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Maine treasurer sees minimal impact from federal default on debt

Posted July 18, 2011, at 12:25 p.m.
Last modified July 18, 2011, at 3:42 p.m.

AUGUSTA, Maine — Failure by Congress to raise the federal debt limit by the Aug. 2 deadline will have no immediate effect on Maine securities and finances, but the ripple effect could be felt later, state Treasurer Bruce Poliquin said Monday.

As of now, Maine holds $175 million in short-term government securities.

In the event the federal government must default on interest payments due on some of its outstanding debt, it’s “extraordinarily unlikely” Maine would not be paid interest on those short-term securities, Polliquin said.

And even if that were the case, some of the securities held by Maine are issued by federal agencies that have their own reserves that could cover interest owed, he said.

Any impact in Maine would likely be played out over the longer-term.

With pressure on to find money to avoid defaults, Poliquin said, Congress would likely be forced to look for cuts in discretionary spending in other accounts. And that gradually could lead to reductions in funding for entitlement programs such as Medicaid.

That would play out in the state budget, where hundreds of millions of dollars in federal dollars match state funds for programs, such as MaineCare, that are administered by the state Department of Health and Human Services.

In Washington, Senate Majority Leader Harry Reid, D-Nev., said the Senate will meet every day until Congress sends President Barack Obama legislation to make sure the government doesn’t default on its obligations. A balanced budget amendment to be voted on later this week is expected to fail.

While the nation is going through “a very painful time,” the debt crisis is forcing a discussion that “is incredibly positive for our country,” said Poliquin.

“We cannot continue to spend what we don’t have,” he said.

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