The Consequences of Failing to Raise the Debt Ceiling

Who'll get stiffed — Social Security beneficiaries, federal workers or the businesses that sell goods and services to Uncle Sam — if the U.S. Treasury's coffers come up short?

With every day of unproductive negotiations between the White House and congressional Republicans that passes, the prospect that the United States government will find itself unable to pay its bills becomes less unthinkable. So what happens if Congress doesn’t increase the debt ceiling?

Though we still believe that to be unlikely, the prospect is worth exploring. It’s uncharted territory. A small technical default in 1979 doesn’t compare to what would happen if the U.S. Treasury’s coffers were short, come early August. Does it mean Uncle Sam defaults the next day on principal and interest owed lenders — the foreign and domestic holders of U.S. Treasuries?

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Jerome Idaszak
Contributing Editor, The Kiplinger Letter
Idaszak, now retired, worked on The Kiplinger Letter as its economics writer for 21 years. Before joining Kiplinger in 1992, he worked for 15 years with the Chicago Sun-Times, including five years as a columnist and economic correspondent in the Washington, D.C., bureau, covering five international economic summit meetings. He holds bachelor's and master's degrees in journalism from Northwestern University.