Blog: The Debt Limit-The end of trust and the “risk-free” rate?

With the Debt Limit talks becoming more critical, there is need for some clarity on the debt limit itself.  Where did it come from?  And what’s its real purpose? Important information is being obscured by political rhetoric and ideology.  The actual financial risk to us all seems to be lost or forgotten.

Before I go into some history, it’s important to emphasize the glue that holds our entire financial and economic structure together: trust. We’ve seen in the recent bank failures that ineffective communication can cause a loss of faith, even in fairly large financial institutions.  If depositors don’t believe that their money is safe in a bank, or other institution, then they will withdraw it.  Trust is what's at stake with the debt limit.  Trust that the US government will make good on its debts.  Trust that our money is safe.