Should the Treasury run out of cash, the U.S. government would default on its financial obligations. Yellen has warned that federal contractors and employees would go unpaid and Social Security checks would stop, among other things. Unless their payments were prioritized, investors in Treasury securities wouldn’t receive interest payments or get back their principal on maturing bills, notes and bonds.
Yellen, Federal Reserve Chair Jerome Powell and many economists have warned that even a temporary default could send credit markets into chaos, increase U.S. borrowing costs for an extended period and damage U.S. credibility throughout the world. Yellen has repeatedly said that a recession would be in store.
Meantime, Congress is also facing a deadline in coming weeks to prevent a federal government shutdown. Agencies have been funded via a stopgap temporary appropriations bill since the Oct. 1 start of the fiscal year, and another so-called continuing resolution is likely after the expiration of that bill on Dec. 3.
--With assistance from Alexandra Harris.
This article was provided by Bloomberg News.