Many In Mass. Worry About Debt Default Ripple Effects

President Obama is signaling that he may be willing to support a short-term deal to raise the federal debt limit, but it would have to be part of a larger package that would put the country on sound financial footing for the foreseeable future.

The White House has said that lawmakers need to reach a deal to raise the debt ceiling by Aug. 2, or the country could default on its debt.

But what would that look like here in Massachusetts?

If the federal government were to default on its debts, many analysts think the government would then be forced to pick and choose which of its bills it was going to pay and many federally funded programs could face sudden cuts, or have services halted entirely.

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Jeffrey Chavez has been following the debate in Washington and is worried about the effect any potential cuts could have on federally funded programs like Women, Infants, and Children (WIC), which he uses to help pay for formula and baby food for his daughter, Jennalise.

“That would affect a lot of families, a lot of low-income families,” Chavez said at the East Boston Neighborhood Health Center with 9-month-old Jennalise and her mother. “Because the formula now is a lot of money, it's like $17 a can. It's way too much.”

Obama told the CBS Evening News last week that if there's no deal, payments for Social Security beneficiaries, people on disability and veterans could also be at risk.

“I cannot guarantee that those checks go out on Aug. 3 if we haven't resolved this issue,” Obama said, “because there simply may not be the money in the coffers to do it."

Some Republicans say the White House is overstating the potential impact. But Mike Widmer, president of the Massachusetts Taxpayers Foundation, says just about everyone would feel the effects of a default, especially if they need to borrow money.

If lawmakers don't raise the debt ceiling, Widmer said, it would become more expensive for the government to borrow money, thus more expensive for banks to borrow money. And banks would likely pass those costs on to customers.

“Anybody who's looking to pay interest on mortgages or credit cards or other things would see increased payments” in the event of a default, Widmer said.

Massachusetts also gets a lot of federal dollars for its research institutions. If those funds were among those that the federal government chose not to distribute in the event of a default, we could see ripple effects on research-related jobs and the broader Massachusetts economy, Widmer said.

But nobody really knows what would happen if the government defaulted on its debt. It would depend in part on how the financial markets responded, as well as what the federal government’s own action plan looked like. So far, the Obama administration has been mum on what plans, if any, may be in place to respond to such an event.

Republicans and Democrats in Washington both say they are committed to reaching a deal before the deadline and negotiations continue in Washington.

Chavez is hoping they reach a deal in time and without cutting social services. He says that if his family were to lose the WIC assistance, he would probably have to work more and spend less time with his family.

Mike Widmer at the Taxpayers Foundation says the consequences of a default are so severe, that lawmakers have to reach a deal in time — they just have to.