Long story short: correct me if I am wrong, but ELI5….
Banks borrow from the FED who sets rates to lend to banks, so if the government misses a bill payment then their credit rating goes down and people(banks other countries) look at the FED with a “side eye”.
Now they banks give out all kinds of loans on different timescales and rates; they can typically use the FED rates to judge what they can charge a customer. With everone looking at the FED like “ummmm…” their rates would likely go up, and then the banks pass that along to their customers.
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