Failure by federal lawmakers to raise the nation's $14.3 trillion borrowing limit by the Aug. 2 deadline would affect people locally, as well as globally, local observers say.
"If it doesn't get done, it's going to create all kinds of havoc," said David Caruso, chairman and CEO of Coastal Capital, a wealth management firm in Danvers.
Interest rates would rise, it would cost more to borrow money, and banks would be less willing to lend it, Caruso said. Mortgages would become more expensive and a "shock wave" sent through the stock market would hurt investments, including individual 401(k) retirement savings, he said.
Bob Bradford, president of the North Shore Chamber of Commerce, would not even consider the possibility yesterday of the United States defaulting on its debt. To avoid that fate, however, lawmakers must reach agreement on a plan to raise the debt ceiling.
"It's going to be resolved. It has to be resolved. It's the responsible thing to do," Bradford said. But the solution should be based entirely on spending cuts and not involve tax increases, he argued.
That approach was mirrored yesterday in separate plans put forth by Republican House Speaker John Boehner and Senate Majority Leader Harry Reid, a Democrat. Reid's plan would raise the debt ceiling enough ($2.4 trillion) to carry the government through next year. Boehner's plan would require a second congressional vote with additional spending cuts sometime during 2012, an election year.
Reid pronounced the Republican's plan "dead on arrival" in the Senate. President Obama said he would veto it, primarily because of its two-vote requirement.
The impasse in Washington and the fragile economy have created a "confidence crisis" among consumers, Caruso said. People are afraid and angry.
The anger, he said, is directed toward the political system and the inability of lawmakers to solve a problem they have had months to address.
"We are sick of this," Caruso said.
A psychological shift, a turn away from the current negativity, is needed to help restart the economy, he said. "People have to feel better before they can start spending money."
The debt crisis could affect a range of local businesses from health care, with hospitals that rely on Medicare and Medicaid reimbursements, to higher education.
"It's certainly something we're very cognizant of," said Lynne O'Toole, vice president of finance for Endicott College. "We are concerned about where interest rates are going to be headed." The majority of students rely on loans to pay for their education, and those loans have variable rates.
"The biggest thing for all of us is just the uncertainty," O'Toole said.
In addition to downgrading of the nation's AAA credit rating, default would have "immediate impacts," including loss of pay and jobs for government employees, according to Van Pham, assistant professor of economics at Salem State University.
Businesses that rely on the money from government contracts could also suffer, she said. And interest rates on everything from student loans to credit cards would rise.
Pham, however, is confident a compromise will be reached.
"I'm hoping like heck that it does get done," Caruso said.
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