That's what were looking at if the U.S. Defaults.
This is the analysis heard on the Nightly Business Report of PBS tonight.
One analysis even held out the possibility that the yields would actually drop (demand for U.S. Treasuries increasing) for the flight to safety if the world markets dropped with the loss of the AAA rating.
This, the bond trader said, would concern the longer term curves. .5% on long term rates would not be the drama everyone fears.
We are being had. By Republicans, Democrats, the Chamber of Commerce, the shrill Chicken Littles held in thrall by the ratings agencies. This is classic Shock Doctrine as Seneca Doane's diary points out so clearly. Combine the president's artificial deadline of August 2 with two hapless parties willing to play their roles to manufacture a debt ratings crisis.
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But there's no guarantee that even if they go with the McConnell plan of raising the ceiling with no deal on cuts or tax reform that the ratings agencies STILL wouldn't lower the ratings to AA. This is well within the recent patterns the Eurozone and the ratings agencies. Whatever arrangements are made to renegotiate/bailout Greek debt by the authorities in Germany and France the bond markets will always weigh in with their own imprimatur and raise the vigorish and claim de facto defaults.
The temporary agreement would only raise the debt ceiling by $500 billion, enough to fund the government for six months, in order to give the ratings agencies another hard deadline where reform must be implemented, the firm predicted. The question on traders minds now is, will Standard and Poor’s buy it? - CNBC
The real threat to the system is that classic "credit event" concerning those who gamble in the CDS casino. The swaps technically would have to pay off and that could have a cascading effect - possibly on certain banks and hedge funds - that poses the unlikely event of a credit crunch. Still, were talking gamblers and the unregulated by design derivatives contracts who would immediately suffer the consequences. But the design of the 595 trillion dollar derivatives scheme will always be ready as a threat over policy makers by the fiscal Kamikazes of Shock and Awe. Since the Dodd-Frank Bill for financial reform still doesn't address the over-the-counter derivatives markets and Wall Street has put a full court press against even cursory attempts to even monitor the trading, we will never be able to escape the ultimate mushroom cloud threat of a massive credit event whenever an "adult" needs to lecture.
Isn't it about time to finally be the real Adults and let the bond vigilantes, the ratings agencies know we're not going to be held hostage. The legacy of the New Deal is a lot bigger than Fitch, Moodys and Standard and Poor's. I believe the party and/or the president who has the balls to let a technical default happen without the apocalyptic projections every media outlet and Left/Right Wing Noise Machine reduces the options down to - will ultimately expose the true emperor conducting with no clothes. This could even be what the Tea Party and Grover are counting on: A standing down and popular revolt over the financial puppet masters.
That would be the coup of the 21st Century. The end of the Rating Game in its current form. And a comeuppance for the fraud by the three agencies that allowed for the toxic MBS that caused Meltdown in 2007-08.
The Chinese word for "Crisis" is the same word for "Opportunity". This, if handled sanely and squarely by the Democrats could conceivably turn the tables upon Wall Street and the Republicans looking to frighten Americans into delivering Social Security and Medicare/Medicaid as sacrifice to the Baal of the ratings gods. Or we could leave it to the Tea Party to take the credit if nothing happens when they deliberately walk away from the table. What a shame would that be to be punk'd again by teabaggers.