Economic experts on what could happen if Congress fails to raise debt ceiling

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• Amna Nawaz:

  Congressional and White House negotiators met again today as they try to reach a deal on the debt ceiling.

  Both President Biden and Speaker McCarthy have said they believe they can get to an agreement in the coming days. But fears of a default still loom, since both sides remain divided on a number of issues, including federal benefits and spending cuts. As the deadline closes in, some experts are weighing what could happen in the case of default.

  Our economics correspondent, Paul Solman, is our guide.

• Paul Solman:

  To swipe from "60 Minutes," the debt ceiling clock is ticking. But what would happen if the U.S. actually defaulted on its debt, the $31.4 trillion of Treasury IOUs out there?

  That hasn't happened since the Treasury was established in 1789. Now, the debt ceiling is the cap on the total amount of money the federal government is authorized by Congress to borrow. Created in 1917, it made up about 10 percent of us GDP, compared to this year is projected 100-plus percent. So, at long last, a default?

  Simon Johnson, MIT Sloan School of Management: That is a very big deal. That sends more than ripples. That sends shockwaves around the world throughout financial markets and massively disrupts U.S. government operations.

• Paul Solman:

  Not only that says Simon Johnson, former chief economist at the International Monetary Fund.

• Simon Johnson:

  It really impacts our national security very badly. That is that cataclysmic financial crisis that everyone fears and believes can't happen.

• Paul Solman:

  Longtime bond trader Jose Luis Daza:

• Jose Luis Daza, QFR Capital Management:

  There's no other country in the world that separates the process of appropriating funds to spend from the process of determining the financing to spend it, the amount of debt.

• Paul Solman:

  Like everyone I spoke with, Daza thinks U.S. debt default would be a financial Armageddon.

• Jose Luis Daza:

  It lends itself for a political confrontation.

• Wendy Edelberg, Brookings Institution:

  What's most alarming here is that we don't really know what would happen.

• Paul Solman:

  Which is why Wendy Edelberg of the Brookings Institution thinks Treasury won't default, should the debt ceiling be breached, but will make regular payments to current bondholders.

• Wendy Edelberg:

  What's assumed is that it would make the principal and interest payments, so that it wouldn't strictly be in default on U.S. Treasury securities.

• Paul Solman:

  But the Treasury would need to stop paying someone. Who exactly?

• Wendy Edelberg:

  The U.S. taxpayer owes a lot of people money on at any given day. Obviously, we owe anybody who owns Treasury securities. We owe them interest. But we also owe doctors and hospitals money who have treated Medicare and Medicaid patients.

  We owe federal workers and federal contractors money because they have done work on behalf of the U.S. taxpayer. We also owe a whole lot of people money who are entitled to benefits, like Social Security.

• Paul Solman:

  About 70 million Americans receive Social Security benefits, more than one in five of us. But for many, isn't the money supplemental?

• Simon Johnson:

  So some people can afford to wait a little bit before they are paid by the federal government. But many tens of millions of people who receive Social Security can't afford to wait.

• Paul Solman:

  In fact, for 40 percent of beneficiaries, Social Security is their sole means of support.

• Simon Johnson:

  The impact on them would be dramatic, can't pay the rent, can't buy food, can't pay essential medical bills. I mean, that would just be a horrible, horrible human cost.

• Paul Solman:

  And what about America's millions of federal employees, more than two million military personnel, some 800,000 postal workers, and another two million people at jobs as varied as TSA security at the airports and the employees at our national parks?

• Simon Johnson:

  Anyone who's living paycheck to paycheck, if you don't give them a paycheck, even for one week, or even for a couple of days, how are they going to feed their families? How are they going to get to work, buy gasoline? And how are they going to pay the rent? And if you don't pay your rent in this country, you generally get evicted pretty quickly.

• Paul Solman:

  Now, work-arounds have been proposed. Mint a trillion dollar platinum coin or coins, the Fed accepts, and then deposits the money at the Treasury.

  New interest-only Treasury bonds that add nothing to the debt total. New high interest bonds sold at a steep discount that would profit the Treasury on the books and reduce the total debt. Rather than risk anesthetizing you with the details, suffice it to say, all such gimmicks will wind up in court, say Edelberg and others, and then:

• Wendy Edelberg:

  Who wants to buy those Treasury securities knowing that they might prove to be illegal and canceled? So doing any of these work-arounds creates its own flavor of chaos.

• Paul Solman:

  So what's likely to happen?

• Jose Luis Daza:

  I expect this to get resolved one second before the ultimate deadline, and when the United States will start the process of get into a default of one or other forms of payments that they need to make.

  In game theory, it does not make any sense to reach an agreement before the last second.

• Paul Solman:

  When I asked Wendy Edelberg, former chief economist of the Congressional Budget Office, what are your odds as to whether or not this is resolved before zero hour?

• Wendy Edelberg:

  I put the odds on this happening and getting to the point where Treasury has to juggle payments and make one payment and not another one, I put high odds on that.

• Paul Solman:

  Trader Daza has a game theory example, from the game of chicken, two cars coming straight at each other.

• Jose Luis Daza:

  And to some extent, I feel that the Republicans are about to throw the steering wheel out the window and they can just only go straight, and they will force President Biden to do something.

• Paul Solman:

  Simon Johnson doesn't expect a head-on collision, but, he says:

• Simon Johnson:

  I think what we're talking about is the risk of an accident, a very serious accident, that could have massive damage to our economy and the world, but a low probability of a very serious accident is something that we should worry about.

• Paul Solman:

  My own reaction too, for what it's worth, no kidding.

  Paul Solman for the "PBS NewsHour."