Washington — A U.S. senator said the failure of Congress to extend the nation’s $16.7 trillion debt limit could force more American cities into bankruptcy.
“How many other Detroits would we have all across this country if we take this irresponsible action?" Sen. Mark Warner, D-Va., asked in a speech Tuesday afternoon on the Senate floor.
Warner said the last major country to default was Argentina in 2001: "America is not Argentina," he said.
The Treasury has said it expects to run out of borrowing authority on Oct. 17 to pay the nation’s bills. Congress failed to pass funding to keep most of the government running when the new budget year began on Oct. 1. Much of the government’s operations have been suspended since then.
“If market participants were to lose confidence in the United States’ willingness to repay its debts, the adverse effects seen in 2011 (when U.S. neared a default) could reappear, and even push up yields on Treasury securities. Such a rise in Treasury yields would also raise the cost of financing the government’s debt and worsen the fiscal position of the government,” the Treasury said in a report last week.
Treasury said a default could impact “job creation, consumer spending and economic growth — with many private-sector analysts believing that it would lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression. Considering the experience of countries around that world that have defaulted on their debt, not only might the economic consequences of default be profound, those consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation.”
No city has filed for bankruptcy since Detroit became the nation’s largest Chapter 9 municipal bankruptcy case in history in July. Some analysts have suggested other financially troubled cities are waiting to see the results of Detroit’s bankruptcy before deciding on their next moves.