Full Faith and Credit
The United States has a unique advantage in the global economic system – the U.S. dollar is considered the global reserve currency.
This means that global debt markets use the dollar as a benchmark for much of the issuance of debt, even in other countries with other currencies.
There are many factors that influence which currency becomes the global reserve currency – financial stability included.
Investors in a country’s debt (treasury bonds) want to know that they’re going to be paid back, and the United States’ track record and economic prowess have given investors confidence.
The debt ceiling was enacted in 1917, because prior to that, congress had to approve each bond issuance that the U.S. treasury made.
If Congress fails to raise the debt limit, the Treasury will be unable to “print more money” to pay existing bondholders, which would surely spook the markets and threaten the United States long term prospects (especially with Chinese Yuan usage on the rise.)
Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.
Since the U.S. hit its debt limit on Thursday, the Treasury department has begun taking extraordinary measures to manage bond payments until Congress can align.
They have about 5 months before the U.S. could default.
