everything is gonna be just fine.
ST. JOHN: The president would have some pretty tough decisions on which bills to pay without a debt deal. How much discretion would he actually have.
SEIVER: I don't know whether we've ever been in this situation before. My guess is that there isn't any guidance. And I think we should plan on actually resolving the crisis before the president starts deciding which bills to pay.
ST. JOHN: Tea party candidates have accused secretary treasurer Tim Geithner and the president of lying when they paint this grim scenario that you're now painting too. What are we to believe?
SEIVER: Well, I don't know. When somebody accuses me of lying, I really am not going to say oh, gee you've got a good argument.
ST. JOHN: You're not a politician are you? You're a professor of finance.
SEIVER: No, I'm not. My skin in this game is that I don't want to see bad things happen to this country. And I think this is playing politics with something that's very dangerous. It's playing with fire.
ST. JOHN: We have 240,000 veterans in this community. Would they be affected?
SEIVER: Well, again, if you're going to have a default and the president's gonna start deciding which bills to pay, no one knows which bills he would pay.
ST. JOHN: Joe is on the line from university city. Thanks for calling, Joe, go right ahead.
NEW SPEAKER: I just wanted to say that the August deadline to me seems a little bit arbitrary. And let me explain why. Back around May, Timothy Geithner said that the government would run out of money in June. Then he said tax revenues are coming in faster than we thought. Therefore I think it's August. Well, there's a long time between May and August, and there's a long time for tax revenues to either come up higher than estimated or lower than estimated. And so I guess the question or -- I ask myself, how did they land on August as a date? And I would postulate the reason they picked it is because August is because when Social Security checks go out. It could be August. But it's just as reasonable to assume that if tax revenues are coming in higher than expected that that date might actually be Augusth. Or September.
ST. JOHN: That's a good point. Do you think the fact that Social Security is the next day was part of the reason that that's the deadline?
SEIVER: That could be part. But I think the caller is missing one point that in order to get us past all the way up to August, federal government is essentially borrowing from the federal employees' thrift savings plan. My wife happens to be in that plan, so she did announce to me this summer that she and other federal employees are helping the government.
ST. JOHN: The date must be of such concern to the seniors you're working with.
DOWNEY: It absolutely is. I can't speak to whether it's a real date or not. But I think the issue here, and this is part of the frustration that I'm hearing from seniors, is this frustration that what the political games are being played, and that's the perception that they're playing games, playing politic, each side is painting themselves into a corner that they may not be able to get out of very easily, and in the meantime real Americans, whether it's seniors, whether it's veterans, whether it's the small business owner that we heard from a couple of minutes ago, are the people being impacted. And I think that's what -- even if they get this thing 1068 bide August, I think there's almost -- I think we should be ashamed of ourselves from a political perspective that our leaders cannot sit down on such a critically important issue and come up with a solution. We all know you gotta give a little bit and come up with something. But in the mean time real people are sitting and sweating right now as to what happens on August. And I find that unacceptable and something that as a nation -- I don't have a solution for it, but I find if unacceptable.
ST. JOHN: You're right on the front lines there on where the fear is manifesting. And in the meantime, they're basically negotiating for next year's election.
DOWNEY: Right and I think that's it. There's a feeling that there's a lot of posturing going on from all sides, from both sides.
ST. JOHN: But it is already having ripple effects, serious ripple effects right here in this community.
DOWNEY: Even if it gets solved at midnight on August, they there are ripple effects that are going to be felt, and frankly from an elected official's standpoint, Republican or Democrat, there's gonna be residual from this going into next year.
ST. JOHN: Paul downy, that's a very good point. We've come to the end of our segment. I'd like to thank you both very much for being with us. Paul downy is executive director CEO of the senior community centers.
DOWNEY: Thank you.
ST. JOHN: And doctor Dan seizer, finance professor from SDSU. We really appreciate your coming in.
SEIVER: Thanks happy to be here.