As a deal to raise the federal debt ceiling has been a struggle for congressional negotiators and U.S. President Barack Obama to obtain, securities markets may soon panic at the prospect of those negotiations failing.
Be clear, the United States doesn't have to default on its bonds. After Aug. 2, it still will collect taxes and other revenues exceeding $180 billion per month; and interest payments on the national debt eat up less than $30 billion, UPI.com reports.
If the Treasury prioritizes expenditures - as the state of Minnesota did during its recent shutdown - it could pay interest on bonds, roll over bonds coming due and pay Social Security recipients and many other obligations but it would be late to many vendors until the debt ceiling was raised or new sources of cash were found.
The United States wouldn't be insolvent but rather in a political crisis.
If Greece or another troubled eurozone nations are late paying creditors - be they bondholders or vendors - investors are justified to believe it won't be able to make good on all its debts without a restructuring - a partial default.
The United States, absolutely and without doubt, has the economic resources to pay its debts once the political crisis is resolved, especially since this crisis is precipitated by an elected majority in the House of Representatives - the political body designated by the Constitution to initiate taxing decisions - seeking to improve the integrity of federal finances.
The Republicans are holding out for a trajectory of future budget deficits that makes the United States more not less able to pay its debts - the impasse can only be broken by a deal that improves the fiscal outlook of the United States.
With or without the help of Standard and Poor's and other bond rating agencies downgrading U.S. bonds for actual or prospective late payment to some federal contractors stock and bond markets may panic.
