Holtz-Eakin predicted that many nations who hold our debt would grow worried that the U.S. might renege on its obligations to them the next time they earned the American government’s ire. He explained that this would likely lead to a massive dumping of U.S. treasuries and a massive financial market shift toward another nation’s offerings, such as German bonds.
“You shouldn’t even breathe that you’re interested in [canceling the debt],” he said. If we ever did it, “Interest rates would skyrocket, our credit rating would go to mud.”…
These concerns were echoed by economist Jonathan Bydlak, the director of the R Street Institute’s Fiscal and Budget Policy Project.
“The most obvious implication is that the ability of the U.S. to borrow would evaporate overnight,” he said. “Not only would China be unwilling to lend to the U.S., but other major lenders like Japan would likely interpret nonpayment as a risk to them, too.”