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To: sandeep who wrote (22365)	7/28/2011 10:58:15 PM
From: HankGoldman	Read Replies (1) \| Respond to of 222326

I ran across this somewhere. There may be a precedent to suggest deliberately screwing around with the possibility could be costly. This research suggests that a short-term purely technical default due to operational problems in 1979 did result in an increased cost of borrowing, a result one would expect from an actual credit rating cut. This sound bite doesn't convince me of a causal link as I don't know the details of the analysis, but the pricing of credit can be a rather simple minded machine driven by parameters like time rather than, say, assessments of character and intent. It's not like the Treasury got a pass because of extenuating circumstances, penalties were paid and so on. npr.org economist.com "Yet history suggests that even a technical default can be costly. America’s only known instance of outright default (other than refusing to repay debts in gold in 1933) occurred in 1979 when the Treasury failed to redeem $122m of Treasury bills on time. It blamed unprecedentedly high interest from small investors, a delay in raising the debt ceiling and a word-processing-equipment failure. Although it repaid the money and a penalty to boot, a later study by Terry Zivney, now of Ball State University, and Richard Marcus of the University of Wisconsin-Milwaukee found it caused a 60-basis-point interest-rate premium on some federal debt. Today that would cost $86 billion a year or 0.6% of GDP, a hefty penalty for something so avoidable."