I*Heart*Stuart:Basically, the US wouldn't be able to pay all of it's bills. I think SS checks, etc might not get paid. Interest rates would increase. The US credit rating would drop.
This. No more checks would get mailed, the rate on US Debt would go up. If you are worried about the return on your bank accounts wait awhile and then go buy your US T-bills
If foreign (and even domestic investors) stopped buying government bonds then the US would have to raise interest rates to attract buyers.
Eventually the US would be like a person that has too much credit card debt and can't afford to have nice things because they have to make huge payments on the interest every month.
Alternatively, the US could print more money. But that would cause inflation and weaken the buying power of the US dollar. It might not be so bad for young people with jobs because wages should also rise but it would be really rough for retirees if gas or grocery prices rose rapidly.
It would increase the rates on any kind of loan in the US and maybe the world: cars, houses, student loans, credit cards. Young people would probably have a lot of debt and might put off having children or buying a house.
tfarabians:We are trying to refi our house right now so if it defaults we personally are F*ucked! Very scary! Also if our credit rating goes down as a country it causes foreign investors to be wary of us. If you thought the economy has been bad for the past few years it would be nothing compared to what this would do.
To this note, if the SS checks stop coming and the Gov't cant pay gov't workers, imagine what that unemployement number will do to spending and to the stock markets.
Not to cause panic because they will come to a plan, so those checks will still come, but that doesn't mean it won't happen at the cost of higher interest rate or high inflation.