If you don't pay your electric bill on time, probably you'll get charged a buck or two in interest. As long as you pay off the balance in a reasonable amount of time, your lights will stay on.
So why is it such a big deal that the Treasury Department may soon be unable to pay all of its bills on time?
U.S. Treasury securities are used as both currency and collateral for countless financial transactions around the world. Think dozens per minute.
Right now, Treasurys are almost as liquid and secure as cash. If investors are at all nervous that they might not be honored, this could have a cascading effect that will cause stock markets to tumble, the dollar to lose value and unemployment to rise.
"If Treasury bonds were no longer seen as risk-free, that would have implications for virtually all collateralized loans, which is a huge proportion," says Phillip Swagel, a University of Maryland economist who served as assistant Treasury secretary for economic policy under President George W. Bush.
"If people couldn't hold Treasurys, they would have to hold a lot of cash," he says. "We don't want people to feel like they have to hoard cash to make transactions."
Still A Big 'If'
Note that Swagel is still using the word "if." No one knows whether time will run out on the Treasury Department's authority to raise money.
Technically, it ran out in May, but the department has been able to keep juggling since then. The nominal deadline Congress and President Obama have been working with is Thursday, when the Treasury says it will be unable to borrow any more money by issuing bonds.
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