The Impact of a US Default on debt

Debt Ceiling Fact Sheet THE IMPACT OF A US DEFAULT ON DEBT WHY DOES THE US NEED TO BORROW MONEY? The US government spends more money than it makes. On average, the government spends $1.2 trillion more than it makes per year (2012). To pay the difference the government borrows money. US FEDERAL BUDGET, 1993-2013 Source: US Dept of Treasury REVENUE $3.7 trillion $3.5 trillion SPENDING $2.7 trillion $2.8 trillion $2.1 trillion $2.4 trillion 2000 $2.2 trillion 2009 $1.7 trillion 1993 2013* ESTIMATE WHAT DOES THIS MEAN? If US government reaches the debt ceiling, it can't borrow any more cash to pay for their bills. This includes government payroll, interest, govern- ment programs). WHAT WILL HAPPEN IF THE US DE- FAULTS? The US is the world's biggest borrower. If the US ceases borrowing, credit markets will freeze simi- lar, but most likely worse than the 2008 credit crisis. WORLD'S LARGEST BORROWERS Source: World CIA Factbook $11.6 trillion $9.9 trillion $3.9 trillion $2.6 trillion POTENTIAL CONSEQUENCES OF A US DEFAULT •Decreased value of the US dollar. •Increased cost for US imports. •Downgraded US government credit rating resulting in paying higher costs to borrow in the future (increased mortgages and credit card interest). •In 2011, the S&P500 plunged 17% during the debt ceiling stale- mate. The S&P did not recover for 7 months. •Losing the ability to payback China (who owns $1.3T of debt) and Japan (who owns $1.1T of debt). •A dip back to a recession WRLD SO WorldSolo Index At time of publication 475.81 10/16/13, 5:45PM