Despite being the world’s dominant economic and military power with its financial system underpinning the world economy and its currency as the world reserve currency, the United States no longer believes in its role. Borrowing from the mythological language of Hollywood and Spiderman – the United States no longer believes that with great power comes great responsibility. While domestic concerns have ultimately always been predominant in American policy, this latest episode is the most serious illustration yet that the United States is tired of leading.
There are two basic reasons for a default on your public debt. Either, you are unable to pay your bondholders because the economy has become a basket case and the government is unable to raise the necessary revenues. Or, you simply decide you do not want to pay your bondholders. While the American situation can be ascribed to political deadlock, it really falls into the latter category because despite the impact of the 2009 recession and financial crisis, the United States is still a rich country and has the capacity to service its public debt. Not fulfilling its obligations in this capacity is really a default on its leadership role.