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Government default could raise interest rates

November 9, 1995
Web posted at: 9:35 p.m. EST

From Correspondent Wolf Blitzer and wire reports

WASHINGTON -- For the first time in U.S. history, the nation may not be able to borrow money to pay its bills if the stand-off continues between the Republican-led Congress and the president over the budget.

Although a government shutdown is nothing new -- it has happened nine times since 1981 -- never before has the fight over finances put the government in a position where it might have to default on repayments.

The Clinton administration warned that unless Congress increases the nation's $4.9 trillion debt ceiling, the government may be unable to pay back outstanding loans, including a $25 billion interest payment due November 15.

Economists reckon that the default, if it happens, will have long-term ramifications, including grave damage to the U.S.'s ability to raise money by selling bonds and increased interest rates.

"Ten to 15 years from now, we would pay more for money by virtue of having tainted our financial reputation," predicted Treasury secretary Robert Rubin.

Federal Reserve Chairman Alan Greenspan said a default should not be an issue at all in the deadlocked budget negotiations.

Chairman Alan Greenspan

While a possible default has many unforeseen implications, the procedure for a shut-down is more predictable. The current stop-gap spending bill expires at midnight on Monday, November 13, unless a new temporary appropriations bill is passed and signed into law by then.

The White House said around 800,000 federal workers will have to be temporarily laid off next Tuesday if the shutdown goes into effect. Certain essential personnel would stay on the job, including the military, FBI, air traffic controllers, border patrol officials, persons who oversee stock markets, commodities and futures exchanges and meat inspectors. They might go without pay, though, until the government resumed operations.

federal worker

Mail would not be affected by a temporary government closure, because the U.S. Postal service is a separate operation unaffected by the budget. Medicare and Social Security recipients would still get their checks, but no new claims for Social Security or Veterans benefits would be processed.

But there would be no visiting national parks, the White House or the Statue of Liberty, all of which would be closed to the public.

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