What Happens if the Government Defaults?

No one knows exactly what would happen, but it won’t be pretty: A Dispatch Explainer.

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A screen shows the national debt clock after the US hit its debt limit and the Treasury started using "extraordinary measures" to avoid default on January 19. (Photo by Fatih Aktas/Anadolu Agency via Getty Images)

Economists still don’t know the full consequences of failing to raise the debt ceiling before the U.S. Treasury’s “extraordinary measures” are exhausted this summer. Though most broadly agree with Treasury Secretary Janet Yellen, who said this week that defaulting on the national debt would be a “catastrophe.”

Not raising the debt ceiling also means the federal government will have to break the law somehow: Borrowing beyond the limit set by Congress (most recently in 2021) is blatantly illegal—but so is refusing to spend money Congress has appropriated.

What are other consequences of failing to raise the debt ceiling? 

Less money in means less money going out.

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