As the federal debt ceiling stalemate continues into the 11th hour, residents in and around Dublin, CA may be wondering what the impact of a federal government default would be to the housing market and mortgage industry. If the current political gridlock prevails, and President Obama elects not to use the 14th Amendment to extend the debt ceiling on his own, Washington will have no choice but to default on its debt payment obligations. For all the work the government has done to avoid a double-dip housing recession through bank bailouts and various homeowners’ assistance programs, the lawmakers’ inability to reach a compromise may deal a devastating blow to Dublin’s recovering housing market.

The U.S. economy hit its $14.3T debt ceiling in May and has used spending and accounting adjustments, as well as higher-than-expected tax receipts, to continue operating normally, but it can only do so until Tuesday, August 2nd. Business and finance leaders have warned a default would send crippling aftershocks through a fragile U.S. economy still wrestling with stubbornly high unemployment in the wake of the 2008 global meltdown.

Should the federal government default on its debt, major consequences could immediately engulf financial markets and, by extension, everyone with a stake in the U.S. economy. Many economists expect a rapid re-pricing in a downward direction of all financial assets, not just Treasury debt. The reason for this rapid re-pricing is that government debt is considered risk-free, and America’s “risk-free rate” is fundamental to the pricing of all financial assets, including stocks.

The United States will see its enviably unblemished credit rating cut. Any cut in the U.S. credit rating would cause a stampede out of Treasuries. That mass exodus would produce a domino effect, with 401(k)s, IRAs and college savings accounts plunging in value as the holdings they are invested in tumble. Faced with a sell-at-any-price panic mode, even some pensions could have trouble meeting their obligations due to rapidly falling asset prices.

As investors abandon Treasuries, the prices would plunge, while yields, which move inversely to price, would bolt upward. At this point, consumers of every stripe would take a hit. Borrowers would see higher rates for mortgages and consumer loans; furthermore, credit lines would be frozen or cut for businesses and consumers. Companies would shed workers in a bid to conserve cash, producing a rapid economic deceleration much like the fall of 2008.