Broad Oak: your emotional support animal

Thursday, October 10, 2013

Default Risk Zero

So the US government is having a little argument about the debt ceiling again. China and Japan have warned that a US default might be a little nasty and even the President himself has warned of financial Armageddon.

So why are the markets so sanguine? Where's the panic?

Well we all know there will be a last-minute deal, it's like those clichéd  cop dramas where you know the protagonist is in no real danger. If there was any doubt in your mind take a look at the appointment of über dove Janet Yellen to the chair of the Federal Reserve. A sure signal that they plan to print to infinity.

Back to sleep everyone, no story here.

However…


The US government have no option but default, the only question is when, but that my friend is another story.

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3 comments:

A K Haart said...

"The US government have no option but default"

As it issues its own currency, why would the US default?

Sackerson said...

Possibly because the alternative is hyperinflation?

Wolfie said...

No. There will be no hyperinflation, can't be when most of the world trading is still in dollars.

Its a common misconception that the US can avoid default but being the world reserve currency producer simply means that nobody else can force them to default. When the time comes they will chose this as the political option.

I will explain why in another post.