How could the United States sail so close to defaulting on its debts? There’s an easy answer: political dysfunction and financial recklessness. With just over a week to go until the world’s biggest economy potentially runs out of money to pay its bills, Republicans and Democrats were still unable on Monday to see eye to eye on a solution. But there’s another explanation too. The ongoing debt-ceiling standoff, which has the potential to tip markets into mayhem, is a kind of winner’s curse. Its root causes are the same things that put Uncle Sam on top in the first place.
since the financial crisis, from roughly 40% to over 60%. The euro share has slumped. And the last debt-ceiling standoff in 2011 had no impact.By getting into ever more debt, Americans have done the rest of the world a favor. Their borrowing and consequent spending has fueled global demand for cellphones, minerals, medication and microchips that kept growth high in markets like China, India and Brazil.
Eventually, all this borrowing will almost certainly go too far. It’s a version of what economists call the Triffin dilemma, after economist Robert Triffin: The world demands an ever-greater supply of IOUs issued by the monetary superpower, but that eventually makes its debts unsafe. Nobody knows when that point will come, though, and the debt ceiling doesn’t seem to reflect the market’s view of how much is too much.
what was being sold. The yield on 10-year bonds, now at around 3.7%, has risen but is still lower than almost any time before 2008.
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