Anyone who doubts that a debt default would be an economic catastrophe for the U.S.–particularly given the economy’s current fragility–should give a gander to Neil Irwin’s report at Wonkblog on what’s already happening to T-bill markets:

A lot of the market indicators of how much the financial world is worrying about a debt default have been quite calm over the last week….

But in the less widely followed — but in many ways more important — market for Treasury bills, things are starting to get scary. These are short-term IOU’s of the U.S. government, bills issued for 30, 60 or 90 days. They enable Uncle Sam to manage cash flow much the way a homeowner might use a credit card. They also form the backbone of trillions of dollars in transactions: Major corporations and banks use them as a place to park short-term cash; they are held by money market mutual funds; and they serve as collateral for millions of transactions in markets around the world.

Normally, the interest rate the government pays on bills is around the same as the short-term interest rates in other money markets (for example, the interest rates banks charge each other for overnight cash, or the interest rate that the Federal Reserve targets). Both of those are near zero right now, which is why on Sept. 30, eight days ago, the interest rate on Treasury bills maturing Oct. 17 was a mere 0.03 percent. Nothing, in other words.

But since then, the possibility that the Treasury might have trouble paying or might not be able to pay its bills over the next few weeks has grown — and the interest rate has skyrocketed. It was at 0.16 percent at Monday’s close. On Tuesday the rate so far has been almost double that, as high as 0.297 percent.

There are reports…indicating that some of the biggest money managers in the world are starting to avoid U.S. government debt that matures in the near future out of fear they will not be repaid promptly.

Irwin goes on to explain how this phenomenon can quickly exacerbate the challenge of the federal government meeting its obligation, and also how it resembles the “liquidity crisis” that immediately preceded the financial disaster of 2008.

So yeah, notwithstanding the political perils involved, it’s probably a good idea that Obama’s remained open to a short-term debt limit increase in case things get crazy fast. But it’s all the more reason that the GOP’s Wall Street buddies need to be on the horn urging their favorite Members of Congress to cut this crap out altogether.

Ed Kilgore

Ed Kilgore is a political columnist for New York and managing editor at the Democratic Strategist website. He was a contributing writer at the Washington Monthly from January 2012 until November 2015, and was the principal contributor to the Political Animal blog.