Fighting over the debt ceiling is an old pastime in Washington. In 1979, Congress didn't agree to raise the debt ceiling until the Treasury Secretary said the government was hours away from running out of money.
As the Washington Post recently noted:
That last-minute approval, combined with a flood of investor demand for Treasury bills and a series of technical glitches in processing the backlog of paperwork, resulted in thousands of late payments to holders of Treasury bills... .
All things considered, the incident amounted to a minor blip. The Treasury had missed payments on about $120 million worth of bills, a tiny amount even then ... Investors ... eventually were paid in full with back interest. T-bills, as they are known, continued to be considered a safe investment. Treasury officials both then and now argued that the event was not even a default, but merely a delay caused by the internal logjam.
The brief default (or "delay," if you prefer) led investors to demand a higher interest rate on government debt in the months that followed, increasing the government's borrowing costs, according to a 1989 study called "The Day The United States Defaulted on Treasury Bills."
Terry Zivney, the author of that study, spoke with NPR's Robert Siegel earlier this month. He explained the rise in borrowing costs in simple terms:
I think the markets remember. ... investors are a little bit wary of you, going forward. Maybe next the time they'll be the person that doesn't get their $120 million.