Re:Has There Ever Been a Default on U.S. Treasury Debt?
by anamax on Friday January 23, 2009 @01:23PM
(#446769)
> Since the US doesn't have bonds in anything other than dollars, this situation wouldn't happen today.
Not so fast. While one can pay off a bond with inflation as well as revenue, both have costs that a govt might choose to avoid by defaulting instead. (Yes, default also has costs - my point is TANSTAAFL applies to bond payoffs.)
Also, some bonds have "inflation protection", which makes inflation less useful in paying them off. If bond-holders become concerned about inflation, they're more likely to demand such protection or higher returns to give them real return over expected inflation. Both responses make default a more attractive option.
Not so fast. While one can pay off a bond with inflation as well as revenue, both have costs that a govt might choose to avoid by defaulting instead. (Yes, default also has costs - my point is TANSTAAFL applies to bond payoffs.)
Also, some bonds have "inflation protection", which makes inflation less useful in paying them off. If bond-holders become concerned about inflation, they're more likely to demand such protection or higher returns to give them real return over expected inflation. Both responses make default a more attractive option.