The macroeconomic consequences of the debt ceiling ritual
Rattled by the short-term probability of default, markets are ignoring the likely macroeconomic fallout of averting default.
Broadly speaking, market concerns about the debt ceiling are in the following order of perceived importance:
1. The federal government might default on its obligations, creating generalized chaos. This is a low-probability, high-impact event, and one that has already affected pricing for Treasury bills; 4-week bills now yield a shocking 145bps lower …
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