What happens if the United States defaults?

First modification: 05/18/2023 – 20:41

The closest time the United States came to a default was in 2011. Since then, the annual debate between Republicans and Democrats has been increasingly tight to try to avoid an unprecedented situation in the history of the world’s largest economy.

With the clock ticking down, the leaders of both parties are trying to reach a consensus to raise the debt ceiling and avoid a possible delay in bills as of June 1, when, according to estimates by the Treasury Department, the money will not reach more.

The current limit on government lending is $31.4 trillion. Already exceeded since last January, the Nation’s box is now operating under exceptional measures approved by the Treasury, which will soon be extinguished. Next, with no agreement in sight, would come the cessation of payments.

Who wouldn’t they pay?

With the cash drawer dry as of June 1, the day’s $26 billion in tax revenue would not be enough to cover about $101 billion in spending obligations promised by Congress.

If the Treasury were operating under a plan drawn up in 2011, when it came close to defaulting, it would not choose which bills it pays, but would wait until it had enough money to pay all the bills for a full day.

It means that medical providers would not get $47 billion in payments from Medicare, the public health insurance program for seniors. The soldiers would not receive pay either.

Wall Street investors could still get paid for now. About $100 billion is due that day, and the Treasury would borrow enough to cover it and stay below the debt limit.

There are risks, though: If investors refuse to lend that money for fear it won’t be paid back, the United States could start defaulting and defaulting on its debt, rattling the global financial system.

Few dare to think even of a longer-term scenario, in which retirees and other Social Security recipients would not receive their share, nor would providers of Medicaid, the low-income health service. Gun manufacturers are next on the list.

With such a tight budget, even if Washington continued to pay its debts on time, the mere fact that June 1 passes without a bipartisan agreement would cause panic in the world’s stock markets, a scenario that, according to the head of state himself. , could unleash a true global calamity.

With Reuters and AP