Saturday, July 16, 2011

Don't really know what rates would do right after a default

If there is a default and interest rates fail to spike up we can expect to hear those who have been discounting the effects of default saying they told us so. However, the likelihood is that any such failure of rates to rise would be due to the prospects for another sharp down-leg in the Great Recession, (which I, as others, do not consider to have truly ended). Once a new bottom was found, interest rates would be higher than they would have been in the absence of a default and would weaken and slow the eventual recovery.

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