What would a default be like? No one knows for sure but experts agree it will probably suck.

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Failure by the world’s largest borrower to pay its debt -- unprecedented in modern history -- will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression. Among the dozens of money managers, economists, bankers, traders and former government officials interviewed for this story, few view a U.S. default as anything but a financial apocalypse.

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“If we miss an interest payment, that would blow Lehman out of the water,” said Tim Bitsberger, a former Treasury official under President George W. Bush and now a New York-based managing director at BNP Paribas SA. “Lehman was an isolated company, and now we are talking about the U.S. government.”

Buffett has asked politicians to stop using the debt limit as a weapon in policy debates. Morgan Stanley CEO James Gorman urged employees to contact their congressmen to remind them about the “unacceptable consequences” of a default.

“It should be like nuclear bombs, basically too horrible to use,” Buffett, 83, said in an interview published by Fortune magazine last week.

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A government default could freeze the repo market more than Lehman’s collapse because U.S. debt forms its backbone. At least $2.8 trillion of Treasuries serve as collateral for repo and reverse-repo loans, according to Fed data.

In the event of a default, Treasuries might no longer be eligible as collateral for repo agreements, according to James Kochan, Wells Fargo Funds Management LLC’s chief fixed-income strategist. The cheap funding for the holdings lowers the yields demanded on the investments, and unwinding the positions could amplify losses for lenders and borrowers.

If Treasuries were ejected from the market, “Well, holy cripes,” Kochan said in an interview.

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“It would be insane to default, but it’s no longer a zero-percent probability,” said Simon Johnson, a former chief economist of the International Monetary Fund who teaches economics at the Massachusetts Institute of Technology and is a columnist for Bloomberg View.

The U.S. hasn’t defaulted since 1790, when the newly formed nation deferred until 1801 interest obligations on debt it assumed from the states, according to “This Time Is Different,” a history of financial crises by Carmen Reinhart and Kenneth Rogoff.

In 1979, the U.S. was late to make payments on about $122 million of bills, in part because of “severe technical difficulties” that the Treasury said stemmed from a word-processing failure, according to the Financial Review’s August 1989 issue. While payments were made after a short delay, including with interest for tardiness, the hiccup caused yields to rise by half a percentage point and stay there for months.

A default today could be deemed “technical” because it would be the result of the government’s unwillingness to pay, not its ability, JPMorgan Chase & Co. analysts including Alex Roever said in a report last week.

In a technical default, only the prices of Treasury bonds that mature or have coupon payments would fall, according to the analysts.

Money-market funds wouldn’t be forced to sell government bonds, and the Fed probably would continue accepting them as collateral for emergency cash.

That distinction is nothing more than an effort to downplay the danger of default, according to MIT’s Johnson. Sovereign defaults are always about the political will to pay because most governments can print money to make payments if they want to, Johnson said.

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While a short-lived default might be fixed without major damage to the global economy, drawing a line between short and long isn’t easy, according to Evercore’s Altman.

“If you missed an interest payment by two hours, the markets might look entirely beyond that and forgive you,” Altman said. “If you miss an interest payment by two days, four days, six days, that’s a different story. It’s very difficult to be scientific about this.”

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Some banks are preparing contingency plans for a possible U.S. default, such as stocking retail branches with more cash, the New York Times reported last week. Those preparations might prove useless once again.

“Nobody knows what would happen if there were a default because the reality is there’s never been even a technical default in the U.S.,” said Russ Koesterich, chief investment strategist at BlackRock Inc., the world’s largest asset manager. “Everyone’s flying blind.”

http://www.bloomberg.com/news/2013-10-07/a-u-s-default-seen-as-catastrophe-dwarfing-lehman-s-fall.html