By Robert Freedman, senior editor, REALTOR® Magazine
The upcoming vote in Congress to increase the federal debt ceiling is one of those procedural matters that takes on a new importance in this age of high budget deficits. Ordinarily, members of Congress would vote to increase the debt ceiling without too much controversy, which isn’t to say lawmakers enjoy casting their votes. No one likes to increase the amount of money the United States can borrow. But in the previous hundred or so votes since the early 1900s, when Congress first raised the debt ceiling, the votes were painful but necessary on a bipartisan basis. This time, however, some lawmakers are saying they won’t vote to raise the debt ceiling.
Sen. Mark Kirk (R-Ill.), for example, told reporters this past weekend that he was keeping his options open to see what budget cuts would be made part of the deal. “I will vote no on that debt ceiling unless we have comprehensive, dramatic, effective, and broad-based cuts to federal spending,” he told reporters. His quote was included in The April 25 Washington Post.
Whatever your view on the federal budget deficit and the procedural tactic of attaching budget cuts to the debt ceiling vote (it has in years past been a clean vote with no cuts attached to), analysts and lawmakers agree that the impact of failing to increase the debt ceiling will be unprecedented, on the economy and particularly on real estate, which is so interest-rate sensitive.
That’s because failure to increase the ceiling will send the global economy into turmoil: for the first time, the United States will default on its bonds. “Once we default, then the United States is no longer the safe haven for cash anywhere in the world,” says NAR Tax Counsel Linda Goold. For it to attract investment to finance its debt in this new world order, the federal government will have to raise interest rates, possibly dramatically. That will hurt home ownership. But, more importantly, the ability of the United States to resume its position as the world’s financial safe-haven will be compromised, maybe for good.
Against this background the upcoming vote on the debt ceiling becomes crucial for real estate, even though the vote itself has nothing to do with real estate and REALTORS® in the past have not lobbied on the matter. The U.S. Treasury Department estimates we have about two weeks before we hit the debt ceiling, After that, the government can make administrative changes to keep the government solvent until about the first week of July. So, ideally, Congress will act to let the government take on more debt in the next two weeks or so, before the situation becomes dire.
You can learn more about the matter in the video above with NAR Tax Counsel Linda Goold.
