My brother-in-law thinks we will default this time. Not that he knows anything. What will the consequences of a default be? Banks holding credit default swap derivatives will be liable to repay the bonds. Credit default swaps are bond insurance. Goldman Sachs started selling the US bond insurance policies years ago and then dividing these policies up and reselling them to banks. But who could possibly unsure the USA? Not Goldman Sachs who divides up the insurance policy liability and sells it off to all the banks.
Why are banks buying credit default swaps? QE money goes free to banks who turn around and buy US bonds which are not giving much return because QE is being used to buy them up. So banks are buying Credit Default Swaps which divide up monthly premiums and divide that money up between the insurance policy holders.
If the US defaults. the CDS-holder banks will owe. The US will likely then negotiate a Greek-style debt re-settlement and then may stop QE bailout and instead have the banks do a Cypress-style bail-in where banks go into private segregated accounts and take your money. According to the law deposits are owned by the bank and the depositor is just another liability. If a bail-in occurs, FDIC will not be able to cover the loses.
I suppose we can hope Congress will just make another deal, increase the debt ceiling, and continue QE kicking the can further down the road.