Good Question: What Happens If U.S. Goes Into Default?

MINNEAPOLIS (WCCO)When it comes to credit, we all have our limit. And the U.S. government has maxed out its $14.3 trillion debt ceiling. So what happens if the limit isn’t raised? What happens if the United States can’t pay its bills?

A political argument over reigning in government spending has turned a rather routine move into high-stakes drama. Congress has raised the debt ceiling 74 times since 1962 and 11 times since 2001, according to congressional research.

“It’s a mess,” said Sterling Smith, a St. Paul-based market analyst.

He said, if the United States didn’t raise the debt ceiling, it would essentially be in “default” on its loans.

“We would not be paying interest on the bonds or those that were outstanding,” said Smith, “so if you owned a treasury bond, you would not collect your interest.”

According to President Barack Obama, tens of billions of dollars of Social Security and veterans checks would be in jeopardy.

“I cannot guarantee that those checks go out,” said Obama, “if we haven’t resolved this issue. There may not be the money in the coffers to do it.”

“I think that is more political brinkmanship and some scare tactics than the reality of it because the government does take in a lot of money and can meet those immediate obligations to the citizenry,” said Smith.

He did say that it would force some very tough decisions, because the government would have to balance its budget immediately: and stop spending more than we take in.

“They’re going to have to make tough decisions, and they’ll have to do it on a dime, very quickly,” he said.

Smith said he would expect to see drastic cuts to defense spending rather than cuts to programs like Medicare or Social Security.

More importantly, the world would be watching.

“That would strain our markets, because U.S. debt is the biggest thing traded in the world,” said Smith. “Right now we pay 3 percent on $14 trillion of debt. That’s a lot of money. But imagine if interest rates would normalize at 6 or 7 percent — 7 percent of 14 trillion? That’s $1 trillion just in interest payments.”

More from Jason DeRusha
  • Alfred

    What happens? What should have happened years ago. What must happen.

    Cut spending.

    And there is no ‘balanced’ approach with taxes. When the Democrats were wasting millions of dollars they didn’t have a balanced approach.

    Being stupid has consequences.

    • Little Tin God

      Did Bush have a “balanced approach” when he started TWO wars and cut taxes TWICE??? The ultimate cost of Afghanistan and Iraq will be in the TRILLIONS of our dollars, TRILLIONS that the Bush administration never accounted for. Those TRILLIONS of unaccounted for dollars are why the economy is sucking wind right now. Talk about STUPID!!

  • mark from Minnetonka

    CCut the spending!! Looks like we are going the way of Greece


    No thats why you need republicans to FIX democrats messes.

    REPUBLICANS FIX the problem… hence, NO more borrowing, cut spending.

  • Jason

    Government NEEDS to spend less of our money. We are broke.

  • Mae Lars

    Yes, being stupid does have consequences. Which is why Republicans, who raised the debt ceiling SEVEN TIMES under Bush without question, and spent TRILLIONS on unnecessary wars and even more unnecessary tax cuts for the rich, are the very definition of stupid.

    • ME

      I do agree.

  • kevin


    • GOPSUX

      Dear God, you are stupid.

  • jah

    come on!get your sh–t together and do your job..get a budget approved and quickly. raise the debt ceiling and then instead of waiting to the last minute to do a new budget for next year, start working on it immediately so by next year you have one done.

  • Waste

    Do not raise the debt ceiling!!! Governments have a problem, it is called spending. To give an addict a fix is a mistake, same thing here.

    Spending went up under Bush, yes Dems you are right.

    Spending is going crazy under Obama.

    To say “Bush got to spend, now the Dems do, wahh, wahh, wahh” is childish at best, immoral and criminal at its worst. Are we kids on a play ground? Seriously

    The word of the day is… “””INCOMPETENCE”””

    • @ waste

      Mr. Obama voted not to raise the debt ceiling under Bush. Stating that he was “young and following party line”. Mr. Obama feels that he was “young” 5 years ago. Mr. Obama is demanding that the repubs now raise that debt ceiling for him. The debt ceiling will be raised, there is no doubt. At what cost, I’m not sure. I do know that it isn’t as urgent an issue as Mr. Obama, the fear-monger, suggests. 20 billion going out/mo and 200 billion coming in per mo. Cut and cap.

