I'm afraid I missed this when it came out a couple of months back. But it's fascinating: what did happen the last time the US defaulted on the repayment of Treasuries?
Yes, the US has defaulted: not in what we might think is a particularly serious manner but enough to make a difference.
Essentially, with Jimmy Carter, there was a similar to now fight about raising the debt limit. However, whle the debt limit was raised in time there was a snafu in the system and some $120 million of Treasury Bills (so short-term stuff) didn't get repaid on time. This wasn't just the interest, this was not paying back the principal.
The excuse was, sorry, the explanation was, that the computing systems weren't quite up to dealing with the large number of holders of small amounts of these bills. Everyone did get paid a few weeks late and after further argument, everyone got their lost interest as well.
So far so small an issue. Yet the effect was quite large:
Zivney and Marcus examined what happened to T-bill interest rates as a result of this small, temporary default. They find a surprisingly large effect. As best as they can tell, T-bill interest rates increased about 60 basis points after the first default and remained elevated for at least several months thereafter.
60 basis points is 0.6%. Given the currently very low short term interest rates (and assuming that the effect would be the same) that would mean that a default on Aug 2 could double short term interest rates.
Not quite what we want to happen in our current economic condition.