Tuesday, July 26, 2011

US Debt Default

I would like to offer the following conundrum. 

If the US debt is downgraded, does it really matter?  Since US treasury debt is the benchmark on which other bonds are traded what does it matter if it is downgraded.  It is essentially the zero or plumbline on which everything else is based.  Does moving the plumbline really matter?

I have read some economists say it may cause some large bond portfolio managers to buy even more US debt as the trickle down effect will make everything else riskier. 

Perhaps the yield on US debt will drop as a result of a default?

Interesting time for sure.  If the US defaults, it's really a voluntary default as they have the resources to pay all debts/creditors. 

Best Regards,