What If Uncle Sam Defaults?

First, foreign investors get edgy. Fearing they won't collect on billions in overdue U.S. Treasury securities, they start unloading their holdings. The dollar swoons. Wall Street holds out a little longer, but soon the selling pressure erupts. Falling bond prices push up interest rates, perhaps a quarter of a point. Then lawyers fly into action, arguing that pension and trust fund rules require funds to dump hundreds of billions in bonds.

To continue reading this article you must be a Bloomberg Professional Service Subscriber.