U.S. Debt Default

I had covered this topic quite a bit in my MINT column on Tuesday. I had a long chat with a journalist from Wall Street Journal and he has carried two of my observations:

“The overwhelming belief is that somehow like a Hollywood movie there will be a happy ending,” said V. Anantha-Nageswaran, a Singapore based Asia economic advisor to private bank Julius Baer.

“The consequence of no deal is so unfathomable, it’s best to close your eyes,” said Mr. Anantha-Nageswaran, noting that’s a strategy most investors seem to have chosen. [Full article here]

That said, I recommend this blog post in FT Alphaville. It echoes what I have said above:

But perhaps the biggest problem with efforts to think through this scenario is that they all exhibit a mechanistic way of thinking — this leads to that. To some extent this can’t be avoided, and we do it ourselves here all the time. But given the size and connectivity of the US Treasuries market this seems like an instance where events are unlikely to neatly unfold. The interplay of so many variables probably means a future that can’t be known before it gets here, and might not be properly understood even once it is here.

The blog post that follows this on what the US could learn from Chile is something that even India can and should contemplate. Chile’s management of boom times (in copper and hence in its economy) has been exemplary.

Via this post by Stuart Staniford of ‘EarlyWarn’, I came across this blog post by Kevin Drum and I totally agree with his summary:

Frankly, I’m not really sure what’s going on anymore and I’m not sure anyone else is either. For now, I’m going to stick with my guess that we’ll blow by the August 2nd deadline, markets will go nuts, and we’ll end up with some kind of debt ceiling increase by August 7th. We’ll see. [Full post here]

I agree with Kevin Drum. My only add-on is that it won’t be the same again for the US or US assets, if this happens.

This post originally appeared at The Gold Standard and is reproduced here with permission.