With just nine days remaining until the U.S. Treasury runs out of funds to meet its obligations, the possibility of the nation’s first-ever default looms large, sending Congress into a frenzy of negotiations. The immediate effects of a default would cause the Treasury to prioritize which bills to pay, with direct payments to individuals such as Social Security and military pay most at risk. Although retirees collecting pensions and state salaries are safe, funds flowing through local budgets, such as education and transportation, could still be impacted. The economic ramifications of a default could lead to a downgrade of the U.S. credit, rising costs, and the potential for a global recession.
Negotiators representing House Speaker Kevin McCarthy and President Joe Biden are working towards reaching a deal, but the Republican-run House is leveraging a threat of default to push through spending cuts and other GOP policy priorities. A deal must be reached before the deadline, as the implications of a default could continue to reverberate even after a resolution is found.
Nevada, still recovering from pandemic-era losses, is firmly reliant on tourism, making it more susceptible to recessionary periods. It is believed that the effects of the looming economic calamity caused by default could prove devastating for the state.
A default could lead to a downgrading of the U.S. credit, with interest rates likely to rise sharply as a result. Sizable chunks of Nevada’s treasury assets are tied up in U.S. bonds or other Treasury-backed instruments, making the state’s borrowing capacity limited in the event of a default.
The long-term financial ramifications of a default are far-reaching, with a credit downgrade ultimately leading to the value of the U.S. dollar falling. This could affect Nevada’s economy, with the cost of imports rising, making the cost of doing business more expensive, leading to job losses and, ultimately, a potential recession.