Obama Administration officials and Members of Congress continue to warn us that when we reach the debt ceiling on August 2nd, we will default on our debt obligations. Moody's Investors Service, one of these obnoxious credit ratings agencies that is given far more influence over world markets than it probably should have, announced that it has put the U.S. Treasury ratings on review for a downgrade in the wake of the government's continued failure to reach a deal. Things probably were not helped today when President Obama walked out
of a negotiating meeting with Congressional leadership and Majority Leader Cantor said that all progress in negotiations had been completely erased.
To emphasize, reaching the debt limit does not mean we instantly default. We will still have the money to pay off what we owe. However, we will not have money to run most other things in government, so it would still be painful. If it came down to it, though, we can (and arguably by the 14th Amendment must) continue to meet our loan obligations. Default on our debt would be a purely political choice by the government, not an automatic one. Cries of default are just political scare tactics that are making the markets panic early.