What if Congress Doesn’t Increase the Debt Limit? The Risks of Default

We all make financial decisions every day. Some are riskier than others. Taking your earnings and investing them in a Fortune 500 company is a much safer bet than providing your bank account number to a stranger who promises to wire you millions of dollars. Prudent individuals recognize potential risks, determine how much risk is too much, and make decisions accordingly. As the president and Congress confront the nation’s debt limit – an issue that impacts all Americans, as well as the global economy – they will have to weigh the risks, both known and unknown, of failing to take action.

The United States government has a lot of debt – $16.7 trillion to be exact. This debt results from the fact that, in most years, the federal government spends more money on programs and services (such as the military, Social Security benefits, and food stamps) than it receives in revenues (such as from taxes on income). The U.S. Treasury Department must borrow money to cover the difference; otherwise the government would not be able to pay all of its bills.

This post appears on the National Constitution Center’s blog. Read the full analysis.