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| PHOTO: The U.S. Capitol Building is seen, May 5, 2023 in Washington, DC. |
- United States could default on its debt as soon as June 1 if the debt limit isn't raised.
If allowed to happen, economists agree the first debt default in U.S. history would be an economic catastrophe and could trigger a global financial crisis. Allowing the U.S. to default on its debts would induce a self-inflicted recession.
This week Treasury Secretary Janet Yellen put Congress on notice. In a letter to House Speaker Kevin McCarthy, R-Calif., she warned the U.S. could be unable to continue to satisfy all of the government's obligations by June 1 if Congress does not raise or suspend the debt limit before that time.
The federal government would have to make hard decisions, like who gets paid and when, and the consequences would be far-reaching.
- Will Social Security be affected by debt ceiling?
Payments to 67 million Social Security beneficiaries could be halted.
However, a 1996 law provides an escape clause that allows the Treasury Department to continue paying Social Security benefits, even if there is a delay in raising the debt ceiling.
The law allows for the Social Security trust fund to be drawn down to keep those benefits flowing until the debt limit is raised, while prohibiting those funds from being used to pay for any other government programs.
Analysts say the best defense for Americans is to keep their own financial house in order. They say having emergency savings on hand and paying down debt will be more important than ever.
- What else could be impacted?
Payments on other U.S. obligations, including for Medicare and Medicaid, SNAP food assistance, veterans' benefits, housing assistance and school lunch programs would be at risk, inflicting pain on Americans across the country.
The U.S. credit rating would most likely be downgraded, sending interest rates higher and making it more expensive for businesses and consumers to borrow money.
Financial analysts say a credit market freeze could hurt the ability of U.S. companies to operate effectively.
Additionally, Secretary Yellen warned that a debt default would harm the U.S. global leadership position, as world financial markets lose faith in the U.S. and its ability to pay its bills.
The government would not have the money to pay back buyers of its bonds and other securities, causing the U.S. dollar to weaken and the stock market to tumble, hurting Americans' retirement savings and other investments.
- Debt limit could hurt jobs, unemployment
The damage would largely depend on how long the impasse lasts.
According to the financial services company Moody's, if the default lasts for about a week, close to 1 million jobs would be lost, the unemployment rate would jump to about 5% and the economy would contract by nearly 0.6%.
However, if the impasse drags on for six weeks, Moody's estimates more than 7 million jobs would be lost, the unemployment rate would soar above 8% and the economy would decline by more than 4%.
- How did the U.S. get here?
The Biden Administration and House Republicans have been deadlocked in debt negotiations for months now.
The House Republicans passed their own bill that slashes government spending in exchange for raising the debt ceiling, but President Biden has said he will not negotiate with them until spending talks are separated from the debt limit.
A recent Washington Post poll finds broad worry about the consequences of default among Americans.
A vast majority of respondents, 82%, are very or somewhat worried that a government default would damage the economy.
Only 26% of Americans adopt Speaker Kevin McCarthy's position that Congress should allow the government to pay its debts only if the White House agrees to cut federal spending.
Meanwhile, an overwhelming 65% agree with President Joe Biden's view that the issues of debt payment and federal spending should be handled separately.
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