America’s Quiet Default

While not as dramatic as the Nixon shock, the Biden sanction was just as genuine a default. U.S. Treasurys in the post-1971 era were the global risk-free asset, used by friends and enemies alike to reliably store value. Rug-pulling the Russians, even if warranted, introduced for the first time genuine doubt into the quality of the commitment the U.S. can maintain towards foreign creditors. The prospect of total asset invalidation is an unacceptable tail risk, and any nation-state wary of falling afoul of U.S. sensibilities, especially as the U.S. becomes ever more capricious and less interested in the well-being of the international sphere it used to govern, will consider diversifying out of U.S. Treasurys and other freezable assets.