Actually, The United States Has Defaulted Before

Factbox: When could the debt ceiling put the United States in default?

David Cannon/Getty Images Its a confounding trend that must have current Ryder Cup captain Tom Watson searching for answers in advance of the 2014 matches scheduled for next September at Gleneagles in Scotland. The Americans will be looking to topple the Europeans on their home turf for the first time since 1993 . If the legendary Watson was paying any attention this weekend, he would have witnessed a United States team that was focused, confident and above all else loose at Muirfield. Pairings such as Woods and Matt Kuchar, Phil Mickelson and Keegan Bradley, and even Steve Stricker and rookie Jordan Spiethweren’tjust effective, they were engaged and having fun. As a result, even when the Americans fell behind, as they did early in the final foursomes session on Saturday, the Yanks managed to stay relaxed and eventually rallied. “When you’re prepared, you’re more confident. When you have a strategy, you’re more comfortable.”–U.S. Captain Fred Couples Golf Digest (@GolfDigestMag) October 7, 2013 Ironically, thats the exact winning formula the Europeans have utilized during their run of dominance in the more intense and prestigious Ryder Cup. By contrast, the Americans play the event as if in a vice grip of pressure and angst. Top golfers like Tiger and Phil play like the world is on their shoulders and other veterans and less experienced golfers often appear in over their heads to put it kindly. That was certainly the case at Medinah last year as the Americans blew a four-point lead at the start of the singles competition and appeared to be playing golf in quick sand as the Europeans rallied to retain the cup by a single point. For his part, Woods failed to win a single match in that competition, finishing 0-3-1 . In the past three Presidents Cups, however, Tiger has claimed the clinching point each time and is a combined 11-4-0 in those matches. Tiger Woods’ last 3 #PresCup Singles: ’13: def.

The Treasury blamed this delay on an unprecedented volume of participation by small investors, on failure of Congress to act in a timely fashion on the debt ceiling legislation in April, and on an unanticipated failure of word processing equipment used to prepare check schedules. The United States thus defaulted because Treasurys back office was on the fritz in the wake of a debt limit showdown. This default was temporary. Treasury did pay these T-bills after a short delay. But it balked at paying additional interest to cover the period of delay. According to Zivney and Marcus, it required both legal arm twisting and new legislation before Treasury made all investors whole for that additional interest. The United States thus did default once. It was small. It was unintentional. But it was indeed a default. And the nation still stands.

Markets would be alarmed if it looked like bondholders would go unpaid for an extended period, and might even panic if any government checks were delayed. Many analysts think the administration would at least try to prioritize payments on the national debt, but Treasury officials say picking and choosing which bills to pay would be impossible. The first debt payments due after hitting the debt ceiling are on October 17, 24 and 31. The first of those shouldn’t be a problem, according the CBO analysis. But there might not be enough money for the payments due on the 24th or the 31st. – How would default affect the economy? It would sink like a stone. Once default began, the government would have to slash its spending overnight by about a third. The fiscal drag, if it lasted a full year, would be the equivalent of up to 4.2 percent of national economic output, according to calculations by Goldman Sachs. That doesn’t take into account the potential for a financial crisis. If investors lost their cool, stock markets could tumble, hitting pension funds and leading consumers to spend less of their money. Credit markets could freeze up because investors around the world might reassess the value of U.S. debt, which serves as collateral for trillions of dollars in loans and other financial transactions. The Treasury has warned a default could trigger the worst recession since the Great Depression. – Is there an easy way out of this?