From FreedomWorks -
Default won't happen.
This chart shows why the U.S. Government will not default on its debt, should it hit the statutory debt limit set by Congress (a limit that the Treasury Deparment suggests may be reached later this month).
Look at the red spending bar.
Zero in on the small section at the far left, marked "Interest on Debt."
Now compare it to the entire green tax revenue bar above it, marked "Income."
The two bars aren't even close in length.
Uncle Sam takes in vastly more money each day than he needs to pay principal and interest on U.S. government bonds.
That's what a "default" is -- failing to pay your creditors on time.
Were we to arrive at "X day," meaning the day when the statutory debt limit is reached and the president can no longer legally borrow on the credit of the United States, the president would not default.
Rather, he would be forced to decide whom to pay first, and whom to pay later when sufficient funds become available. This is called prioritization.
No statute bars the president from prioritizing holders of U.S. government bonds over others to whom the government also has financial obligations. Some lawyers contend that the U.S. Constitution actually requires him to do so (14th Amendment, section 4).
Regardless of the law, every president, including the current one, when the question comes up, swears publicly never to do anything that would diminish the "full faith and credit" of the United States.
"Full faith and credit" is a term of art, with a specific meaning. "Faith" is a word from the world of contracts. It means "keeping your promises." "Credit" is a word from the world of finance. It means "having a reputation for always repaying your debts to creditors, on time, in full, without fail." Creditors are people who have lent you money. Additionally, in the phrase "full faith and credit" the words "full" and "and" narrow the meaning of the phrase, so that, as I said, it is a term of art. It means "always paying back those who have lent you money, on time, in full, according to the terms of the contract, without fail."
You usually hear the term "full faith and credit" in the context of government debt. Governments are held to a higher standard than other kinds of debtors because they have the power to tax -- to take their citizens' or subjects' money by force. They don't really have a good excuse for missing a payment.
The key element in the definition is "those who have lent you money."
When someone purchases a U.S. government bond, he is lending money to the U.S. government. The "full faith and credit of the United States" means Uncle Sam's reputation for always paying back bondholders. It doesn't refer to his reputation for paying others to whom he may owe money.
While other kinds of government payments -- paychecks, benefit checks, reimbursements, financial grants of various kinds -- may be subject to the terms of a contract and thus matters of "faith," they are never matters of "credit."
Take an extreme example: Social Security retirement benefits. These are paid monthly, transferred electronically to retirees' bank accounts. (Most Social Security payments are made on the second, third, and fourth Wednesday of each month). Let's say we hit the debt ceiling on the second Monday of the month, and, come Wednesday, the president runs short of cash and finds he can't make the regular Social Security payout. He is forced to postpone it for, let's say, one week, due to lack of sufficient funds. (This is very unlikely to happen, by the way. Look at the chart again.) In that "worst of all possible scenarios," retirees will be inconvenienced, to be sure -- some, severely. They may cry, "Breach of faith!" But no one could truthfully cry, "Default!"
Those who warn of a "default" "rattling the stock market" and possibly causing "economic Armageddon" are either confused or consciously trying to confuse people.
Markets don't much care about the government's "debts" to retirees. They care a lot about its debts to creditors. Remember, "default" is when you fail to pay your creditors.
Uncle Sam has never yet missed an interest payment on U.S. government bonds. (Okay, he did once, unavoidably, in 1979, due to a computer error, but the amount was so small and the delay so brief that it had no discernible effect.)
But he has of course missed other kinds of payments. The world did not end.
Has the IRS ever been late in sending out a tax refund?
Has Medicare ever been late in reimbursing a doctor or hospital?
No serious person regards those delays as "defaults."
Delaying tens of billions in Social Security benefits would not rattle financial markets one-tenth as much as would a failure to make a tiny, legally obligatory interest payment on a series of U.S. Government bonds.
Every president is determined to avert a true default, because, as we noted, every president wants to protect the government's "full faith and credit," because being the first president to ruin our perfect repayment record would reflect negatively on his performance as president. A default would be a black mark on his legacy.
So in the event the president does run out of borrowing headroom, he will prioritize.
Default won't happen.
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[Update: October 9: Moody's, one of the main independent credit rating agencies that determine whether a government is in "default," confirms that default won't happen.]