Following Debt Ceiling Talks, Here’s What Happens If U.S. Defaults Its Loans!

Treasury Secretary Janet Yellen previously announced that U.S. could run out of funds if the Congress does not resolve the debt ceiling issues soon. In this article, read and find out what would happen if the country defaults on its loans like in 1979!

Earlier in May, the U.S. Treasury Secretary Janet Yellen have announced that the U.S. will run out of funds as the government’s borrowing costs increased to 5% for the month of June. Yellen added that as early as June 1, the country could fail to pay all of its loans which would heavily impact the economy and financial markets.

Nonetheless, according to Nesbit, in 1979, the U.S. had accidentally defaulted on its loans after a series of events caused a temporary delay in paying investors who redeemed U.S. Treasury bills. These events reportedly increased the borrowing costs by 0.6% which became permanent in the U.S. even after a decade later.

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Impact of Debt Ceiling Issues

However, according to Vanek Smith, Howard Gleckman of the Urban-Brookings Tax Policy Center at the Urban Institute states that even if the U.S. defaults on its loans again, the outcome would be the same. Gleckman explained that the major effect would be interest rates increasing significantly.

This means that the interest rates would significantly increase for potential borrowers. Individuals and businesses will also have difficulties getting loans. Zillow, a real estate company, also predicts that a drawn out government default will increase the mortgage rates from 6.4% to around 8.4%.

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