The Congressional Budget Office recently reported that the federal government could run out of money as early as July, just four months from now. Technically, this has already happened. However, payment on some government debt will not occur until mid-summer. That is among the few buffers to a default. The government also had $568 billion in cash as of mid-February, which it could use to buy time.
What happens when the government runs out of money? According to the CBO, if Congress does not raise the debt limit, “the Treasury would not be authorized to issue additional debt other than to replace maturing securities. That restriction would ultimately lead to delayed payments for some government activities, a default on the government’s debt obligations, or both.”
If the government defaults, it would have unimaginable consequences. According to Moody’s, America could lose as many as eight million jobs, and a recession as deep or deeper that The Great Recession would begin. Programs which include Social Security could not make payments. Individuals and corporations own billions of dollars in government debt. They would stop receiving interest payments. (Social Security has already started to go away.)
US government debt is considered the safest debt in the world. It is held by other nations and companies all over the world. A default would drive up what the US would have to pay out in interest when the money to run the federal government becomes available. US debt would be considered risky, which has not happened for decades.
Without money available to the federal government, it will shut down, and hundreds of thousands of government workers will be laid off. Capital available would be used to pay for essential services, including defense.
The rift between some members of Congress and the Administration over the federal budget is still considerable. Republicans want to cut the budget, if they agree to any increase in the debt ceiling. The Administration wants a higher debt ceiling to pay off their budget, which includes a deficit.
July could bring an unprecedented catastrophe to the US and global financial system, and there is reason to believe it may not be averted. (These are 15 countries where government debt is larger than the entire economy.)
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