What happens if U.S. defaults on its debts?
Even in a default, many investors would see Treasuries as safer than stocks.
FORTUNE — As Congress seems nowhere closer to resolving the nation’s budget problems on day four of the government shutdown, federal officials have raised fresh warnings the U.S. could default on its debt.
Credit markets could freeze, the dollar’s value could spiral, and U.S. interest rates could skyrocket, the U.S. Treasury Department warned Thursday. If Congress fails to lift the debt ceiling, the U.S. would have a financial crisis even worse than the one in 2008.
All this obviously sounds very bad, but it’s hard to say what could happen or if we should even believe the Treasury Department. After all, a U.S. default is unprecedented. If Americans believe House Speaker John Boehner and most on Wall Street, the U.S. won’t default at all.
But in the off chance it does, investors would likely still buy up the nation’s debt, at least for a short while. Bond yields may rise some at first, but not by much — if anything, they’ll likely fall.