What if the interest stopped?

A government that stops paying its bondholders doesn't just keep the money. Pension funds, banks, foreign central banks and its own savers lose income and capital; markets charge it more for every future pound or dollar it borrows; and the shock travels. This page lets you set up a missed payment and follow it through, using the same sourced figures as the debt interest map.

Where the shock lands

How it unfolds

Who loses, in dollars

The first-year cost of the scenario to each party, on the assumptions above. Market-value losses happen on paper straight away; extra interest builds up as debt is refinanced.

Case study: the US stops paying Japan

Japan is the largest foreign holder of US Treasuries. What would it actually lose, and who in Japan would feel it?

An economist's reading

Painful, not fatal, for Japan. About 0.9% of GDP a year in lost income, plus paper losses on $1.1tn of bonds. Japan earns far more from abroad overall, and its government borrows in yen from its own savers, so it would not face a funding crisis.
The budget would notice first. Japan's foreign-reserve fund borrows in yen at low rates and holds higher-yielding dollar bonds; the gap is profit that goes into the national budget (¥3.13tn this year). Stopping the US interest would shrink that profit sharply and could tip the fund into loss, because it still pays interest on its own yen bills.
Savers, not just the state, are exposed. Japan's banks, insurers, Japan Post Bank and pension funds hold at least a quarter of the Treasuries recorded in Japan. Their losses would show up in pension returns and bank capital.
Japan's counter-moves hurt both sides. Selling Treasuries would push US yields up but cut the value of what Japan still holds. Retaliating against US assets in Japan is possible but escalatory. This mutual exposure is the main reason it doesn't happen between allies.
The US would probably lose more than it saved. Freezing $39bn a year of interest to Japan saves the US that $39bn, but if it nudged US borrowing costs up by even 0.12 percentage points for good, the extra interest on $32tn of debt would cancel the saving. Every other central bank holding Treasuries ($3.77tn of official holdings) would ask whether it could be next.

What if everyone stopped paying foreigners?

Every government keeps paying its own citizens but stops paying anyone abroad. On paper, countries that borrow from abroad keep money and countries that save abroad lose it. Then the bill for broken trust arrives.

Rise in every government's bond yields

An assumption. With every government in default to foreigners, no-one can say what markets would charge; set it to zero to see the interest alone.

"Interest it loses" counts only holdings an official source reports: for Japan and China that is US Treasuries alone, so their real losses are larger. Custody centres (the UK, Belgium, Luxembourg, Cayman) hold bonds for investors elsewhere, which overstates them. Private bonds are not included.

Why the real damage is far bigger

Savings stop crossing borders. Countries that borrow abroad to cover a trade deficit, the US and UK among them, lose that funding: their currencies fall, imports get dearer and inflation jumps.
The savers lose their safe asset. Japan, China, Germany and the oil states have nowhere safe to keep their surpluses. Their currencies soar as money comes home, hitting their exporters, and their central banks lose the reserves they defend their currencies with.
Collateral breaks. Government bonds, above all US Treasuries, are what banks pledge to borrow from each other worldwide. If they are no longer trusted, money markets freeze.
Pensions and banks take the loss. Much of the debt held abroad belongs to insurers, pension funds and banks, not governments, so losses land in retirement savings and bank capital.
Trade shrinks to what can be paid for on the spot. The world splits into blocs with capital controls, and long-term lending across borders disappears.

The closest precedent: the 1930s

In the early 1930s many governments, including Germany and most of Latin America, stopped paying foreign creditors and imposed exchange controls. International lending largely disappeared for a generation. The post-war system of the IMF, convertible currencies and reliably paid government debt was built to stop it happening again.

An economist's reading: coordinated non-payment is a mutual default. Each country keeps a few tenths of a percent of GDP in interest, and gives up foreign borrowing, safe savings abroad and a working payments system, worth many times more. The saving countries lose most, and the borrowers' gain lasts only until they next need to borrow.

It has happened before

Governments have delayed, frozen, converted and written down their debts. The lessons are consistent: the people hurt are usually domestic savers and the country's own banks, and the cost to the defaulter lasts longer than the money it saves.

What the evidence says

Across many defaults

Finding	Source
Growth is about 2.6 points lower in the year of default and about 1.2 points lower per year on average; the effect rarely lasts beyond one or two years.	Borensztein & Panizza, IMF 2008 (1972–2000)
Borrowing spreads are about 4 percentage points higher the year after a default.	Borensztein & Panizza
Governing parties lost votes in 18 of 19 democracies that defaulted, by 16 points on average.	Borensztein & Panizza
Domestic defaults (on debt owed to a country's own savers) come with far higher inflation, averaging 170% against 33% for external defaults, and deeper output falls (4% against 1.2%).	Reinhart & Rogoff, NBER 2008
Since 1800 there have been about 250 external defaults and 68 overt domestic ones.	Reinhart & Rogoff

If the US defaulted

Estimate	Source
Protracted default: stocks fall 45%, unemployment rises 5 percentage points, a recession on the order of 2008.	White House Council of Economic Advisers, May 2023 (model)
Short breach of the debt limit: nearly 2 million jobs lost; protracted default: almost 8 million.	Moody's Analytics, 2023, as cited by the CEA
Just the 2011 standoff, without any missed payment, raised borrowing costs by about $1.3bn that year, and S&P removed the AAA rating.	GAO 2012; S&P, 5 Aug 2011
Bill yields near the 2023 deadline rose nearly a percentage point and US credit default swaps hit record highs, with no payment missed.	CEA, May 2023
The Constitution says the validity of the public debt "shall not be questioned" (14th Amendment, section 4). The Supreme Court read this in 1935 to cover all public obligations.	Perry v. United States (1935)

How the sums are done

Interest withheld = holdings × the payer's average interest rate × months unpaid. Holdings and rates come from the debt interest map data (US Treasury, IMF and national sources, each dated).
Market-value loss = holdings × price sensitivity × rise in yields. A 1-point rise in yields on bonds with a sensitivity of 5 cuts their price by about 5%.
The payer's extra interest = all its debt × the share that reprices within a year × the rise in yields (first year), and all its debt × the rise in yields once everything has been refinanced.
Break-even = the saving ÷ all the payer's debt: the permanent rise in yields at which non-payment stops paying for itself.
The rise in yields, price sensitivity and repricing share are assumptions, set to defaults drawn from the precedents below. No model can say what markets would really charge, so move the sliders and see how sensitive the answer is.

Sources

An illustration built from published statistics and historical cases, not a forecast or investment advice. Japanese figures: Ministry of Finance (reserves, end-September 2026; Foreign Exchange Fund Special Account, FY2026 budget and FY2025 accounts; balance of payments 2025), Cabinet Office (GDP 2025), US Treasury TIC (July 2026). No official source says how much of Japan's reserves is in US Treasuries.