The U.S. government CAN default on its Treasury obligations, just like any other non-government debtor CAN default on their debt/loans if they cannot repay them.
This statement of yours just now caught my attention and it is , I believe, a clue to the difficulty you may be having in understanding my posts on this topic. Read your sentence again, please, and note the prepositional phrase that ends it, viz., "if they can not pay it." Without this prepositional phrase the statement would be correct, but with it, your statement is categorically incorrect. The U.S.
can,
at its option, decide to default on its Treasury obligations. However this would never be because it can not pay.
That's because the U.S. always pays for deficit spending with newly created money.* Thus the U.S. can always pay on its Treasury obligations. To the extent it does not have enough revenue to cover these obligations, it will simply create (or "print", as we like to say) the money it needs.
As pointed out in an earlier post, by the time the Treasury issues bonds in amounts linked to the amounts of its deficits** it has
already created and
already spent!, the money it needed to cover those deficits. Bonds are issued not to borrow, but for entirely different purposes. (I touched on one of those purposes in an earlier post.)
Today's United States never borrows! It always prints to cover its deficit spending. Therefore
any default on its Treasury obligations would always be intentional and never because "...they[sic] can not pay it."
Obviously the statutory, U.S. debt ceiling is little more than a ruse. Whether those who passed this absurd law realized it was absurd at the time they passed it, fully intending it to be useful as a ruse for extortion purposes, is unclear. Probably they did. Nevertheless, lets hope to god these, now annual, attempts of one political Party to use the debt ceiling to try extorting the other Party always fail. To default would be a calamity for much of the world's economy. Even talk of a default is dangerous. An actual default, for even 24 hours, would do great damage. I used to say that the only risk borne by holders of Treasuries was inflation. But I now recognize I was very wrong not include political risk!
Once one discovers that the U.S. never borrows but instead always prints the additional money needed, there is a danger of thinking there are no constraints on our National spending. This is wrong. There are constraints, both internal and external. They have more to do with the rate of printing than the amount however. But that's a topic for another day.
The other concern is what might cause the U.S. to lose its great privilege of being able to cover its debts by printing. That too is a topic for another day.
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* This is still not understood among the general public, and it is only within the last thirty years or so that knowledge of this began to penetrate mainstream economics.
**This is what makes it look like borrowing , although it is not.
