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Misericordia prof answers questions about potential crisis

Last updated: October 10. 2013 11:46PM - 2056 Views
ANDREW M. SEDER aseder@timesleader.com



Professor Timothy Kearney discusses the nation's debt limit during a macro-economics class at Misericordia University in Dallas Township.
Professor Timothy Kearney discusses the nation's debt limit during a macro-economics class at Misericordia University in Dallas Township.
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DALLAS TWP. — The ongoing partial government shutdown could soon take a back seat to a much larger looming issue. If Congress doesn’t raise the government’s debt limit before Tuesday, a domino effect could begin that could impact the nation and all its citizens for years to come.


Misericordia University Business Department Chairman Timothy Kearney spent 26 years in the financial industry before entering higher education. In his career on Wall Street, he was a bond analyst at Fidelity Investments, a fixed-income money manager for Prudential Investments and economist and senior managing director at Bear Stearns. He has a Ph.D. in Economics from the City University of New York.


In a Q & A with The Times Leader on Thursday, Kearney said he doubts Congress and the president would allow the nation to default, but he also noted that he didn’t think the 11-day government shutdown would last more than a day or two either.


Q: What happens if the debt ceiling isn’t raised?


A: If we don’t raise the debt ceiling, we will have to bring the budget into balance immediately. We’re talking about $700 billion. That means increasing taxes or cutting spending. We’ll have to cut spending wherever you can find it, with the exception of entitlements, through all manner of discretionary funds.


Q: So Social Security and Medicare will not be impacted?


A: If we did reach that deadline without a deal, I think the government would prioritize spending, and Social Security, Medicare and interest payments would be paid first.


Q: What about everyday impacts on many Americans, what happens to us?


A: You’d see lending to individuals drying up. Car loans, mortgages, small-business loans. There would be a drying up of credit as banks make sure they have liquidity. Interest rates would rise, the stock market would take a hit.


Q: But you don’t think it would get to that point?


A: I think they’ll reach an agreement for a four- to six-week cooling off period to continue negotiations. I cannot imagine the Congress and the president would be so irresponsible to not sit down and talk about something that would keep the full faith and credit of the U.S. inviolate.


Q: But as of now, very few of these things have happened, even though we’re less than a week away from that deadline, right?


A: The U.S. Treasury market seems to be calm. The stock market doesn’t look like it’s panicking.


Q: Why not?


A: Most people have the viewpoint I do that their leaders are not that irresponsible. I hope both sides will blink and sit down together and put this thing to bed.


Q: If the Oct. 17 comes and goes without a deal, what happens?


A: The stock market will go down, bond sellers will sell and interest rates will rise. But the big show will drop the Monday after. If there’s no deal in place by then, then you’ll see real disruption in the market, interest rates really rising, stocks drop. The 17th will be a tough day to get through, but the following Monday, you’ll really see the impacts.


Q: So in your opinion, what are the odds the deadline passes without a deal?


A: Less than 5 percent chance. I imagine it will get done between now and Monday.


Q: Who’s to blame for this situation?


A: I don’t think anyone’s to blame. I think we have a very vigorous democracy with two sides very diametrically opposed. Both sides believe what they’re doing is in the best interest of the country in the long run.


Q: So this may not be the last time we’ll be dealing with a debt-limit deadline?


A: No. It’s going to remain a permanent feature of our politics in coming years.


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