In 1979, Congress also debated raising the debt ceiling until the last minute. Due to the delay and an unprecedented word processing equipment failure, the U.S. experienced a technical default when it failed to make a $120 million interest payment on April 26, 1979. The Treasury was also late in redeeming Treasury bills due on May 3 and May 10 of the same year.
Treasury officials characterized the late payments as a “delay”, however, technically the U.S. was in default. The missed payments, of course, were eventually made – including additional interest for the delay. However, the real cost of the delay was an immediate increase in interest rates.
A study conducted after the incident concluded that while only a fraction of U.S. debt was affected, the resulting increase in interest rates tagged the government with approximately $6 billion a year in additional borrowing costs. Want to hear the scary part? In 1979, the total U.S. debt was only (only?) about $800 billion. At $14.5 trillion, it’s now roughly 18 times that.
Let’s hope we get a timely resolution of the debt ceiling issue before a default – technical or otherwise – costs us trillions. – Stacey Wall