Here’s what could happen to markets if the US defaults. NPR

Deadlines! The arm-twisting! The threat of default.

The US may be just days away from defaulting on its bills, but Wall Street has seen this movie before and the market seems unfazed for now.

“One staffer on Capitol Hill likened this, the debt ceiling, to passing a kidney stone,” said Libby Cantrill, head of public policy at PIMCO, which manages some of the world’s largest bond funds. “We all know it will pass, it’s just a question of how painful it will be.”

Everyone on Wall Street agrees that a debt default would be devastating for markets and the economy, and most investors believe lawmakers will eventually strike a deal as they have in the past.

“We think the stakes are too high for the two sides of the aisle to really reconcile,” said Eric Friedman, chief investment officer at US Bank’s asset management group.

Still, portfolio managers are still wondering what could happen if lawmakers can’t agree on raising or suspending the debt ceiling.

If it did, the impact would be severe. Here’s what to expect.

How bad would that be?

At least there would be a huge sell-off on Wall Street. In its latest analysis, UBS said the S&P 500 could fall by at least 20%.

But it’s hard to predict how bad things could get because the US has never defaulted on its debt.

Analysts believe the selloff could match or exceed the sharp decline in September 2008, when the House of Representatives rejected a $700 billion bailout package as the United States was on the brink of the global financial crisis.

The Dow Jones Industrial Average fell nearly 778 points that day, which at the time was the largest one-day decline in the index’s history.

A default would also cause the US bond market to plummet.

Treasuries are considered some of the safest investments in the world. They are held by companies and countries around the world and used as collateral in all kinds of financial transactions. If the federal government did not pay bondholders, it would have unimaginable consequences for the position of the United States.

A default would also weaken the U.S. dollar, widely considered the world’s most important currency, given the critical role it plays in the global economy.

“The world’s main reserve currency and the world’s ‘safe haven’ asset, which form the basis of the global financial system, are suddenly much less safe and need to be revalued,” UBS economists wrote in a May 19 note to clients. “How that cascade moves through the system is unpredictable.”

Analysts also believe that credit rating agencies will downgrade the country’s credit rating.

The US is currently rated AAA by two of the three major credit agencies. In 2011, the US received a downgrade from another major rating agency when S&P Global Ratings downgraded the country to AA+ amid another round of debt negotiations under President Obama.

How might market turmoil affect me?

Most obviously, a sharp fall in stocks will hit pension or other investment funds across the board. Meanwhile, bond markets determine all kinds of borrowing costs, which would skyrocket if the U.S. defaulted.

This would be even worse news for those hoping to buy a home or car at a time when borrowing costs have already risen after the Federal Reserve aggressively raised interest rates to combat high inflation. Mortgage rates, for example, will rise further, as will credit card rates.

Inflation has eased somewhat, but it is still nowhere near the Fed’s 2% target, and many economists expect the US to be headed for recession. In addition, the banking sector is still reeling from the recent failures of three regional lenders.

“There are already significant pressures on the US economy,” said Seema Shah, senior global investment strategist at Principal Global Investments. “It can’t afford to have another big shock land on its head.”

Shah echoes what policymakers have said that a government default would not only trigger a domestic recession, but another global financial crisis is possible.

Is it going to be like this?

As long as the US has this limit on how much it can borrow, that seems likely.

Lawmakers have voted more than 100 times to raise the debt ceiling, but debates over the debt limit are increasingly fractious and used as a political weapon.

In recent days, business leaders have become more involved in the process.

Treasury Secretary Janet Yellen met with dozens of bank CEOs on Thursday, while more than 100 executives wrote a letter to President Biden and congressional leaders warning them of the consequences of inaction and encouraging them to raise the debt limit.

“Actions to end the pending debt crisis are needed now,” they wrote, noting that default would “weaken our position in the global financial system.”

“We strongly urge an agreement to be reached quickly so that the country can prevent this potentially devastating scenario.