7 doomsday scenarios if the U.S. crashes through the debt ceiling

7 doomsday scenarios if the U.S. crashes through the debt ceiling

Jeff Stein

Federal workers furloughed. Social Security checks for seniors on hold. Soaring mortgage rates. A global financial system sent reeling.

Leaders from Congress and the White House are trying to forge an agreement to lift the federal debt ceiling, with only a few weeks before the Treasury Department may no longer be able to avert an unprecedented U.S. default. If they fail, and the government can't meet its payment obligations, economists and financial experts predict chaos.

"It would be a lethal combination," said Mark Zandi, chief economist at Moody's. "You can see how this thing could really metastasize and take down the entire financial system, which would ultimately take out the economy."

Treasury Secretary Janet L. Yellen has said the agency may only be able to sustain operations until June 1 before running out of money if the government can't borrow more. That specific deadline - known as the "X-date" - depends on tax revenue and spending, which can fluctuate dramatically from week to week.

What happens next is also hard to predict.

The cascading impacts of default would probably compound - a pause in federal payments would hurt the economy, which would hurt the stock market, which would in turn hurt the economy even more, and so on. The interactions between collapsing home values, rising interest rates and a destabilized global financial system are hard to calculate. Some estimates suggest that more than 8 million jobs could be wiped out. Mortgage rates might soar by more than 20 percent, according to some projections, and the economy would contract by as much as it did during the 2008 Great Recession.

But what economists stress above all else is the unpredictability - particularly if the breach lasts for weeks or months. Experts stress that the worst-case scenarios are unlikely if lawmakers only narrowly miss the deadline, perhaps by hours or even a few days, but that the risks rise dramatically should the standoff persist.

"We do not know: This has never happened," said Claudia Sahm, a liberal economist who worked at the Federal Reserve. "What makes me so concerned is I can't sketch out, and I don't think anyone can, is: What happens at X+1?"

Here are some outcomes that experts worry about most.

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