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STEVE INSKEEP, HOST:

Let's take a deeper look, now, at the consequences if the U.S. does default on its debt.

DAVID GREENE, HOST:

Bondholders would not be paid. And David Kestenbaum, of NPR's Planet Money team, has been asking who they are.

DAVID KESTENBAUM: The people who have lent the U.S. government money, there is another name for them: U.S. bondholders. That's what a bond is, after all - a loan. Someone buys a U.S. Treasury bond; they are loaning that money to the U.S. government with the assumption that they will get their money back, plus interest, on time. This first group of U.S. bondholders, I don't really need to introduce you to them because they are us. If you have a pension plan or a retirement account, chances are that you have lent the U.S. government money because those funds likely own Treasury bonds.

I talked with Tony Crescenzi, at a company called PIMCO, which manages a lot of retirement money. I asked: Of the billions of dollars' worth of bonds they have, how many are due to pay out money around the Treasury's debt-ceiling date of Oct. 17?

TONY CRESCENZI: I think zero because we've been avoiding them.

KESTENBAUM: PIMCO intentionally owns no Treasury bonds that are due to pay out any money between Oct. 17 through the beginning of December. A lot of PIMCO's clients can't risk getting paid late. Some need the money to pay employees; others need to send out pension checks. In which case, Crescenzi says, why mess around with bonds due on or just after Oct. 17th?

CRESCENZI: There's de minimus risk of not getting paid on time. But it exists, and why take the chance?

KESTENBAUM: There is another group of bondholders less concerned with getting paid on time, that is using Treasury bonds basically as a mattress - a place to stick extra cash. Shang-Jin Wei is an economist at Columbia Business School. He says China, in particular, has a lot of dollars in Treasury bonds.

SHANG-JIN WEI: The best estimate is about $1.2 trillion.

KESTENBAUM: That's a big number.

WEI: It is a big number.

KESTENBAUM: And how would the Chinese government feel if the U.S. defaulted?

WEI: They won't like it. In the short run, there's very little that you can do.

KESTENBAUM: Shang-Jin Wei says if the U.S. defaults, he imagines it would be brief. The U.S. would say: We can't pay you right now; we will pay you as soon as we can. But even that could have long-term consequences, he says. China and others might, down the road, start to shift some money out of U.S. bonds. If that happens, if U.S. bonds become less popular, the U.S. government might have to start paying higher interest rates in order to get people to buy them, which weirdly could help another big U.S. bondholder: our own Social Security Administration.

Michael Astrue ran the Social Security Administration under President George W. Bush and President Obama. I asked him what a U.S. default would mean.

MICHAEL ASTRUE: First of all, let me just be clear that I think that would be a very bad thing to do - and I'm keeping my fingers crossed that it doesn't happen - 'cause it would create a lot of wreckage in the country, as a whole. But for Social Security in isolation, it would have its benefits.

KESTENBAUM: That's because the Social Security Trust Fund - over $2 trillion - all gets invested in U.S. Treasury bonds. So if the next bonds that the fund buys pay higher interest...

ASTRUE: That would benefit the solvency of the Social Security Trust Fund because right now, the disability fund is due to be insolvent in 2016, and the retirement fund is due to be insolvent in 2033.

KESTENBAUM: Astrue notes one, rather large caveat. If a U.S. default ends up really hurting the economy and sending us into recession, that would mean less money in people's paychecks and as a result, less money coming into the Social Security fund.

David Kestenbaum, NPR News.

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