The cost of a country defaulting on its debt can actually make it more likely to happen, leading to lower bond prices and financial limits not based on economic factors. The amount of debt a government can handle depends on how much private investors are willing to invest, which is influenced by their expectations of default and returns on investments. This creates a cycle where pessimistic investors lead to low investments, making it harder for the government to pay its debts, while optimistic investors can boost investments and increase the chances of debt repayment.