Politicians in the US continue to dance around what could be the greatest political mistake in modern times: not raising the debt ceiling.First I would like to share a little history behind the debt ceiling, courtesy of Daniel Indiviglio, Associate Editor at The Atlantic. The debt limit was first set in 1917 with the Second Liberty Bond Act, when Congress issued $7.5 billion in US bonds and another $4 billion in certificates of indebtedness.Accounting for inflation, that $11.5 billion would be $193.2 billion in today’s dollars, a massive difference compared to the current debt ceiling of $14.3 trillion.The debt ceiling first surpassed $1 trillion in 1982, and has increased exponentially since then. Raising the debt ceiling is not an infrequent occurrence, it has actually happened 102 times in the past 94 years. One could say Washington has a massive addiction problem to debt due mainly to the swelling weight of entitlements.The triple A rating given to sovereign debt by rating agencies imbues those holders with the distinction of being often considered “risk free”. So it is a very serious matter when Moody’s Investor Service has warned that it has placed the US government’s Aaa bond rating (which has been rated as such since 1917) on review for possible downgrade “given the rising possibility that the statutory debt limit will not be raised on a timely basis”.Standard & Poor’s Ratings Services has also threatened to cut its AAA rating of the US because of a growing policy stalemate that would endure beyond any near-term agreement to raise the debt ceiling by August 2.The consequences of not doing so, according to the Federal Reserve chairman Ben Bernanke, would create a “huge financial calamity”. Timothy Geithner, the Treasury Secretary, seems to agree that not raising the debt ceiling would amount to a default of government debt and may result in chaos in the financial markets and a return to recession.In this case “triple A would NOT be okay” and the consequences would be rather dire. Maybe the biggest reason why this would be so bad is that it would appear, at this stage, that the market assumes the politicians will come to some compromise before August 2. If they don’t, this would come as a surprise and the result would truly be traumatic for the market.A failure to reach an agreement could lead to a rush into traditional safe haven beneficiaries like the Swiss franc, the yen, and gold. It may, because of a crisis in confidence, lead to a coordinated central bank effort to buy dollars which would place a large short-squeeze on the dollar as well.But I don’t think it will come to this. I’m going to borrow a phrase from economist and author, John Mauldin, ”If something CAN’T happen, it won’t”. I think cooler heads will prevail here. I, of course, could be wrong, but I think this event will pass and something positive might actually come out of it.Maybe the US government will come to terms with what may be the biggest ethical dilemma of our times: Should governments be allowed to make policies and incur debts that then become the burden of future generations?Nathan Kowalski is the chief financial officer at Anchor Investment Management Bermuda