What happens if the US reaches its debt limit?

Answer 1

If no agreement can be reached in the next few weeks, the Treasury will have to prioritize its payments. It would most likely delay or reduce payments to the states, individuals and to federal suppliers. There is a real possibility, for example, that Social Security checks might be delayed. It is unlikely that the Treasury would delay payments on its bonds and treasury bills, as that would drastically compound the problem by making it much more expensive for the US to borrow more. Servicing existing debt is always highest priority for any organization. (Usually, the IMF will intervene before a country defaults on its debt payments).