  • Jen

    “Republicans believe every day is the Fourth of July, but the democrats believe every day is April 15.” Reagan

    • just saying


    • Ronald Raygun

      Reagan was a POS.

      • Raygun your head

        RR will go down as one of our GREATEST Presidents…..

        This is proof morons lile you have NO clue….

  • Waste

    Just one more thought.

    I told my children last night, ages 10 and 12, that they already have a credit card.

    The bill is $46,150.75 for each of them.

    They looked at me and asked why they have to pay it. I told them “because they were born here”.

    How can you all sit there and say to raise the debt on our children?

    Quick question:
    Do you feel good that you improved the country to hand off to our children? With all the technological improvement, media, blogs, computers, automation, internet, and knowledge now at your fingertips, did we make this country better during our reign?

    WELL, DID WE???

    • @ waste

      Don’t scare the children. We haven’t developed “fiscal therapy” yet.

  • @ Bill

    The BEST and EASIEST way to fix this problem…make “budget planning years”—-fall in election years!! That would fix all of these idiots into compromise quick.

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  • PJO

    We don’t need to raise the debt ceiling! Here’s how we can do it. QUIT giving/borrowing money to other countries,especially the one’s who bite the hands that feed them. We can then pay our own bills and make cuts were cuts can be made and increase spending were we need to.

    • @ PJO

      1 Trillion goes to Foreign Policy every year.

  • Alfred

    Your stupidity is astounding.

  • jan

    My entire income is from T bond interest and social security, a shutdown would leave me with nada and at 80 years old having to live in my car. At least it’s a station wagon. No American shold have to face this situation, what kind of country have we become? I’m not asking for a handout, never in my life received public assistance from any government body, worked hard, bought T bonds to give me income in my retirement, I was robbed!! All I want is the interest that is due me on August 15, interest money that I have earned.

    • @ jan

      Don’t lose sleep over this Jan. You will still get your monthly income. Your social security will still come, and your earned interest will still come. The government may have to print even more money to give it to you, but it will come. Again, don’t worry. I am 100% certain of this.

      • urnidiot

        Why should anyone feel good about you being 100% certain?

        • @ urnidiot

          Because “urnidiot”— and I am not.

          • urnidiot

            What evidence can you produce to prove that you are not?

            • @ urnidiot

              What type of evidence would you like? My 3 degrees, my security clearance. Possibly, some random cliff’s notes version of how an economy functions? Maybe a website link. My intention was simple, Jan does not need to worry for the reasons I gave her. If you have a question I would also be “okay” to assist you, if you are rational and kind in the way you ask it.

  • Citizen

    Perhaps this will shed some light. DeRusha should have mentioned Article 14 of the U.S. Constitution, Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
    In other words, THE DEBT CEILING MUST BE RAISED pursuant to the Constitution. And since Congress authorized the spending in the first place, it is disingenuous to quibble over raising the debt ceiling on that authorized spending now.

    • Going to heck in a tea basket

      So if I max out my credit card…..they should just raise the limit right? I mean why should I curb my spending….if they give me the credit I can just keep spending never figuring out a way to pay for it….right?


      Wait….isn’t this why we are iin this mess in the 1st place?

  • Just Sayin'

    I am pretty sure if we pull out of the three wars we are in and close the borders we would be in better shape economical. Maybe they could lower the debt ceiling.

  • Going to heck in a tea basket

    Have you heard the NEW Animal for OBam’s presidential seal is going to be the SKUNK?

    It’s 1/2 black 1/2 white and everything it does STINKS!

    Hmmm……Dem’s are both “at the top” on a fed level and a state level…..and there are spending issues? Oh…and THEN notice the house/senate was run my Dem’s the last cycle….on both levels….and there are issues…..

    does anyone see this? Is there a common problem?

  • DQ

    Atleast the Government is setting a good example. Now, when I reach my credit limit on my credit cards and don’t think I can pay it off, I will just call my credit card company and TELL them to raise my limit because I NEED to spend more, but make sure they lower my interest rate because I should be held to the same standards as the everday person. I mean, seriously, can’t you see this pedestal?!?

  • DQ

    Then please enlighten me Alfred….

  • Michael S. Svoboda-Britz

    The US would be less in debt if the Bush Administration didn’t decide to go to war and waste tons of money and lives; this was all to prove a point to terrorists and look where its got us. Is anyone else thinking about moving to Canada?

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