Will the federal government run out of money in June or July? If there is no accord between the president and the House of Representatives, it may happen. The threat of default has gotten down to the last few days of negotiations before. This time, each side appears ready to take it at least that far. If there is no resolution, the federal government will be able to pay only for essential services. That includes, for example, the military. However, if the stalemate goes on for any period, Social Security could be a victim. (Here is what it costs to retire comfortably in each state.)
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Treasury Secretary Janet Yellen recently said in a speech, according to CNBC, that after some cuts in government payments can be made, “On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”
Approximately 66 million retired Americans rely on Social Security for all or some of their retirement. Even if the Social Security Administration had access to cash, payments could be delayed, and no one knows for how long.
The lack of Social Security payments would cause an unprecedented catastrophe. It would push millions of retired people below the poverty line, at least temporarily. There is no mechanism to offer them alternative income. People with retirement savings would be better off. However, not every retired American has a large amount of cash readily available.
The effects would ripple far into the nation’s economy. Seniors whose spending contributes to gross domestic product (and that is virtually all seniors currently) would have to slash what they spend. There could be defaults on residential payments. People who rely on the “seniors economy” could temporarily lose their jobs as well. In other words, people who are not retired but who support those who are could find themselves without income.
The trainwreck of a government default may be unlikely. However, the president and Republicans in the House are far apart. Sometimes a game of chicken has disastrous results.
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