If the United States defaults on its debt, investors will be able to do little to ease the pain, says star hedge fund manager Kyle Bass, founder of Hayman Capital Management.

"All the money you're gonna have is under your pillow, and it probably won't be worth as much as it is today," he told CNBC. "But I don't think we're going to get to that apoplectic point in the U.S."

The most vulnerable investors are highly leveraged ones, so you may want to pull back on leveraged positions, he explained.

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"But policymakers have to realize the catastrophe that would ensue if they actually missed a payment," he noted.

"I think their advisors are giving them proper advice. They can use brinksmanship up to a point, then someone's got to blink."

Bass also discussed Puerto Rico, which has an $87 billion debt burden of its own. "You look at their finances and say, 'I have no clue how this can continue to exist for very much longer,'" Bass stated.

The Treasury Department says that if the debt ceiling isn't increased by Oct. 17, it will be unable to meet all its financial obligations.

In the case of no debt limit increase, even if the Treasury is able to keep making debt payments, crisis would ensue, economists say.

"The cutting [of other government spending] would be so huge, it would put the U.S. back into recession," Jim O'Neill, former chairman of Goldman Sachs Asset Management, told Bloomberg.

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