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How the U.S. debt default impacts Arkansas

June 1 is the U.S. Treasury Department’s default deadline. With the clock ticking, we look at what’s at stake for Arkansans.

LITTLE ROCK, Ark. — June 1 is the U.S. Treasury Department's default deadline.

Economist Jeremy Horpedahl compared the situation to a simple credit card.

"We've hit our credit limit," Horpedahl said. "Unless Congress increases that, there'll be some restrictions on how much money the federal government can spend."

Since the Feds haven't increased the limit, Horpedahl said borrowing money could require higher interest rates and impact all federal government payments.

"Social Security, Medicare, Medicaid, all these fall under that debt limit," Horpedahl said. "This would severely restrict any payments, not just debt payments, but any payments the federal government makes."

Arkansas could feel this impact.

Gov. Sarah Sanders requested a 30-day extension for 100% federal funding to help with the state's tornado cleanup efforts.

Hypothetically, Horpedahl said defaulting on the debt would cut the amount of money Congress doles out things like that.

"Arkansas still might get relief for the tornado recovery, but it might be 75%," Horpedahl said. "It's a hypothetical, but the Treasury Department says they can't prioritize where the money goes."

Economically, thousands depend on the Feds for part of their income.

Horpedahl added that the effects of this would be similar to when people reduced their spending during the onset of the pandemic or if they were unemployed. 

According to Horpedahl, people looking to retire soon should have money set aside in case the stock market prices fall.

"You don't want to be drawing money out of that when it's way down," Horpedahl said.

He said it took the country nearly a decade to get back to unemployment numbers seen before the 2008 financial crisis.

Horpedahl doesn't believe the recovery would take that long if the U.S. were to default on its debt.

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