Are people who warn of serious consequences in case of a U.S. default exaggerating? Not according to economist Sergio Sebold, who tells readers of Jornal Do Brazil of the dire consequences which will ensue if America fails to maintain the reliability of the world’s sole ‘zero-risk asset’: U.S. Treasury bonds.
For Jornal Do Brazil, economist Sergio Sebold writes in part:
Ever since the Declaration of Independence, Americans have issued Treasury bonds – as all countries do. … Thanks to the behavior of American governments in the past, these bonds were always impeccably honored at maturity.
The central concern of economic agents is invariably the risk inherent in financial liquidity. In other words in this case, when we agree to cover bonds until maturity, this is so-called cash flow. In any analysis of profitability, the risk of liquidity is invariably present. For comparison, we always use a parameter that serves as zero risk. That is, a financial asset that has no risk of non-payment at maturity. Those who work in the capital markets are well aware of this terminology. In terms of behavior, in the more than 200 years of American independence, the U.S. Treasury has never allowed a delay in payment on its bonds (aka/Treasuries). To market analysts, this has always been regarded as the sole zero-risk asset. It has served as a sound basis for all global investment, as well as providing security for liquidity in the global financial system.
If in his “final mission” and with the permission of the American Congress, Obama is unable to avoid a default and stomach the monstrous deficit ($14 trillion), it will be the first time in history that America has gone into a default. Gone will be the beacon of zero risk. In other words, the global economy will be without a compass – will be adrift. As a consequence, the entire financial system, tied as it is to U.S. Treasury bonds, will be illiquid and experience a general crash. Will this be a global economic debacle? Will it be the beginning of a new global recession, as Paul Krugman (2008 Nobel Prize in Economics) warned over ten years ago.
READ ON IN ENGLISH OR PORTUGUESE AT WORLDMEETS.US, your most trusted translator and aggregator of foreign news and views about our nation.
