Option 1 would be immediately devastating. The debt is owed to everyone who holds US treasury bonds. That's every central bank, most countries, every pension fund in the world, the Social Security trust fund, all the banks. For that debt obligation to suddenly become worth much less, that would really fuck shit up.

Option 2 is devastating in a slower, more insidious way. One that the wealthy have access to more ways of avoiding the damage that it brings.