The US has never defaulted on its loans before, so it is not clear what exactly would happen if lawmakers fail to raise the debt ceiling. Policy experts claim that it could lead to either a government shutdown or a default.
Treasury Secretary Janet Yellen warned that if the U.S. defaults on its loans, that could cause an “economic catastrophe” for the public, including senior citizens and disabled people who require Social Security funds in order to pay for food or bills.“We are already seeing the impacts of brinksmanship: investors have become more reluctant to hold government debt that matures in early June,” Yellen said at a press conference on Tuesday.
If a shutdown occurs, portions of the Social Security Administration would close, but checks would likely be automated and still go out. If a default occurs, then there would be no money to fund the checks and they would completely stop. However, Ed Mills, a Washington policy analyst at Raymond James, told CNBC that if there is a default, it would be remedied quickly.
Social Security benefits are paid through two sources: payroll taxes and bonds that the Treasury Department redeems from Social Security trust funds.
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