Consider the following statements: Statement-I: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment. Statement-II: The USA Government debt is not backed by any hard assets, but only by the faith of the Government. Which one of the following is correct in respect of the above statements?
Question:
Consider the following statements: Statement-I: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment. Statement-II: The USA Government debt is not backed by any hard assets, but only by the faith of the Government. Which one of the following is correct in respect of the above statements?
Consider the following statements: Statement-I: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds will not be able to exercise their claims to receive payment. Statement-II: The USA Government debt is not backed by any hard assets, but only by the faith of the Government. Which one of the following is correct in respect of the above statements?
Options
Answer: (a) Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
Explanation:
US Treasury debt is backed solely by the Government’s credibility, not hard assets. Hence, if the USA defaults, bondholders cannot enforce repayment; both statements are correct and linked.
Explanation:
US Treasury debt is backed solely by the Government’s credibility, not hard assets. Hence, if the USA defaults, bondholders cannot enforce repayment; both statements are correct and linked.
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