If a default occurs, yields on US Treasuries will inevitably rise to compensate for the increased risk that bondholders won’t receive the money they’re owed from the government. That would wipe out around $12 trillion in household wealth, according to Moody’s Analytics. Case in point: Markets had what was then their worst week since the financial crisis during the 2011 debt ceiling standoff after the Standard & Poor’s downgrade.Įven if the debt ceiling impasse is resolved soon after a default, stocks could shed as much as a third of their value. “Though life in uniform is not always predictable, those who serve or have served their country expect their country to honor their commitment to service.”Ībout $25 billion in pay or benefits for active-duty members of the military, civil service and military retirees, veterans and recipients of Supplemental Security Income is sent out on the first day of the month, according to the CBO.Īmericans’ investments would take a direct hit. “Such calamity would place further stress on our servicemembers, retirees, and veterans, as well as their families, caregivers, and survivors,” Rene Campos, senior director of government relations for the Military Officers Association of America, said in a blog post. Federal government contractors could also see a lag in payments, which could affect their ability to compensate their workers.Īlso, certain veterans benefits, including disability payments and pensions for some low-income veterans and their surviving families, could be affected. More than 2 million federal civilian workers and around 1.4 million active-duty military members could see their paychecks delayed. Many other government payments could also be affected, including funding for food stamps federal grants to states and municipalities for Medicaid, highways, education and other programs and Medicare payments to hospitals, doctors and health insurance plans. “Even a short delay in the payment of Social Security benefits would be a burden for the millions of Americans who rely on their earned benefits to pay for out-of-pocket health care expenses, food, rent and utilities,” Max Richtman, the committee’s CEO, said in a statement. Roughly $25 billion a week is sent out, according to the Congressional Budget Office. The benefits are disbursed four times a month, on the third day of the month and on three Wednesdays. These payments could be delayed in a debt default scenario, though it’s possible Treasury could continue making on-time payments because of the entitlement program’s trust fund, Akabas said. The average payment for retired workers is $1,827 a month in 2023.Īlmost two-thirds of beneficiaries rely on Social Security for half of their income, and for 40% of recipients, the payments constitute at least 90% of their income, according to the National Committee to Preserve Social Security and Medicare. Here are five ways that Americans could be affected by debt default:Ībout 66 million retirees, disabled workers and others receive monthly Social Security benefits.
“Tens of millions of people across the country who expect payments from the federal government may not get them on time,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
Much would also depend on how long it takes Congress to address the borrowing cap. Treasury would have the funds to satisfy some obligations, but it’s not certain how the agency would handle the disbursements. To be clear, a debt default doesn’t mean all payments would stop and people would permanently lose out on money they are owed. “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,” she wrote. Yellen gave a sense of the turmoil it would cause in her letter to House Speaker Kevin McCarthy on Monday. A close call in 2011 roiled the financial markets and prompted Standard & Poor’s to downgrade the US’ credit rating to AA+ from AAA. Just what would happen if the nation defaults on its debt is unknown since it’s never actually happened before. The US hit its $31.4 trillion debt ceiling in January, and Treasury has been using cash and “extraordinary measures” to satisfy obligations since then. However, the forecast was uncertain, and the default date might come several weeks later, she said.
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Treasury Secretary Janet Yellen warned Monday that the government may not be able to pay all of its bills in full and on time as soon as June 1. President Joe Biden and House Republicans may have as little as a month to prevent the US from defaulting on its debt, which would impact millions of Americans and unleash economic and fiscal chaos here and around the world.
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