Government default would put more people out of jobs and make it harder for unemployed Americans to find work. Photograph: Mario Tama/Getty
The closer the debt ceiling deadline comes, the closer the doomsday prepper in all of us gets to the surface. The bad news is that the default will affect everyone. The worse news is that there's not much to do to prepare for this scenario.
If the government defaults, it doesn't just hurt banks and people holding Treasury bonds. The US government makes about 80m separate payments each month, many owed directly to the American people. Among them are payments for social security, Medicare, Medicaid, military salaries, veterans' benefits, income tax refunds, food stamps, unemployment insurance, and government contracts with small and large businesses.
Also affected by the default will be the 47 million people on food stampswho won't be able to go to the store and purchase food. Government contractors may be unable to make payroll, leaving their employees scrambling to pay bills. Some furloughed workers are already applying for unemployment insurance.
You don't have to accept government assistance to feel the pain of a default, however.
If the US defaults on its debt, the interest on US treasuries will increase, causing interest rates on all kinds of loans – home, car, small business – to go up as well.
To put it simply, with higher interest loans, consumers might be dissuaded from purchasing a new car or a home. If small business can't get a loan, they won't grow and create jobs. Unemployment would likely rise.
If you have money in the stock market, a default could also be disastrous. If President Obama and Congress cannot reach a deal in a timely manner, all those Americans who have been diligently paying money into their 401k could see portions of their retirement funds disappear.
The IMF warned this week that if central banks do as little as diminish stimulus, it could result in a loss of $2.3tn to world markets. It would be much, much worse for a default, which would set off a crisis.
"How can the US choose to send Social Security checks to seniors or pay benefits to our veterans? How can the US choose whether to provide children with food assistance or meet our obligations to Medicare providers?" Lew said Thursday.
The worst part is, there's nowhere to hide. Yes, banks are putting more cash in their ATMs, but a default would cause such panic that there would be no way to get through the lines of people to get that cash. You'd need food, water, money, all at home: that's the kind of catastrophe that would result.