Forget the Debt-Ceiling Crises, the U.S. is Already a Serial Defaulter
Understanding the past highlights the importance of trust in the dollar
For decades I’ve been telling thousands of business school students that U.S. Treasury bills and notes are risk-free. Well, that’s arguably not quite true. For example, in 1979, Mrs. Claire Barton, a small investor from Enrico, California tried to signal to the world that the U.S. Treasury had stiffed her and others. She sued and wanted compensation, in a largely-forgotten David (or rather Claire) versus Goliath story. Her case was dismissed “with prejudice” which barred her from refilling her claim. It’s easy to understand why her case is largely forgotten. In 2011, the National Archives and Records Administration destroyed all of the case records. But 1979 wasn’t the first time the U.S. had arguably defaulted.
Why does this matter now? In 1917, Congress placed restrictions on how much money the government can borrow. The debt ceiling has since been raised 78 times. Every time a debt-ceiling game of chicken plays out among politicians, like in 1995, 2011, and 2013, investors and credit rating agencies are on high alert, wondering what might happen with a default. Investors get nervous and demand higher yields. That costs the government more money to borrow. And it costs it its…
