“Default hysteria” is what my colleague, John Makin, accurately termed the blather ad nauseam about a potential default on US Treasury debt. It simply would not happen, he said, and of course he was right. But did the hysteria serve any good purpose?
I think it did. It focused financial minds on the fact that nothing in the world is “risk-free,” including government debt–in contrast to what is so often and so unrealistically asserted. This is good, because it is not sound political philosophy to have banks and investors, without worrying about it, shovel unlimited amounts of money to governments, in exchange for paper never to be redeemed, so that the government can hire swarms of officers to harass the people (as they said in 1776).
If you believe in limited government as an essential principle, you must believe in limiting the ability of the government to spend and therefore limiting its ability to borrow. An unlimited ability to borrow is an unlimited ability to spend and unlimited power, financed in the end by expropriating the people’s money through perpetual inflation and financial repression.