Failure to pay is simply unthinkable, but it's also unlikely

What will we do if the US government can't pay its debts? Apparently we have "back-pocket plans". Treasurer Joe Hockey said so in a US television interview.

But it's hard to know what those back-pocket plans are, mainly because we have no idea what would happen if the US failed to pay its debts. Would it push up the Australian dollar, would it push it down, would it send so much money flooding into Australia that foreigners were virtually paying us to take on our debt or would it dry up the flow so we couldn't borrow at all?

It's hard to know because it's unthinkable. The US is the world's biggest economy. Of course it can make the payments on its debts. Of course it will. Financial markets have pushed down the price of the US Treasury bills due to expire in the next few weeks as a precaution but after a few months the price returns to normal. Even money market traders - by nature excitable - aren't getting too excited.

My soundings tell me the officials Hockey says have "back-pocket plans to deal with whatever arises" aren't getting too excited either. US government debt is to international finance what the English language is to communication. It's the global standard. If it didn't exist it would have been invented. It's where savers put their money.

There's no fallback and there's no time to find one. And nor is there an actual deadline. On CNN there's a "debt ceiling deadline" clock in the corner of the screen, counting down the hours, minutes and seconds until 3am AEDT Friday, when the US is said to breach its self-imposed ceiling. But if the deadline passes and Congress doesn't relent and increase the ceiling, nothing will happen at first.

Some time later, on November 1, the US has some big bills to pay: $67 billion in social security cheques and military pay and interest on government bonds.

It might need to reprioritise if it's to avoid breaching the debt ceiling, perhaps delaying some of the payments or replacing them with promises to pay later. There's no hard and fast date. Even if the US did miss some debt payments, its lenders might choose to look the other way. It has missed payments before. Everyone knows it's good for the money. It has to be.