wilslm

gjertsen Wrote:
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> The notion of the US "defaulting" on its debt
> seems a little absurd in the first place. There
> are tons of things which are likely to not be paid
> before treasury holders are not going to be paid.

The notion of the US eventually paying all of it's bills, or at least looking solvent without destroying the value of the $$ is what is absurd to me. To think that debt of the US carries the same rating as JNJ or XOM is a joke. Look at the balance sheet and cash flow of the US vs JNJ, XOM or other currencies. I should have moved to AUS when I had the chance 5 years ago.

In the short term I doubt we will have a "default" if we do the inevitability of the destruction of the $$ will accelerate. Just a slight interruption will tack on a minimum of a .5% risk premium on our bonds for forever.

The real question is what will the CFA test look like without the risk free asset? Or will they say bonds issued by China?

spreads

The US is not defaulting so this is a moot point.

tango_gs

If Congress and future Presidents learn that they can talk away debt problems with more promises , what will happen to their resolution to cut debt and increase revenues through taxation? All of it will turn into "wink wink" to fool the markets .

They talk of raising the debt limit now , but there isn't even any mention of resolving to reduce the debt limit when the supposed cuts in spending and increased revenue through savings and taxes happen.

So we'll just roll along from bad to worse to terrible.

In fact the Chinese Gov't is requesting the US to continue to raise the debt limits , which is really funny.

No one wants "austerity" measures for the US !

tobeornottobe

They have raised the debt limit over 100 times, so this is not exactly new ground that we are covering politically. Furthermore, the ceiling is not indexed to anything so it is kind of an artificial number to begin with.

That being said, I think it is a good thing that politicians are using this as a method to move closer to balancing the budget and reducing the deficit. Just sucks that they are going about it in such a haphazard way.

joehogue

Kabaka, I get it, but a thread based on a hypothetical with such a low probability is pretty silly, as gjertsen also points out.

"Let's imagine armeggeddon breaks out on Aug. 3 and talk about that..."

I'm pretty smart and I still don't see the benefit.

Should be a pretty short thread, as in, it's a low probability event with a huge downside. What does one do in such a situation - they buy insurance - either through cds or options.