Would you lend money to someone who told you: “I’m going to keep on borrowing until my debt reaches X dollars, and then I’m going to default?” I don’t think so. But that’s what the U.S. government has been doing, year in and year out, and yet there has been no shortage of people willing to buy U.S. Treasuries. As long as Congress periodically raises the debt ceiling, this arcane rule—which is shared by very few other countries in the world—need not sully the Treasury bonds’ promise as the world’s safest and most liquid asset. And the world’s investors know that Congress will certainly raise the ceiling because it would be irrational not to raise it, as failure to do so would trigger default and financial chaos.
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