A poster at a bus shelter shows the national debt in Washington, DC, on May 21. Mandel Ngan/AFP/Getty Images
President Joe Biden and House Republicans have a short amount of time to prevent the US from defaulting on its debt, which would impact millions of Americans and unleash economic and fiscal chaos here and around the world.
Treasury Secretary Janet Yellen has warned the government may not be able to pay all of its bills in full and on time as soon as June 1.
Here are just three ways that Americans could be affected by debt default:
Social Security payments: Payments to about 66 million retirees, disabled workers and others receive monthly Social Security benefits could be delayed in a debt default scenario, though it’s possible Treasury could continue making on-time payments because of the entitlement program’s trust fund, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
Almost two-thirds of beneficiaries rely on Social Security for half of their income, and for 40% of recipients, the payments constitute at least 90% of their income, according to the National Committee to Preserve Social Security and Medicare.
Other government payments could also be affected, including funding for food stamps; federal grants to states and municipalities for Medicaid, highways, education and other programs.
Federal employees and veterans benefits: More than 2 million federal civilian workers and around 1.4 million active-duty military members could see their paychecks delayed. Federal government contractors could also see a lag in payments, which could affect their ability to compensate their workers.
Also, certain veterans benefits, including disability payments and pensions for some low-income veterans and their surviving families, could be affected.
The economy: A debt default could trigger an economic downturn, which would prompt a spike in unemployment. It would come at a particularly fragile time — when the nation is already dealing with rising interest rates and stubbornly high inflation.
How much damage would be done would depend on how long the crisis continues. If the default lasts for about a week, then close to 1 million jobs would be lost, including in the financial sector, which would be hard hit by the stock market declines. Also, the unemployment rate would jump to about 5% and the economy would contract by nearly half a percent, according to Moody’s.
“It would be a body blow to the economy, and it would be a manufactured crisis,” said Bernard Yaros, an economist at Moody’s.