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Lets take a quick look at what happened in this 1979 instance.
The government ?forgot? to pay small bonds holders (individuals as opposed to nations etc) a total of about 120 million dollars ? by accident. This by no means represented a significant portion of the Treasury?s total debt (which was close to 1 trillion dollars at the time). It did however raise interests rates ? but only by 6 tents of a percent.
Not bad shall we say? Not so fast.
In fact, according to Prof. Zivney, this 120 million dollar mistake cost the U.S. about 6 billion dollars in interest. The new, raised interest rates applied to the entire debt that the U. S. owed at the time. In addition, the rates showed no sign of going back down by the end of Prof. Zivney and Marcus?s study.
So, by not raising the debt ceiling and allowing our nation to default, we would be in effect piling our children with exponentially more debt then if we handled this ?in house? (and raised the debt ceiling) in addition to a bad reputation in the international financial community (loss of confidence in U.S. bonds, etc).
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