What happens if the US defaults?

There would be few places to hide. 

• Dollar and U.S. Treasury where traders usually hide -- are likely to sink as the world's investors flee US markets. 
• U.S. Stocks and bonds  plummet – trigger a worldwide selloff
• Global financial system will suffer a sudden shock of illiquidity – as short-term lending market freezes, both short & long-term borrowing cost will potentially shoot up

Gold & Silver may offer some refuge. Fear has already driven traders into precious metals in droves in recent years.  Gold is at a record $1,594 an ounce, without taking inflation into account.

Panic-selling might force Washington to quickly agree to raise the debt limit.  Markets would likely greet a deal with a "relief rally," analysts say. The effect would be the reverse of a default: Stocks, corporate bonds and the dollar all jump.

When Washington finally agrees to raise the debt ceiling, Treasury could drop because investors would be more willing to take risks in other investments. That's how they normally trade: Good economic news pushes Treasury prices down and yields up.

The relief may not last long. If the agreement leads to deep spending cuts, Wall Street economists say it will likely drag down economic growth. Similarly, in late 2008, the wild gains evaporated as the financial crisis took hold. The S&P bottomed out in March 2009 (Associated Press, Yahoo Finance)