What happens if the U.S. defaults on its debt?

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As Washington teeters closer to a possible government shutdown at midnight Thursday, here’s why the status of the nation’s debt ceiling may ignite more worry in financial markets.September 30 marks the end of the federal government’s fiscal year, and the deadline for Congress to pass a funding measure. The debt ceiling, which is the amount of money lawmakers authorize the Treasury Department to borrow, must be suspended or raised by mid-October, or the United States likely will default on its debt. It’s important to note that no one knows precisely when the U.S. Treasury will run out of money to pay its bills, including bondholders, let alone what would happen next. U.S. sovereign debt generally has been considered the safest and most liquid to own in the world, and all kinds of financial markets products and processes have been pegged to the orderly functioning of the near $21 trillion Treasury market. Still, after a couple of topsy-turvy years in which the pre
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