would need to promise higher interest payments to justify the increased risk of buying and holding its debt. debt as its credit rating is downgraded and sold, followed by a spike in interest rates. Just the threat of default would cause market upheaval: A big drop in demand for U.S. debt is sold as bonds and securities to private investors, corporations or other governments. Next, the federal government would be unable to service its debt or pay interest to its bondholders. First, payments to Social Security recipients and federal employees might be delayed. And from the point of view of the global markets, there’s a world of difference between a short-lived administrative snag and a full-blown default as a result of Congress failing to raise the debt limit.Ī default could happen in two stages. The whole affair affected a few investors and was remedied within weeks.īut the 1979 default was not intentional. has defaulted only once, in 1979, and it was an unintentional snafu - the result of a technical check-processing glitch that delayed payments to certain U.S. The real gross domestic product, or GDP, could also fall to levels not seen since the Great Recession. defaulting, which include a worldwide recession, worldwide frozen credit markets, plunging stock markets and mass worldwide layoffs. and global economies.Ī report from the White House Council of Economic Advisors in October 2021 warned of the possible effects of the U.S. If the default lasts for weeks or more, rather than days, it could trigger a fire-and-brimstone, Armageddon-level financial crisis for the U.S. While negotiations between the parties continue, we all wait to see if the federal government runs out of money to pay its bills and defaults. Treasury’s cash and extraordinary measures would be sufficient to fund the government until June 15. The Congressional Budget Office released its own projections on May 12, which left more wiggle room: somewhere in the first two weeks of June. She warned of “catastrophe” in a May 11 news conference. “If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests,” Yellen wrote in the most recent letter.

Yellen reiterated the same sentiments in another letter to Congress on May 15. Treasury Secretary Janet Yellen to Congress.

The so-called “X-date” - when the federal government can no longer meet its legal obligations - could be as early as June 1, according to a May 1 letter from U.S. ( NerdWallet) – A few short weeks are left for Congress - or, perhaps, President Joe Biden - to take action and lift the debt ceiling before tick, tick, tick … boom goes the economy.

I the Sun by Janet E. Morris