The Treasury Bill as Myth and Symbol
| Peter Klein |
My father was a historian and helped organize local events to commemorate the bicentennials of the Declaration of Independence in 1976 and Constitution in 1987. I particularly remember the Freedom Train, a traveling exhibit housing memorabilia such as original copies of the Declaration, Constitution, Louisiana Purchase, and (I learn from Wikipedia, though I don’t remember these) Judy Garland’s dress from the Wizard of Oz and Joe Frazier’s boxing trunks.
Several years later, my Dad gave a conference paper (unfortunately unpublished) on “The Constitution as Myth and Symbol.” He noted that for many Americans, the founding documents, along with the Liberty Bell, Independence Hall, images of George Washington and Betsy Ross, etc., play the same kind of role as a Britain’s crown jewels, the Bastille, or Lenin’s tomb. The Constitution is important, in other words, not only for its text — some would argue the text is largely ignored today anyway — but for its symbolic value. It represents a particular myth of the American founding, usually associated with reason and noble ideals (Bernard Bailyn, Ayn Rand, Schoolhouse Rock) but occasionally with power or material self-interest (Charles Beard, Bertell Ollman).
In following the debates over raising the US debt ceiling I”m struck by the frequent claim that defaulting on public debt is unthinkable because of the “signal” that would send. If you can’t rely on the T-Bill, what can you rely on? Debt instruments backed by the “full faith and credit of the United States” are supposed to be risk-free, almost magically so, somehow transcending the vagaries of ordinary debt markets. The Treasury Bill, in other words, has become a myth and symbol, just like the Constitution.
I find this line of reasoning unpersuasive. A T-bill is a bond, just like any other bond. Corporations, municipalities, and other issuers default on bonds all the time, and the results are hardly catastrophic. Financial markets have been restructuring debt for many centuries, and they’ve gotten pretty good at it. From the discussion regarding T-bills you’d think no one had ever heard of default risk premia before. (Interestingly, this seems to be a case of American exceptionalism; people aren’t particularly happy about Greek, Irish, and Portuguese defaults but no one thinks the world will end because of them.) So, isn’t it time to de-mythologize all this? Treasuries are bonds just like any other bonds. There’s nothing magic, mythical, or sacred about them. A default on US government debt is no more or less radical than a default on any other kind of debt.