I have read numerous articles that talk in generalities about the consequences of failing to raise the debt ceiling. But I have not really read anything that tries to realistically play out the consequences.
What do we think would happen?
First, we know that revenue coming into the government would not be sufficient to pay the combination of (1) interest on the existing debt, (2) entitlement program payments and (3) authorized discretionary spending. We can be fairly certain that interest on the existing debt will continue to be paid (even though the bond holders arguably are the group least dependent on the payments). I doubt the President would invoke the "constitutional" option of claiming that the 14th Amendment permits borrowing on the grounds that the debt ceiling is unconsitutional because I doubt we would find any buyers for constitutionally suspect bonds. Or if we did find anyone willing to buy these "suspect" bonds, the interest rate likely would be very high.
So assuming the adminstration merely needs to prioritize payments based on actual revenue received, who does not get paid?
Do federal workers (including soldiers) not get paid? Unlike a government "shutdown," I think the workers could continue to go to work. The funds to pay their salaries have been authorized and appropriated by Congress. Treasury just would not have the money to pay the salaries. How long can these workers go without getting paid?
Do government contractors (such as defense contractors) not get paid? This approach might put pressure on Republicans to cave, as this group generally is a Republican interest group.
Do doctors treating Medicare patients not get paid? If so, do these doctors stop treating Medicare patients? Similarly, do payments to states to cover Medicaid patients not get paid? Again, if so, do doctors stop treating Medicaid patients? Again, doctors are another group that might put pressure on Republicans.
Do Social Security payments get made? Seniors certainly are not hesitent in exercising their political power.
Do all of these groups simply get paid a pro rata portion of what they otherwise would have been paid so that the "pain" is shared equally by all recipients of government spending? This approach sort of mimics what happens in a bankruptcy where all creditors get paid a pro rata portion of their claims based on the assets of the bankrupt debtor. This approach might be view as the most "fair" approach.
Beyond the questions regarding who gets paid (or not paid), what happens to the U.S. credit rating? Moody's and S&P both have indicated that the U.S. credit rating would be downgraded. I believe them. The more important question is, do we care? We care if interest rates go up. There is no certainty that interest rates would increase. The rating agencies don't set interest rates--just credit ratings. But most experts seems to assume that interest rates would go up. Of course, increased interest rates would mean higher payments on the existing debt (as expiring debt is rolled over to new debt at higher interest rates). Thus, with increased interest payments, even less money would be available to pay the rest of the federal obligations (entitlements and discretionary spending).
The situation is unchartered territory. Any other ideas of what would really happen?