Payments to about 66 million retirees, disabled workers and others who receive monthly Social Security benefits could be delayed in a debt default scenario. Kevin Dietsch/Getty Images
President Joe Biden and House Republicans have just one month to prevent America from defaulting on its debt, which would affect millions of Americans and unleash economic and fiscal chaos here and around the world.
Treasury Secretary Janet Yellen warned last week that the government may not be able to pay all of its bills in full and on time as soon as June 1.
Here are just three ways Americans could be affected debt default:
Social Security payments: Payments to about 66 million retirees, disabled workers and others who receive monthly Social Security benefits could be delayed in a default scenario, although the Treasury may continue to make one-time payments because of the trust fund of the entitlement program, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
Nearly two-thirds of beneficiaries rely on Social Security for half of their income, and for 40% of beneficiaries, payments make up at least 90% of their income, according to the National Committee to Preserve Social Security and Medicare.
Other government payments could also be affected, including food bond funding; federal grants to states and municipalities for Medicaid, highways, education, and other programs.
Benefits for federal employees and veterans: More than 2 million federal civilian workers and about 1.4 million active-duty military could see their paychecks delayed. Federal government contractors could also see delayed payments, which could affect their ability to compensate their workers.
In addition, certain veterans’ benefits, such as disability payments and pensions for some low-income veterans and their surviving families, could be affected.
The economy: A default on the debt could trigger an economic recession, which would lead to an increase in unemployment. It would come at a particularly fragile time, when the nation is already facing rising interest rates and stubbornly high inflation.
The damage that would be done would depend on how long the crisis continues. If the default lasts about a week, close to a million jobs would be lost, including the financial sector, which would be hit hard by stock market falls. In addition, the unemployment rate would rise to around 5% and the economy would contract by almost half a percent, according to Moody’s.
“It would be a body blow to the economy and it would be a manufactured crisis,” said Bernard Yaros, one economist at Moody’s.
Read more about how debt default can affect you here.
