6 ways a default could hurt the world

Top execs at big U.S. banks have said that a debt default by the United States is unthinkable and probably won’t happen.

By Maureen Farrell   @CNNMoneyInvest

But many financial institutions have admitted that they’re still engaged in debt disaster planning.

Citigroup CFO John Gerspach said Tuesday morning that the bank “remains hopeful” a deal can be worked out to avoid a default. But he added that “hope is not a plan” and that the bank has prepared for different contingencies over the past few weeks.

So what could happen in a worst-case scenario if the U.S. actually defaults? It’s impossible to predict. But here are six ways that financial markets could respond if the U.S. stops paying all of its bills — even briefly.

Two words of warning though: Thursday’s widely quoted debt ceiling deadline may not really be the drop-dead date to get something done. Congress and the Treasury Department could have some wiggle room.

Second, reader discretion should be advised. These outcomes are all pretty terrifying.

Related: Reid says downgrade could be imminent

1. A global stock market crash: Investors have been mostly ambivalent about the government shutdown and the looming default. The Dow is up about 0.5% since the shutdown began earlier this month.

But nearly all analysts and investors I’ve interviewed over the past two weeks say that if the U.S. fails to make an interest payment on its debt, stock markets around the world will immediately crash. Some fear a quick drop of 1,000 points in the Dow Jones Industrial Average. Stock markets in Asia and Europe would likely be hit too. No stock market would be insulated.

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