The US will be in uncharted territory if lawmakers fail to reach an agreement on raising the debt ceiling. But the impact of the US defaulting on its debt would probably not be ‘“maybe nothing” or just “a bad week or a bad day,” as former President Donald Trump suggested in a CNN town hall Wednesday night, his first major media appearance since announcing his 2024 campaign.
Days after President Joe Biden had his first, fruitless meeting with congressional leaders on raising the debt ceiling, Treasury Secretary Janet Yellen warned Thursday that a default would not only “threaten the gains that we’ve worked so hard to make over the past few years in our pandemic recovery,” but would “spark a global downturn that would set us back much further.”
“It would also risk undermining US global economic leadership and raise questions about our ability to defend our national security interests,” she said.
There are a lot of unknowns about what a default would actually look like given that the US has never before run out of cash to pay all of the government’s bills on time. But experts say it definitely could get as bad as Yellen has projected, possibly causing stocks to plummet, sending the US into a recession, and damaging the economy in other unforeseen ways.
“The financial system is always a lot more fragile than you think,” said Louise Sheiner, a senior fellow in economic studies and policy director for the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. “And so that’s why you don’t want to risk something like this.”
What is the likelihood that the US defaults on its debt, and what does that mean?
The US is already in the danger zone, having hit the $31.4 trillion debt ceiling set by Congress back in January. Since then, the country’s been taking what’s called “extraordinary measures” in fiscal accounting to keep things running. It’s hard to know exactly when the US will officially…
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