The 10 Scariest Doomsday Predictions About a Default

Oct. 10, 2013— -- intro: The government shutdown of 2013 has left hundreds of thousands of workers furloughed, curtailed government services, shuttered national parks and rattled the markets.

But on or around Oct. 17 -- the deadline the Obama administration has set for raising the nation's borrowing limit -- it could all get a lot worse. Economists of all political stripes have warned of the disastrous consequences of a debt default, including a stock market plunge, sky-high interest rates and a major disruption in the global economy.

"In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth -- with many private-sector analysts believing that it would lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression," according to a Treasury Department report released last week.

Some members of Congress, mostly Republicans, have quibbled over the date the nation can no longer pay its bills. Still other lawmakers say a default wouldn't be all that bad.

Debt Default Deadline Debated as Date Looms

Such lingering doubts notwithstanding, doomsday predictions about the consequences of a default are everywhere these days. ABC News has compiled some of the scariest of the bunch:

quicklist:title: 1. Experts Warn of 'Financial Apocalypse' text: Yalman Onaran, senior writer at Bloomberg News, recently wrote that a U.S. default could cause "an economic calamity like none the world has ever seen."

"Failure by the world's largest borrower to pay its debt -- unprecedented in modern history -- will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression," Onaran said.

"Among the dozens of money managers, economists, bankers, traders and former government officials interviewed for this story, few view a U.S. default as anything but a financial apocalypse."

quicklist:title: 2. Warren Buffett Likens Default to 'Nuclear Bombs'text: In an interview with Fortune magazine last Friday, billionaire Warren Buffett, spoke out against politicians' fighting over the debt ceiling for political gain.

"It ought to be banned as a weapon," Buffett said of the default politics. "It should be like nuclear bombs, basically too horrible to use."

Buffet also discussed the looming fiscal crisis on CNBC's Squawk Box, alongside former Treasury Secretary Hank Paulson, and argued that playing politics with the debt limit" won't work long term." The billionaire investor said, "If [Republicans] can't get their way on another issue, they'll use the threat of, in effect, defaulting on the government's credit to get their way."

quicklist:title: 3. Goldman Sachs Predicts a 'Rapid' Economic Downturntext: Goldman Sachs economists, Alec Phillips and Kris Dawsey, released a 13-page research note Oct. 5 that projected, "halting Treasury payments would slash the growth of gross domestic product by 4.2 percentage points over a year."

"Failure to raise the debt limit would eventually lead to a sharp reduction in spending and could result in a rapid downturn in near-term economic activity," Phillips and Dawsey pointed out.

"A very short delay past the October deadline -- for instance, a few days -- could delay the payment of some obligations already incurred and would create instability in the financial markets. As noted in prior research, this uncertainty alone could weigh on growth."

quicklist:title: 4. Treasury Secretary Warns Congress Is 'Playing With Fire'text: "I'm telling that you that on 17th we run out of our ability to borrow, and Congress is playing with fire," Treasury Secretary Jack Lew said in an Oct. 6 appearance on CNN's "State of the Union." "If they don't extend the debt limit, we have a very, very short window of time before those scenarios start to be played out."

Lew continued to caution Congress about playing politics with America's borrowing limit, "They're willing to concede if we don't pay interest and principal on the debt, if that's bad. Well, you know, it is bad, but there are a lot of things that are bad."

Some of those "bad" things include not being able to pay bills. Lew said, "And none of these bills are new. These are commitment that Congress made that's paying old bills."

He continued, "It would be like somebody saying I ran up my credit card and I decided not to pay it. You can't do that. The United States government is just too important to the world. Our currency is the world's reserve currency."

quicklist:title: 5. Economists See 'Market Panic' Similar to 2008 Crashtext: Economists fear that as interest rates are skyrocketing and debt holders are unloading their bonds, it could create a market panic similar to the stock market crash of 2008, but possibly worse.

"When stock prices fall, investment or other spending to expand a business is more costly," the Treasury Department said in a report last week outlining the potential effects of the debt-ceiling fight.

"The effects on households and businesses, moreover, are reinforcing. Less capacity and willingness of households to spend, when businesses have less incentive to invest, hire and expand production, all lead to weaker economic activity."

quicklist:title: 6. Interest Rates Would 'Spike Across the Board'text: Gus Faucher, a senior economist with PNC Financial Services group, said "the potential is disastrous," if Congress does not raise the debt ceiling.

"We would see interest rates spike across the board. We'd see a huge crash in the dollar. People count on lending their money to the federal government and getting it back, and if that trust is taken away -- it's never happened that we haven't met our obligations as a nation -- then that has very, very negative consequences for the U.S. economy," Faucher told CBS News.

quicklist:title: 7. Social Security Benefits 'at Risk'text: Social Security benefits for millions of Americans could be put on hold if the nation's debt limit is not increased, the Obama administration said, according to ABC's Devin Dwyer.

The Treasury Department has begun advising people that it cannot guarantee payments after Oct. 17 unless and until Congress acts.

"Unlike a federal shutdown which has no impact on the payment of Social Security benefits, failure to raise the debt ceiling puts Social Security benefits at risk," a Social Security spokesman told ABC News.

Neither the Social Security Administration nor Treasury Department would elaborate on specifics of how and when payments could be reduced or cut off. Such contingency plans are still being worked out, a Social Security official said.

quicklist:title: 8. IMF Chiefs: Default Would 'Derail' Economic Recovery, Home and Abroad text: At a news briefing during the recent World Economic Outlook conference, Olivier Blanchard, chief economist at the International Monetary Fund, said a default would have immediate implications for both the United States and global economy, whether that be a recession or "something worse."

"A prolonged failure would lead to an extreme fiscal consolidation and almost sure derail the U.S. recovery," he said.

Christine Lagarde, the IMF's managing director, echoed Blanchard's sentiments in a speech, saying the government shutdown was already setting back a global economy still in the early stages of recovery after the 2008-09 slump.

"The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy.

"So it is 'mission-critical' that this be resolved as soon as possible."

quicklist:title: 9. Effects on the Housing Market 'Would Be Bad'text:Bloomberg News' Yalman Onaran notes that a U.S. default would have major implications for the housing market's recovery.

"Higher borrowing costs could slow the housing recovery. If 30-year mortgage rates climbed to 6.5 percent from 4.5 percent, a borrower who can now afford the monthly payment on a $200,000 loan would only be able to take on about $160,000 of debt when buying a property, forcing down sale prices," Onaran writes.

He quotes Jed Kolko, chief economist for online property-listing service Trulia Inc., who says "It would be bad, both for affordability and for consumer confidence."

quicklist:title: 10. Dollar Would End Status as World's Reserve Currencytext: Jonathan Masters, a deputy editor for the Council on Foreign Relations, wrote about the costs and consequences of not raising the debt ceiling in a recent report.

"A potential long-term concern of some U.S. officials is that persistent volatility of the dollar will add force to recent calls by the international community for an end to its status as the world's reserve currency," Mathers wrote. "A 2010 survey performed by the McKinsey Global Institute found fewer than 20 percent of business executives surveyed expected the dollar to be the dominant global reserve currency by 2025."

Reuters also pointed out that the dollar is at an eight-month low this week, as the government shutdown continues, and the looming debt-ceiling deadline is not helping America's currency improve:

"The dollar skidded to near an eight-month low on Tuesday as the U.S. government shutdown entered its second week, leaving investors on tenterhooks with politicians in Washington making little headway in agreeing on a deal to avoid a historic U.S. debt default."