As the debt-ceiling negotiations near their endgame - the Treasury Department expects to hit the ceiling on August 2 - it's worth noting that we've been through this dance once before in our nation's history. Back in 1979, we defaulted on our national debt for a period of two weeks, when Congress raised the debt ceiling literally hours before we would have exceeded it. Technical issues affecting Treasury's relatively primitive computers caused it to miss payments on $120 million worth of bonds, putting us technically in deafult.
What happened then? The incident was little noticed, but academic research subsequently showed that the cost of issuing debt rose by about 60 basis points, or a little over half a percent, as a result of that little default. And the 60-point rise appeared to be permanent.
Nowadays, foreign bondholders own roughly 46 percent of all Treasury securities. It's a reasonable guess that, should the United States default on its debt again, those bondholders would end up demanding that 0.6 percent premium, if not more.
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