What happens if the US does default?

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Here is a speculative, hypothetical scenario from Marginal Revolution. Speculative and hypothetical, yes, but not at all outlandish.

A full sorting out of the payments mess takes months.  In the meantime GDP has shed five or ten percent and borrowing costs are permanently higher.  Credit stays slow and the United States enters another major recession.

Tick-tock …

Author: Eamonn Sheridan

Eamonn Sheridan worked with Bankers Trust Australia for 13 years as a Spot foreign exchange dealer, trading across all major currencies and all time zones. He rose to a Vice President position, running spot operations during the busy European time, leaving the bank just prior to it being sold to concentrate on running his own business in the ‘real world’! The markets, however, had him hooked – he continued to trade equities, CFDs and then on to futures, giving him broad experience across financial markets. He is now active in FX and equity index futures as well as writing for ForexLive™. Eamonn is a graduate of The University of Melbourne in Australia and lives in New South Wales.


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debt ceiling

Eamonn Sheridan


  1. haircut on all US Bonds.

    can u imagine what that looks like?

    then add the fact much is put up as collateral in various financial forms for various financial figures. add in Basel III Capital requirements…

    can u imagine what that looks like?

    until they do… just keep dancing.

    subprime…was widespread because they managed to market the junk debt to a wide range of audiences because it was rated AAA.

    (fill in the blank)…was widespread because they managed to market the junk debt to a wide range of audience because it was rated AAA.

    it would be a lovely scenario for traders if the US does default ala subprime/greek style… that’s as much as i can say.

  2. Like all commentary I have read throughout this mess, it is entirely coloured by the politics of the writer and there will be just as many articles out there proposing alternate plausible scenarios where the Democrats are the villains. Let’s not start believing our own biases too strongly here..

  3. Thanks Ed.
    I didn’t read it as a piece about villians, more about what would happen in the event of a default.
    I think that where the value in the article is, TBH.

  4. timely piece, Eamonn

    makes one think

    if there is a default there is probably no time to hedge so took a few spec shorts on the 2yr and 10 yr. US Treasuries

    2yrs are simple…..stop over weekly range high/no tp

    10 yr stops over the 129………..a break of 2.35 on the yield and it does not matter…you know, 2.65 to 2.35 is the noise

    short some a/u too …0.9425


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