an error occurred please try again later the us government is edging dangerously close to being unable to make critical payments as congress engages in debtceiling brinkmanship failure to pay its bills on time could come as soon as june 1 the us government has never defaulted on treasury bonds such an event would have the potential to roil the multitrilliondollar markets that underpin the global financial system the securities industry and financial markets association or sifma has spent more than a decade—since the 2011 debtceiling debacle—working out its contingency plan to avoid what would almost certainly be an unprecedented blow to financial markets here’s what’s involved what happens if congress doesn’t raise the debt limit in time the most likely event sifma said is that the treasury must delay when it repays a bondholder’s principal or the initial amount the government borrowed from an investor that is owed back to them at the date of maturity the treasury might also need to push back when it pays a bond’s coupon or the semiannual payment owed to an investor moneymarket funds banks and companies all invest in treasurys to manage their cash balances throngs of individual investors purchased government debt—particularly shortterm tbills—in recent months as interest rates rose the march regional banking trouble encouraged even more people to move their cash into tbills or moneymarket funds that invest in them investors who pulled cash from their bank and bought a threemonth treasury bill in march might be expecting their money back—plus earned interest—in june if a deal isn’t passed by then they could be stuck without their promised return for an indefinite period in either case sifma expects the treasury to take things daybyday broadcasting their plans to extend the life of a bond that is set to mature on the day prior the treasury will coordinate with fedwire—the fed’s payment system that provides electronic transfer and settlement services for banks and companies as well as the us government—to ensure bonds that are past due are handled correctly it remains unclear whether an investor who owns one of these bonds could expect to receive additional compensation from the government for the delay what could go wrong preventing any hiccups hinges almost entirely on the treasury the government must work with fedwire a day in advance of any scheduled payment if a bond technically matures without repayment—and the treasury doesn’t lay out its plan in advance—it would be untradeable in the fedwire system and assumed to have been paid that risks billions of dollars worth of assets freezing overnight leaving investors questioning the credibility of the us government many analysts expect the treasury to avoid that situation but even with meticulous planning a debtceiling breach could have hardtopredict ramifications policy makers have worried that such an event could spark unforeseen problems that cascade across wall street into a full blown financial crisis sec chair gary gensler warned that hedge funds have borrowed heavily in the treasury market to fuel their risky bets which “creates risks to the american public” in the debtceiling crisis of 2011 sp downgraded the us’s credit rating rattling financial markets analysts worry more downgrades could shake confidence in the us government anew spreading pain on wall street and potentially raising borrowing costs for the government and taxpayers how much cash does the government have on hand the treasury keeps an account at the fed known as the treasury general account from there the government pays bills such as social security military salaries and interest on debt while americans’ tax payments fill the socalled tga the treasury’s coffers are a little lighter than many analysts expected this tax season the tga was at 68 billion as of may 17 down nearly 900 billion from roughly a year earlier the government is targeting a yearend balance of 600 billion the treasury will continue to make some payments with its current cash but without the ability to issue more debt its maneuverability is crimped how does this impact companies’ daily operations together with congress and the treasury bny mellon is the third leg of the stool involved in the debtceiling drama america’s oldest bank plays a crucial role as the clearing bank for the market in which banks and corporations exchange securities for cash each day to fund their operations known as triparty repo that is a heavy weight to bear more than 48 trillion worth of repo trades take place each day coordinating with the parties on either end of a trade bny mellon will extend the life of the bonds with maturities that have been pushed back the institutions on either side of the trade will need to agree however creating a more cumbersome process for the market which sees roughly 7000 transactions each day is the debtceiling stalemate rippling through the bond market the treasury has reined in its issuance of shortterm treasury bills since secretary janet yellen enacted extraordinary measures in january that reduced supply of those bonds and lifted prices snarling trading and causing abnormal fluctuations in the rates on those securities investors expect treasurys to rally significantly according to a jpmorgan survey with many seeking safe assets as the economic outlook clouds that could extend a recent rally that began with march’s turmoil in the banking sector this explanatory article may be updated periodically