How not lifting the debt ceiling could affect people, from veterans to homebuyers

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Talks aimed at lifting the federal debt ceiling are back on tonight after a brief pause this afternoon. The stakes are high for everyone who's counting on a government payment sometime in the coming weeks. Treasury Secretary Janet Yellen has warned that, unless the borrowing limit is increased, the government could run short of cash to pay its bills as early as June 1. NPR's Scott Horsley reports on what that would look like.

SCOTT HORSLEY, BYLINE: Among the government's bills coming due June 1 are $12 billion in veterans' benefits. If there's not enough money to pay those benefits, Marine Corps veteran Cole Lyle says people who've already sacrificed a lot for their country will be forced to sacrifice even more.

COLE LYLE: These are people on very low, sometimes fixed incomes that rely on these payments as a lifeline to pay for housing, to pay for food, to pay for expenses for children and other family members. So it could be potentially very crippling.

HORSLEY: Lyle, who runs a veterans advocacy group called Mission Roll Call, says, if benefits are delayed for any length of time, people who are counting on government payments might have to turn to credit cards with increasingly costly interest rates.

LYLE: There is no good that comes from a default, either to veterans, to active duty service members or other Americans that rely on benefits from the United States government.

HORSLEY: That includes seniors - $25 billion in Social Security benefits are set to be paid on June 2. Retirees Marilyn and Keith Ayers worry about what happens if that money's not there.

MARILYN AYERS: If that goes through, that will really be catastrophe.

KEITH AYERS: We'd be in trouble. We have too many bills.

HORSLEY: The Douglas County, Colo., couple, who are in their 80s, don't have pensions to fall back on. They count on Social Security to help pay their mortgage and buy groceries.

M AYERS: We're ordinary American families, and I feel anger because we're being held hostage to a type of blackmail that's going on right now. We're not the ones that are out on the streets, you know, with the signs or anything like that, but we vote.

HORSLEY: Unless there's an agreement, other government payments could also be delayed - a billion dollars in tax refunds set to go out June 7, $4 billion in federal salaries payable on June 9. Medicare providers, defense contractors, food stamp recipients could all be left empty-handed.

And then there are the indirect effects of a default. Senior economist Jeff Tucker, who's with the real estate website Zillow, says U.S. government debt is the bedrock of the financial system. If lenders start to worry about cracks in that bedrock, it would send tremors throughout the economy, making other kinds of credit more expensive.

JEFF TUCKER: That sort of butterfly effect or that kind of earthquake of uncertainty and risk emanating out from U.S. government debt would affect the mortgage market as well.

HORSLEY: Tucker estimates a prolonged default could send mortgage rates soaring above 8%, weakening the already fragile housing market.

TUCKER: This scenario would be like a one-two punch, hitting homebuyers who are already reeling from the affordability challenges this year in the market.

HORSLEY: Higher interest rates would put homes out of reach for hundreds of thousands of buyers. Eventually, Tucker thinks mortgage rates would settle down again, but he admits there's no guarantee. If the U.S. government, long thought to be the world's safest borrower, proves to be less than reliable, lenders might insist on charging permanently higher rates for everyone.

TUCKER: We don't really know for sure. And I think, frankly, that's all the more reason not to find out.

HORSLEY: Veterans advocate Cole Lyle says this is what ordinary people find so frustrating about the gamesmanship playing out in Washington.

LYLE: We can debate spending levels all day long. And personally, I think the federal government does spend too much money. But the deadline is coming, and it threatens to affect personal lives in a very real, real way. So what I'm hearing from veterans is just - be the adults, get into a room and do your jobs that we elected you to do.

HORSLEY: The clock is ticking. June 1 is less than two weeks away.

Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.