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? |ForumIAS

Q. 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?

[A] Both Statement- I and Statement-II are correct, and Statement-II explains Statement -II.

[B] Both statement-I and Statement II are correct but statement-II does not explain statement-I.

[C] Statement-I is correct, but statement-II is incorrect

[D] Statement-I is incorrect, but Statement II is correct.

Answer: A

Notes:

Exp) Option a is the correct answer

Statement I is correct: The United States of America if defaults on its debt, the holders of its treasury bonds would not be able to claim and receive payments. As the US government issued bonds are not backed by any underlying asset, a default on the USA’s government bond will trigger a default.

Statement II is correct: These bonds are backed by the full faith and credit of the United States government and not backed by hard assets.

Hence option a is correct: Both statement I and statement II are correct, and statement II is the correct explanation of statement I.

Source: https://treasurydirect.gov/marketable-securities/#:~:text=All%20these%20securities%20are%20backed,of%20the%20United%20States%20government.

https://www.nytimes.com/2023/05/18/business/default-debt-what-happens-next.html

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