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With Deadline Approaching, What Happens If Goverment Defaults?

(credit: KTVT/KTXA) Bud Gillett
Bud is the most veteran reporter at CBS 11 News with 42 years in m...
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DALLAS (CBS 11 NEWS) - As a default deadline approaches, people across America are watching.  Many government facilities are closed, like the George W. Bush Presidential Library in University Park.  A deal in Congress would be welcome news there.

As of 5 p.m., it appeared there was an agreement in place to avoid a government default, with a vote on a deal expected in the Senate and the House before tonight’s deadline.  The proposed deal involves funding the government through the middle of January, raising the debt limit into February and leaves President Obama’s health care law almost entirely intact.

But if it falls apart and the country goes into default, what happens to us then?   Very little, according to financial strategist Clark Hodges.

“You’ve got the money, you’re just squabbling over who to pay and when to pay it.”  He doesn’t feel the stock markets will react for long.   “There’s always a wall of worry that the stock market has.  This is just the wall of worry duJour.”

Hodges argues money will continue to come into the Treasury, despite a default. And even if the U.S. credit rating suffers, heavy investors would still likely park their funds in America.   “At the end of the day they’re going to need to put that money somewhere and we’re probably still the best option for a lot of them.”

But SMU’s Mike Davis isn’t so sure.

“We’re about to jump into a big, black hole if we don’t do the debt resolution.”

Davis, professor of economics and finance at the Edwin L. Cox School of Business at SMU, worries a default is uncharted territory.

“Maybe nothing happens,” he observed.  “But we’ really don’t know what’ll happen if the government goes through a kind of technical default on some of its debt.”

Davis believes the average American isn’t worried—yet.

“People just sort of don’t worry about it.  They figure it’ll get resolved in a few days.  The government just rearranges the deck chairs just a little bit to make sure the debt gets redeemed and so forth.”

Our admittedly unscientific poll tended to bear that out.  When asked what she would do if the government goes into default, Courtney Devlin told CBS 11 News, ” Trust our people in Congress and hopefully they’re going to do the right thing.”

Craig Berson told us, “Probably nothing. There’s no reason to get overanxious about something that’s probably not going to happen for a month or two anyway.”

Cullum Clark, a financial analyst himself, offered these insights.

“I think I–like most Americans—have assumed all along that no matter how incompetent and dysfunctional they seem to be that in the end they manage to pull it together enough to not actually default.”   He chided Congress.  “They will carry on with the same theatrics in a few weeks—in a few months—and on and on and again and again over the years.”

(©2013 CBS Local Media, a division of CBS Radio Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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