What happens if us defaults on its debt

A quick refresher: the US government spends more money than it collects in taxes. So to make up the shortfall, it raises funds by asking investors to buy US Treasury bonds.

Investors, such as the Chinese government and pension funds, do this because these bonds are seen as a safe place to invest money. No one really knows exactly what would happen, but the likelihood is that markets around the world would plunge and global interest rates would rise.

This is because if the US government could not repay the money it owed bondholders, the value of the bonds would decrease. And the yield - the return the government pays to an investor - would rise.

This is because it would be perceived as a less safe investment. This would prompt interest rates around the world, which are often tied to those of US Treasuries, to spike. Furthermore, the impact on the US's creditors could be dire. For one thing, it could bifurcate the market for Treasury bonds and bills into those that are clearing normally and those whose maturity dates are being massaged, SIFMA told MarketWatch.

That means a great deal of uncertainty around pricing and what it means for all the downstream securities pegged to Treasury rates.

In a second scenario, which SIFMA said would be very remote, Treasury cannot, or does not, give any advance warning of a failure to make a payment, and it just happens. Strangely, the securities in question would probably simply disappear from the system. If that happens, there would be a holder of record for the debt on the day before the maturity was scheduled, who would be entitled to get paid. Read next: These 10 states owe late interest on their federal jobless-benefit loans.

General Electric this week said it is calling it quits on being a mega conglomerate, with plans to split into three public companies.

Follow her on Twitter ARiquier. Home Markets Market Extra. Although Republicans and Democrats alike voted to lift the debt ceiling on three occasions while Donald Trump was president, Republicans have framed passing another suspension as enabling a "spending binge," in the words of Sen.

On Sept. Schumer voted no to allow him an opportunity to call another vote on the issue. The debt limit "was instituted by Congress during World War I to give the Treasury Department more discretion in making federal spending decisions," according to Perry Adair, attorney and consultant at the federal lobbying team of Becker Lawyers. This made it significantly harder to finance the war since Congress needed to approve each bond separately. The creation of the debt limit was its response to this burden.

Thus, nowadays, Congress can vote to either raise the debt ceiling or suspend it all together, according to Adair. We don't know exactly what will happen. This would be an unprecedented event.

But the impact could be cataclysmic for the US economy and cause ripples across the world. And that is what many US officials are warning of. The consequences would "produce widespread economic catastrophe," Yellen wrote in The Wall Street Journal.

The US government would be forced to finance its debt obligations with whatever cash it has on hand. After it burns through that, the government would likely default on its remaining debts.

Here's a wonky idea resurfacing in the debt ceiling debate: The US Treasury will only default if it doesn't have money to pay its debt, so why not mint a trillion-dollar coin made of platinum, pay all the US' debts and call it a day?

The idea of the trillion-dollar coin emerged in debt ceiling battles during Barack Obama's presidency, and while talk of the idea went silent for a number of years, it's returned during the current debt ceiling crisis.

It seems every time this issue arises, lawmakers seem intent to put the U. Unfortunately, the U. Department of Treasury Secretary Janet Yellen has said that the federal government will run out of money on October 18 if the debt ceiling is not raised. The government reached its debt limit at the end of July and Treasury has been taking steps to keep from defaulting. If the debt ceiling is not raised in the coming weeks, the U. There is no question that our national debt needs to be addressed in the coming years with a mixture of revenue raises and spending cuts as the Clinton Administration did in the s.

However, defaulting on the debt is not the answer. It will not be some teachable moment on government spending. Instead, it will have unnecessary and irreversible consequences for almost all Americans. Unfortunately, this has become a political issue.

Just a few days ago, Senate Minority Leader McConnell blocked Democrats from using a simple majority to get this done.