SCARSDALE, N.Y. -- Tony Derosa isn't happy with the Congressional stalemate over raising the debt ceiling and doesn't believe the federal government will default when they reach the Aug. 2 deadline, but local representatives are preparing for the worst.
"What concerns me the most is this is a manufactured crisis," Derosa said. "It's remarkable to me how ignorant people are when it comes to economics."
Derosa said his main stake in the case of a federal government default would be his pension, which he said is based on the U.S. government's AAA bond rating. Many residents and government officials are concerned a default would cause rating agencies to downgrade the U.S. government's rating to AA.
"If the federal government defaults, clearly, the rating will go down, and if it goes down, interest rates will go up," said Scarsdale Village Manager Alfred Gatta, who added that he didnt think Congress could fix the problem by only raising the debt ceiling.
Gatta called for long-term reform that would cut costs and increase revenue. "Unless that's fixed, I don't think the rating agencies will be impressed."
While its been widely reported that if Tuesdays deadline isnt met, the government will default, thats technically not true, officials say. Default happens when interest on loans is not paid, however, officials say there will be enough money from tax revenue to cover those payments.
"I agree that the definition of default is more technically detailed than used in common parlance, said Congresswoman Nan Hayworth (R Mount Kisco), of New Yorks 19th district. The treasury will still be able to pay our sovereign debt obligations.
That, Hayworth said, includes treasury bonds, Social Security, and Medicare. Those debt obligations will be taken care of, she said. Hayworth also noted that while everyone is focused on the Tuesday deadline, knowledgeable observers say it could be a few days longer before the impact of the failure to raise the debt ceiling is felt.
It could be a few more days (past Aug. 2), she said. However, if those days do pass without any resolution, Hayworth said the local governments and organizations in Westchester County will be most likely to feel the pinch with things such as Community Development Block Grants. She said the treasury department would have to prioritize its payments and items such as Social Security, Medicaid and military paychecks would likely be at the top of the list and not grants.
"Some might have to give an IOU to their local contractors if theyre willing to take one, she said.
Congresswoman Nita Lowey (D - Harrison), of New Yorks 18th district, said in addition to a possible delay in Social Security benefits and other services, failure to raise the debt ceiling could result in higher interest rates that could impact the cost of mortgages and credit card payments.
Families could lose thousands of dollars from retirement savings and investments, she said. It is clear that Congress and the president must agree to a plan that ends the default crisis and includes responsible spending reductions that do not balance the budget on the backs of the most vulnerable Americans.
New York State Senator Greg Ball (R, C Patterson) said the fallout would be especially trying for the state because he feels New York does not rebound quickly from fiscal crisis.
Historically, New York State takes twice as long to recover from an economic downturn, he said. So, any recovery caused by this would be doubly hard. It would go beyond lost grant money. It would cause a problem balancing the state budget. Its odd that Washington is making Albany look good right now. But all I can say is this would be devastating at both the state and local level.
"It's obviously a cliffhanger issue for the country," said Monte Florman, a Scarsdale resident. "I'm stressed by it. I depend on Social Security, it pays most of my rent and, of course, Im concerned."
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