In following the debates over raising the US debt ceiling, I’m struck by the
frequent claim that defaulting on public debt is unthinkable because of the
“signal” that would send. If you can’t rely on the T-bill, what can you rely on?
Debt instruments backed by the “full faith and credit” of the United States are
supposed to be risk-free — almost magically so — somehow transcending the
vagaries of ordinary debt markets. The Treasury bill, in other words, has become
a myth and symbol, just like the US Constitution.
I find this line of reasoning unpersuasive. A T-bill is a bond just like any
other bond. Corporations, municipalities, and other issuers default on bonds all
the time, and the results are hardly catastrophic.
Peter Klein wrote a good article for anyone panicking over the lies propagated by eleced officials seeking to use the impending debt ceiling for political ends: