What happens if us doesnt pay debt

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Motley Fool. The Independent. Investor's Business Daily. The simplest way to avoid an immediate default on its debt is for Congress to raise or suspend the debt ceiling. One way to potentially avoid the U. This could help the U.

That helped reduce the national debt and prevent default. Hilarey is an associate editorial director for The Balance and has held full-time and freelance roles at a variety of financial media companies including realtor. The White House. Department of the Treasury.

National Credit Union Administration. Accessed Oct. Council on Foreign Relations. Brookings Papers on Economic Activity. The Council on Foreign Relations. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads.

Create a personalised ads profile. Select personalised ads. Investors are only getting a few extra basis points if they buy bills that mature around October 18, which suggests traders think the probability of a default is pretty remote. Yields increased by substantially more when Congress played chicken with the debt limit in , rising by some 40 basis points or more as politicians waited until the last moment to authorize more borrowing, according to the Brookings Institution, a think tank.

If history is any guide, markets will get increasingly jumpy the longer politicians take to address the borrowing limit. Playing chicken with the debt ceiling comes at a cost.

If the Treasury ran out of headroom to pay its bills, officials would probably delay payments to agencies, Social Security beneficiaries, Medicare providers, and contractors—and would continue paying interest on Treasury securities and avoid a default, according to Brookings. This maneuver might protect investors in Treasury notes and bonds, but it would hardly instill confidence in the US government. Much would probably depend on how long the impasse lasted and whether investors in Treasury securities believed they would continue to be prioritized, according to Brookings fellows Wendy Edelberg and Louise Sheiner.

The idea stems from the Coinage Act , which prescribes limits on how many gold, silver and copper coins the US Treasury can circulate at one time.

But according to subsection k of the act, there isn't a limit on how many platinum coins it can circulate, nor does the act prescribe limits on the value those coins can be minted at. If the US government minted such a coin, it could wipe out its debt swiftly, nullifying the debt ceiling issue in the process. But this is a completely theoretical idea, and not something worked out by experts. Yellen said on CNBC that she opposes the idea of the trillion-dollar coin, calling it "a gimmick" and reasserting that "it's necessary for Congress to show that the world can count on America paying its debt.

The impact would be acute and widespread. Millions of Americans wouldn't receive Social Security or Medicare benefits. The federal government would stop issuing paychecks for all US troops and federal employees, and only certain essential federal employees would be allowed to work. According to a report published by Moody's Analytics , US GDP would decline, approximately 6 million jobs would be lost, and the unemployment rate would increase dramatically.

And, just as significantly, the country's track record, at least as far as paying its debts is concerned, would be irrevocably stained. As with so many catastrophes, the economically disadvantaged would be disproportionately affected. Food assistance benefits would stop nationwide, monthly child tax credits would be delayed and compensation for veterans and pension payments would lapse.

And state and local governments would no longer have access to federal aid when responding to emergencies like COVID or natural disasters. Given that we are still navigating our way through the COVID pandemic, the debt ceiling standoff couldn't come at a worse time. Defaulting "would likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency," Yellen wrote.

The US debt ceiling: What it is and what happens if Congress doesn't raise it Congress voted to raise the US borrowing limit -- but only until December.