THE brinkmanship in the US over a measure to raise the government's borrowing limit has already been damaging on several levels. The most obvious possible damage is the one least likely to occur. It is the immediate risk that the negotiators will go over the brink, no deal will be done before Tuesday and the government of the world's largest economy will default on its debts.

The result would be economic instability on a large scale - probably a severe loss of confidence in the US and a new period of economic contraction. If it happened, it would have worldwide implications, not least for Australia.

Yet even if the US Congress loses its collective mind and allows that to happen, the US economy remains a mighty powerhouse; despite the folly of its elected representatives, it will return to health and strength.

However, the same may not be true of the reputation of the US and the confidence of its people and leaders. Those intangibles have an economic basis which can be expressed crudely as the country's AAA credit rating, now also at risk. But they extend further than the economy into the country's hitherto unquestioned prestige as the leader of the Western world. More is at stake here than money.

The vast US debt has taken a long while to build to its present gargantuan proportions. In truth the US dollar's status as a safe haven currency has been something of a trap, a source of moral hazard.When downturns threatened, investors around the world have for decades been in the habit of investing in US Treasury bonds as a safe haven - to lend, in other words, more money to one of the world's more indebted governments. They have lent so much money that the haven is safe no longer.