How a Debt Default Would Impact Your Credit Union

U.S. Capitol Building. (Source: Shutterstock)

I’ve been putting off writing about the looming possibility that the United States would default on its existing contractual obligations to pay its debts because I sincerely believe that as dysfunctional as our political system has become, surely it hasn’t gotten so bad that it would intentionally inflict such a disastrous wound on America’s economy and its long term standing in the world. I would bet you $1 million that China would never default on its debt. But as the deadline grows closer, it’s time to start preparing for what a debt default would look like, how it would impact your credit union and what you may want to explain to your members.

First and foremost, for financial institutions, what the media is describing as a dispute about fiscal priorities is actually a threat to intentionally start a potentially open-ended banking crisis. After all, one of the safest investments your credit union can make is to invest in bonds guaranteed by the full faith and credit of the United States Government – that’s why these securities are given a 0% risk rating. However, by refusing to honor our debts, the United States will be tarnishing its reputation, making lending more expensive, not only for us but for our kids.