What Happens if the US Defaults on its Debt?

What happens if the United States defaults on its debt? Are there economic ramifications just for coming close to defaulting? Amid polarized Washington negotiations to raise the debt ceiling, outlets across the spectrum are seeking to answer these questions. 

Entitlement Programs: A CNN analysis noted that 66 million people receive monthly Social Security benefits that could be delayed in the event of a debt default, however the article stated that “it’s possible Treasury could continue making on-time payments because of the entitlement program’s trust fund.” The paychecks, disability payments, and pensions of 2 million federal employees, 1.4 million active-duty military, as well as federal contractors and veterans are also at risk of delay. 

Economic Downturn: An analysis from Reuters cited how a standoff in 2011 over the debt ceiling led the U.S. credit rating to be downgraded for the first time in national history, determining even close calls rattle investors. The risk of default, the analysis states, “could push some investors to move money into international equities and foreign governments' bonds.” A default would impact not just the U.S. economy but also the global economy, the article argues, since the government’s potential inability to pay its bonds, which are “seen as among the safest investments and serve as building blocks for the world's financial system,” would damage investor confidence. 

Market Uncertainty: A piece from The Washington Examiner reported on the current state of debt ceiling negotiations and found that fear of default is already causing market turmoil.