The world was a different place in 1790, the last time the United States government is believed to have defaulted on interest payments it owed to investors.

Today, U.S. Treasurys are the only investment in the world considered virtually risk-free. That exalted status has made them the foundation of the global financial system. Your Social Security contributions are invested in U.S. Treasurys. Your 401(k) likely includes Treasurys. Corporations and governments around the globe, even those run by despots who despise us, invest in Treasurys or Treasury-related debts.

So everyone has a lot to lose if, by next Tuesday, Washington doesn't raise the debt ceiling in conjunction with a sensible plan to cut spending.

For all the sound and fury, you'd be forgiven for thinking that lawmakers are being asked to do something unprecedented. They are not. The debt ceiling has been raised more than 70 times since 1940, including seven times under President George W. Bush and four times previously under President Obama.

This time, though, it's taken on the air of a crisis, with some trying to draw parallels with collapsing economies and internationally arranged bailouts of Greece and other European economies.

There is no comparison. Greece had to be bailed out because the country could no longer afford to borrow money to fund its operations. The U.S. economy is 44 times larger than Greece's. We are still shaking off the effects of a recession, and we've not yet meaningfully addressed the looming burden of entitlement programs, particularly Medicare and Medicaid. But investors are still willing to lend us money at rock-bottom interest rates, with the yield on 10-year Treasurys around 3 percent in recent days.

If Congress doesn't raise the debt limit beyond $14.3 trillion, that faith and confidence around the world will be shaken, and our government would have to choose between two scenarios: Stiffing investors altogether, or paying interest on Treasurys and limiting other government spending to Social Security, Medicare and Medicaid.

The Bipartisan Policy Center in Washington, D.C., estimates that, in August alone, the federal government would have to cut spending by $134 billion to make just that month's payments on its debt and continue funding those "safety net" programs. Every other government department or program would go without.

The alternative, not making interest payments to bondholders, would only free an additional $29 billion, but at a steep cost. Defaulting on debt payments could drive up interest rates on credit cards, car loans, home mortgages, business loans and state and city borrowing. How much? Nobody knows for certain because we've never been here before.

On Tuesday, though, investors lined up to buy $35 billion worth of U.S. Treasurys.

Here's the funny thing about those two-year notes: They are scheduled to be delivered Monday, the day before the federal government could run out of money.

If you believe in the power of markets and the wisdom of crowds, this is perhaps the strongest signal yet that investors around the world assume that President Obama and Congress will reach a sensible compromise. Even if that agreement doesn't prevent a slight downgrade in the U.S. credit rating, it will head off the calamity that may result from blowing through the deadline without a deal.

But maybe you happen to remember that the investors who snapped up those Treasurys are the same banks, governments and individuals that climbed over each other five years ago to buy bonds backed by residential mortgages. They assumed housing prices couldn't go down, especially prices for mortgages rated AAA.

Here's hoping the smart money is smarter this time around.

ericw@startribune.com • 612-673-1736