Q: If Congress fails to approve an increase in the debt ceiling, would that pose a significant threat to the U.S. economy?
A: Yes. The U.S. debt is likely to reach its current authorized ceiling by the middle of May. While the Treasury has some maneuvering room, it could face default by early July. The loss of confidence in the U.S. could cause the dollar to plunge and interest rates to surge. Many government payments, including military salaries, Social Security, Medicare, and unemployment benefits, would be halted, limited, or delayed. The U.S. government’s default could also trigger a domino of defaults throughout the economy as various companies reliant on interest or principal payments from the Treasury could no longer meet their own payment obligations. A financial crisis on the scale of the 2008 experience could return.