Government Standoff Shakes Trust in U.S. Debt

This assumption has made short-term government debt the most basic building block of the financial system, as reliable as a dollar bill.

In recent days, however, the fiscal impasse in Congress has been testing investors’ confidence. As a result, investors have been shifting their money out of the $1.7 trillion market for the short-term government debt known as Treasury bills, worried, for the moment at least, that they may not be the risk-free asset they have known.

Indeed, it now costs more for the United States to borrow money for a month than it does for the average highly rated American company to do so.

“These bills are like the center of gravity for the financial universe — they really are,” said Lee A. Sachs, a former Treasury official who now runs the lending firm Alliance Partners. “Defaulting on these would be like the laws of physics being repealed.”

Read More: dealbook.nytimes.com/2013/10/09/government-standoff-shakes-trust-in-u-s-debt/