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Explainer – Debt ceiling impasse: What happens if Washington defaults on its bills?

By Jason Lange

WASHINGTON (Reuters) – If Congress does not raise funds 47.4 trillion government borrowing cap , failure could trigger economic catastrophe and panic in global financial markets.

Below is a timeline showing daily tax and spending obligations based on warnings from the U.S. Treasury that it could run out of cash as early as June 1, and forecasts from the Bipartisan Policy Center, a Washington-based think tank, How the string of defaulted payments will unfold.

June 1

The US Treasury’s cash coffers will dry up, causing it to hit the debt ceiling. Today’s 26 $100 million in tax revenue is not enough to cover Congress’s promised spending obligations of approximately 26 $100 million.

Who won’t get paid? Probably everyone is expecting a check.

If the treasury operates according to the plan laid out by 2011, it doesn’t pick and choose which bills to pay, but waits until it has enough money to cover the entire day bills. Healthcare providers will be stiffened by the 26 billion paid out by Medicare, the public health insurance program for older Americans. Soldiers will also not get paid.

Wall Street investors can still get paid now, but there are risks. As debt principal payments come due – including over 47 $1 billion on June 1 – the Treasury will borrow just enough to make payments due and stay below the debt limit . If investors refuse to lend the money out of fear of not being paid back, the U.S. could start defaulting on its payments and defaulting on its debt, destabilizing the global financial system.

June 2

Even if Washington continues to pay its debts on time, the stock market may be depressed. That could put pressure on Republican House Speaker Kevin McCarthy and Democratic President Joe Biden to act quickly. Republicans, who control one chamber of Congress, are demanding deep spending cuts in exchange for their support for raising the debt ceiling.

If no agreement is reached, the check for another day may not be cashed. Pensioners and other Social Security beneficiaries will not get 15 billions owed. States will not receive the $2 billion they are owed for Medicaid health insurance subsidies for the poor. By this time, most of the country will not be receiving payments.

June 6th

Arms manufacturers and other companies that supply the US military will not collect the $2 billion owed to them.

June 7

About a week into the crisis, some checks may finally be issued. Since the US Treasury was unable to increase its debt, it could have collected about 101 billion in taxes, enough to cover the bill from June 1st. But more bills will continue to come due, and Americans who are expected to deposit their tax refunds on June 7 won’t be owed the roughly $1 billion they owe.

June 8

State and local government-run education programs will not receive $1 billion in program funding. The crisis in America’s hospitals will deepen as federal insurance payments fall further behind.

6 months

6 Things are going to get even more dangerous with regards to national debt as the Treasury will pay about $2 billion in interest to investors. The Treasury said in 2014 – following another near-bump against the debt ceiling – that it was technically able to prioritize interest payments over other obligations.

Provided that the day’s inflow of business tax revenue will provide the Treasury with enough cash to service debt after that capacity is knocked out. However, the income does not cover all other bills due in June 15, such as military pay.



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