Negotiations over the debt limit are still ongoing, and we are starting to hear a lot about the imminent prospect of a "default." The term gets thrown around a lot in the press, usually attached to words like "unprecedented" and "catastrophic." But the term creates confusion wherever it lands. Some of this reflects garden-variety misunderstanding. But I worry that some of it reflects a kind of intentional slipperiness by motivated actors who want to frame debt-limit issues a certain way.
There are at least two senses in which the term "default" gets used. The first, and probably the more intuitive usage, refers to a failure to make payments on the public debt securities of the United States, like bonds and Treasury bills. On this point I am not Pollyanna: If that kind of default happens it is likely to be a really bad thing. But as I'll explain more below, I don't think that outcome is particularly likely. (Though it's not impossible.)
The second sense in which the word "default" gets used is something like: "Any failure by the United States to make any payment in full and on time." I confess I find this usage of the term spectacularly unintuitive. But, putting intuitions aside for the moment, this second usage also covers a huge potential breadth of potential outcomes. What payments, exactly? And for how long? There is a big difference between a subset of federal salaries getting paid a day late (perhaps against the backdrop of a deal that has been struck but is still grinding its way through bicameralism and presentment), and large swathes of the federal budget going unfunded for many weeks as Congress and the President continue to flounder.
