Is it possible for the United States, the issuer of the world’s reserve currency, to default? Financial markets don’t seem to think so. Default rhetoric is nothing new and the US has always managed to raise the debt ceiling in time (some 80 times since 1960) to avoid the worst-case scenario. Why should this year be any different?
Yet, with US federal debt within a hair of the $28.4 trillion debt ceiling (Chart 1), and the cash balance of US Treasury at the Federal Reserve rapidly dwindling (Chart 2), Janet Yellen warned last week that, unless Congress acted soon, the US would be on course to default on October 18.
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