Academic

MEGAN MCARDLE: The Risk of Debt: For a while now, I?ve been asking people at conferences, on and?

By Glenn Reynolds

MEGAN MCARDLE: The Risk of Debt:

For a while now, I’ve been asking people at conferences, on and off the record, what America’s sovereign debt risk is? That is, how long until people stop treating treasuries as the “risk free” securities, and start demanding a premium for the risk that we might default.

The answer from the right has been a nervous (perhaps hopeful) 2-3 years. The answer from the left, and professional Democratic wonks, is some unspecified time in the future. Probably, there will be a Republican in charge. Markets hate Republicans.

But last Thursday, the Treasury auction was . . . well, descriptions vary from “weak” to “horrible”. This raises the unpleasant possibility that markets are, as my business school professors insisted, “forward looking”. Voters may believe that getting a bunch of special interests to agree in principal that costs should be cut is the same thing as actually cutting costs. Bond markets don’t. . . . Obama can assure voters that he inherited these deficits. But bond markets pay closer attention to the fact that Obama has already increased the projected deficit he inherited by 50%.

Read the whole thing.

Full post as published by Instapundit.com on May 12, 2009 (boomark / email).