Ocotber 5, 2025

The spectacle of another US government shutdown has once again gripped Washington, but the implications stretch far beyond the inconvenience of shuttered federal offices or delayed paychecks. Beneath the surface lies a more dangerous signal: at a time when the US national debt has already reached staggering levels, the government cannot even ensure its own day-to-day functioning without temporary stopgaps.

This is where the notion of a "soft default" becomes relevant. While the US has not missed an interest payment or formally declared a default, the recurring spectacle of federal government shutdowns represents a subtler breach of faith with both domestic taxpayers and international creditors.

Erosion of institutional backing

Investors do not buy US Treasury securities merely for the coupons they yield or the legal guarantee of redemption. They purchase them because treasuries are supposed to embody safety, stability, and predictability. These qualities make the dollar the cornerstone of global reserves, and US debt the ultimate safe asset.

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