Five Shocking Debt-Limit Scenarios

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from Money & Markets,

If you’re worried about government shutdowns created by warring politicians in Washington … let’s focus on … the debt limit and the threat of a U.S. government debt default just a couple of weeks from now.

According to the U.S. Treasury Department, Congress has only until October 17 to raise the limit. If it doesn’t, the Treasury says it will be down to just a small wad of cash that would be gone in a matter of days. The entire nation would be close to falling off the dangerous cliff of default.

Here are some possible scenarios:

Scenario #1:

At the 11th hour, the warring factions reach a compromise and Congress raises the debt limit to fund the government’s operations normally.

Scenario #2:

The U.S. government defaults on its maturing debts.

Scenario #3:

Congress lets the U.S. government default. But the president overrides Congress, invokes the 14th amendment and forces the government to borrow and spend exclusively by executive order.

Scenario #4:

The President decides to pay off maturing debts but sacrifices nearly everything else.

Scenario #5:

Global bond investors rise in rebellion, dump their U.S. bond holdings and force a government contraction similar to that of scenario #4. Can this happen again? Absolutely. In fact, among all the scenarios now before us, this is ultimately the most likely. Indeed, most other scenarios may turn out to be little more than sneak previews that lead to this final outcome.

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