Default in our stars?

In a letter to Congress yesterday, Treasury Secretary Janet Yellen warned the US government could default on its debt as early as June 1, should Congress fail to reach an agreement on raising the federal debt ceiling before then. (Quick context: the federal debt ceiling is the total amount of money the US government is legally authorized to borrow to meet its existing obligations.)

🤔 What happens if the ceiling is reached?... If the US fails to make interest payments to bondholders, then the federal government would be in default for the first time ever. This would lower America’s credit rating, increase the cost of the national debt, and potentially set off a global economic crisis.

• In 2011, Congress held a similar standoff over government spending and the debt limit. Despite lawmakers reaching a deal two days before a potential default, the situation caused a downgrade of the US credit rating, which led to a stock market crash.

👀 Looking ahead… House Republicans passed a bill last week that would raise the federal debt ceiling in exchange for an estimated $4.8 trillion worth of federal spending cuts. The legislation isn’t expected to progress in the Senate, but will be used in negotiations between the White House and congressional leaders, which are scheduled to kick off one week from today.