(Forbes)
The federal debt limit expired on March 1. Why does it matter? Markets didn’t move and the holders of the $22 trillion in national debt didn’t utter a peep of worry that the U.S. government wouldn’t pay its interest or redeem its bonds. The government is now taking temporary measures to pay its bills—delaying intragovernmental transfers and probably looking for coins in the couch cushions. The U.S. loses its legal authority to pay out cash in fall 2019.
Not many nations can announce they legally can’t pay all of their debts and yet avoid a wiggle in the credit risk of their bonds. Imagine a nation, say Argentina or Italy, signals the government can’t legally pay debt; their interest rates would soar. When the limit is reached, the U.S. Treasury can’t borrow any more, which one would think would cause a crisis of confidence, severely impacting the real economy for fear the government would default on our debt. But the risk premium on U.S. Treasuries did not budge much.
That Americans own most of the debt helps calm markets, but interest rate increases can trigger recessions. Read more
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