Debt Ceiling: What a U.S. 2023 Default Could Mean For The Americans

A recession and job losses are not the only outcomes.

According to Bloomberg, the U.S. Treasury's cash pile dropped to $38.8 billion, its lowest level since 2017. The United States has only $67 billion of extraordinary measures left to pay its bills. To put these numbers in perspective, the U.S. government’s daily interest expense is $1.3 billion.

JPMorgan Chase CEO Jamie Dimon told Bloomberg earlier this month that the bank was holding weekly meetings to prepare for a possible default.

As debt ceiling negotiations continue, Fitch places U.S.’s “AAA” rating on watch negative. This means that the United States is in danger of losing Fitch Ratings' top sovereign debt status due to "increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit," the rating company said. Fitch is currently reviewing the country’s rating for a potential downgrade.

"Fitch still expects a resolution to the debt limit before the x-date at which point the U.S. Treasury exhausts its ability to pay its obligations. However, we believe risks have risen that the debt limit will not be raised or suspended before the x-date and consequently that the government could begin to miss payments on some of its obligations."

Speaker McCarthy said the two sides have hit “a crunch time” as they expect to reach an agreement this weekend but there is no guaranty. Late Saturday, Politico reported McCarthy commenting: “I don’t know about today”. However, he stated that he sees progress. “But listen, this is not easy in any shape or form,” he later added.

As Treasury Secretary Yellen’s X-date is now June 5th, time is running out and even though the majority believes that a deal will be reached, there is a possibility that this game of chicken may get derailed. McCarthy says he hopes there will be a deal by June 5th. But hope is not a plan.

Many countries have defaulted in the past, among them are Greece (2015), Argentina (2001), Mexico (1994), Russia (1998), Ukraine (1998) and France (1958). Typically, the main causes of a sovereign default are high debt burden that is typically a result of financial mismanagement, a banking crisis, political instability and economic downturn.

What if the U.S. is allowed to default? There are multiple scenarios but here are several potential outcomes within the context of a deep recession.