Misunderstanding Default Risk

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“In a sign of the fragile investor mood, gold surged to a new high of $1,628.30 a troy ounce. Investors also piled into Treasuries, driving down the yield on the benchmark 10-year note sharply to 2.804%, its lowest close since last November. Yields, which fall as prices rise, cratered as investors searched for a safe haven ahead of the Aug. 2 debt-ceiling deadline.”
– Wall Street Journal, July 29, 2011, “House Passes GOP Debt Plan” by Naftali Bendavi and Carol E. Lee (may be available at http://online.wsj.com/article_email/SB10001424053111904800304576475922394400688-lMyQjAxMTAxMDIwOTEyNDkyWj.html)


This from the former “premier business daily” in the U.S.  Students in my microeconomic principles class could figure out what’s wrong here.

Hey, Wall Street Journal writers: who has to pay those Treasury notes?  That’s right, the U.S. government.  Arguing that investors are buying those securities because they expect the U.S. government to default is, well, stupid.

The Murdochization of the Journal reaches yet another new low.

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.