WASHINGTON, May 23 (Reuters) – What could happen on Main Street if Washington’s political showdown over the debt ceiling stopped the government from cutting checks that fund a quarter of the economy?
Americans could quickly notice painful blows dealt to their retirement accounts as stock markets swooned, and within days the lack of federal payments could weigh heavily on doctors’ offices, retirees and workplaces throughout the country.
HOW WOULD IT START?
If the U.S. Congress and the White House failed to lift the self-imposed $31.4 trillion legal limit on federal debt, the Treasury Department could start missing payments on its obligations as soon as June 1, according to the department’s chief, Janet Yellen.
At that point, Washington would be under severe pressure to keep making payments on U.S. bonds, which underpin the global financial system. Missing a payment would trigger a Wall Street meltdown of historic proportions. “It would be downright cataclysmic,” said Mark Zandi, an economist at Moody’s Analytics.
Even if the Treasury paid bondholders on time, as most observers expect it would try to, the political dysfunction driving the crisis would sow distrust in America’s economic prospects, and the value of most everything owned by Americans, from their homes to their retirement portfolios, would drop. “Stock prices would fall, commercial real estate values, house prices. Everything would fall,” Zandi said.