Standard sequence of events in the face of credit risk/default:
1) Government tells lender to frack off.
2) Lender issues bad credit report on government, refuses to offer any more loans.
3) Business confidence and consumer confidence drops. Consumers start to withdraw funds from banks to protect their cash. Banks no longer have enough money to lend to businesses. Businesses can't hire new staff - economy freezes.
This is called a recession.
If the situation escalates, businesses are forced to close, panic sets in among the markets and people begin to sell stocks, bonds, assets at lower and lower prices. Stock market crashes.
Government tries to print more money to compensate, works for a little while, but inflation goes up as more money is needed to buy the same amount of stuff.
Banks start to fail as new sources of cash dry up, and people pull all their money out of the bank and hide it under their bed.
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