If the United States defaults on its debt payments as the result of a debt ceiling showdown, would it really cause widespread economic chaos? As Congress lurches toward the second debt ceiling crisis in two years, some economists are arguing that a small-scale default or delay in debt payments might not be so bad.
If history is any guide, however, even a brief default could cost the government billions. And, in history, the federal government of the United States of America has defaulted only once since the 18th century. It happened in 1979, it cost the government billions of dollars, and it was an accident.
“We had one technical default on treasury debt, back in 1979,” Mark Zandi, chief economist at Moody’s Analytics, said during a Senate Budget Committee hearing Tuesday. “Some individual investors did not get their money on time. The academic research clearly shows that that has cost us tens of billions of dollars.”
Investors in Treasury bills set to mature on April 26, 1979, received notice that the United States Treasury would not make its payments on maturing securities to individual investors. The Treasury was subsequently late to make payments on Treasury bills maturing on May 3 and May 10 of that year. The Treasury blamed the late payments on a perfect storm: a stalemate in Congress over the debt limit, an unprecedented number of small investors, and a failure in the word-processing equipment used to prepare check schedules. Excuses aside, economists Terry L. Zivney and Richard D. Marcus wrote in a 1989 article on the episode and its fallout, “this was the day that the United States defaulted.”
If history is any guide, however, even a brief default could cost the government billions. And, in history, the federal government of the United States of America has defaulted only once since the 18th century. It happened in 1979, it cost the government billions of dollars, and it was an accident.
“We had one technical default on treasury debt, back in 1979,” Mark Zandi, chief economist at Moody’s Analytics, said during a Senate Budget Committee hearing Tuesday. “Some individual investors did not get their money on time. The academic research clearly shows that that has cost us tens of billions of dollars.”
Investors in Treasury bills set to mature on April 26, 1979, received notice that the United States Treasury would not make its payments on maturing securities to individual investors. The Treasury was subsequently late to make payments on Treasury bills maturing on May 3 and May 10 of that year. The Treasury blamed the late payments on a perfect storm: a stalemate in Congress over the debt limit, an unprecedented number of small investors, and a failure in the word-processing equipment used to prepare check schedules. Excuses aside, economists Terry L. Zivney and Richard D. Marcus wrote in a 1989 article on the episode and its fallout, “this was the day that the United States defaulted.”
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