How is one to assess the possibility of a voluntary default by the world’s most important country? Is something as mad as this really likely to happen? What might be the consequences if it did? These questions are impossible to answer. This is not because it is a “black swan” — that is, unimaginable. A US default falls instead into a broad category of “known unknowns”, that is unforecastable, high-impact events. The financial crisis of 2007-09, the pandemic and Russia’s invasion of Ukraine were of this kind.
Such events are impossible to predict because of their rarity and the complexity of their causes. We do not know enough to predict when and in what form the next pandemic will emerge, when and where someone will start a war or if US politicians will destroy the credit built up by their country over centuries. Yet we know that such shocks do happen. They are a part of our reality.
So, what of this specific threat? It is not normal for a country to have a legislated budget and a separate authorisation for the debt that this budget entails. For the US, this was a product of the needs of war: prior to 1917, Congress had to authorise each individual loan. Up to now, the US debt ceiling has always been raised when needed. That has apparently happened some 90 times.