I’m still not sure how concerned to be about this upcoming debtpocalypse or whatever. For one thing, the stock market is supposed to crash, and Treasury interest rates are supposed to rise (and if money’s being pulled out of both investments I’m not sure where it’s going to go… Euro bonds? No way. Commodities? Not with oil dropping every time the global economy coughs. Gold, maybe? Not all of it… I just don’t know.)
But more on those Treasury bond interest rates. We keep hearing that the United States will suffer irreparable damage to its credit, and that not increasing the debt ceiling will lead to the interest on our debt going up by so much that we would actually be increasing the debt! That sounds pretty bad. So why do I keep reading about non-pocalpyse forecasts like this one?
If the U.S. defaults on some obligations after Aug. 2, even if it pays bondholders, S&P forecasts short-term interest rates would rise 0.50 percentage points and long-term interest rates by 1 percentage point.
In the very same article, I read this:
Yields on benchmark 10-year notes rose six basis points, or 0.06 percentage point, to 2.96 per cent July 22 in New York, from 2.91 per cent on July 15, according to Bloomberg Bond Trader prices.
Still, markets through last week hadn’t demonstrated great concern about the potential for a default. Yields on 10-year- notes remained well below the average of 4.06 per cent during the past decade.
Wait. For whatever reason, the interest rate on U.S. debt is over a percentage point lower than it has averaged for the last decade. Apparently a lot of investors still think it’s a safer bet than some other countries’ debt. Or maybe they just have an insane optimism that the U.S. will really increase the debt ceiling, or at least, continue to pay the debt interest. Regardless, the forecasted crisis is that the interest rates will rise a whole percentage point and go back to the long-term average?
I’m just not seeing the catastrophe.
Disclaimer: I’m not one of the dogmatic anti-government types that is convinced that neither the debt ceiling nor taxes should ever be raised again to get us out of this mess. Maybe the short-term consequences of not raising the ceiling are too great to ignore. But, like a lot of things I’m not sure about (*cough* climate change *cough*) the increasingly shrill alarmist hysteria seems to be increasingly divergent from reality. Am I missing something?
Disclaimer: I’m not one of the dogmatic anti-government types that is convinced that neither the debt ceiling nor taxes should ever be raised again to get us out of this mess. Maybe the short-term consequences of not raising the ceiling are too great to ignore. But, like a lot of things I’m not sure about (*cough* climate change *cough*) the increasingly shrill alarmist hysteria seems to be increasingly divergent from reality. Am I missing something?