That now is a risky time to test the bond market was surely one lesson from the Truss-Kwarteng mini-budget fiasco. If so, it’s one Washington DC has failed to internalise. Politicians there are instead repeating their periodical game of fiscal brinkmanship at the worst possible time.

The US hit its $31.4 trillion “debt limit” last week — the current legislated cap on outstanding debt. Janet Yellen’s Treasury is therefore undertaking “extraordinary measures”, tinkering with various health and retirement funds to ensure everyone still gets paid.

This fudging capacity will dry up by autumn, according to Goldman Sachs, after which the US government would be unable to meet all its commitments. If the debt limit is not raised or suspended by then, about 20 per cent of US government spending would be cut overnight — delivering a default on bondholders and/​or large cuts to numerous government programmes.

With a Democratic president and Republican House of Representatives, an inevitable stand-off will play out until then. House Republicans say they want deep government spending cuts as their price for agreeing to raise the ceiling. President Biden, for now, refuses to negotiate. Given the Federal Reserve’s quantitative tightening and financial volatility, this impasse amounts to playing with matches near a fireworks factory.

Make no mistake: the US has a debt problem. Public debt has tripled from 31 per cent of GDP to 95 per cent in two decades. Over the next ten years, annual borrowing is projected to rise from $1 trillion to $2 trillion a year. Without tax rises or spending cuts, age-related entitlement spending growth would double the debt ratio again by 2052.

But the solution to this ratchet isn’t refusing to honour existing commitments to bondholders, hospitals and federal employees. It requires politicians from both parties to stop voting for huge, unfunded spending bills, while actually reforming the country’s unsustainable health and social security promises.

Republicans play down the prospect of defaulting on bondholders, even if autumn is reached and no deal agreed. The Treasury enjoys $4.9 trillion in annual revenues, they say, easily enough to meet net debt interest payments of $442 billion. Yet the practical problems and political risks of prioritising (often foreign) bondholders by cheating government contractors, veterans, or the sick, will make creditors restless, raising borrowing costs.

Nouriel Roubini reminded the Davos conference that during the 2011 debt ceiling face-off, the S&P 500 shed 12 per cent from July to August as the US credit rating was downgraded and mortgages and business borrowing costs rose.

The Truss-Kwarteng mini-budget showed that being blasé about the risks can spook markets further. The US situation is far more serious, given how Treasury debt underpins much of the global financial system. A flight from it as collateral could have disastrous consequences, delivering a deep recession.

Tolerating an elevated probability of such convulsions might be worth it if the game of chicken resulted in a huge deal defusing the debt time bomb. But while “the eight largest deficit-reduction laws since 1985 were all attached to debt limit hikes”, according to the Manhattan Institute’s Brian Riedl, history shows the debt limit is generally “terrible” for controlling red ink. It has been increased or suspended 102 times since the Second World War.

For those reasons, eliminating the financial risks of a default scenario is paramount. A recalcitrant Biden must cede ground and dispel talk from Democrats of legally dubious wheezes to circumvent the limit. Republicans must accept that they will not get large spending cuts they declined to deliver when holding the presidency and Congress. A failure to compromise on modest restraint and future budget reform, quickly, risks unthinkable consequences.