The author made a careful claim that Wall Street began to
worry about the debt ceiling, supported by the different yield curves in the chart
from Goldman Sachs , and explained why this happened as warrant.
According to the chart, the curve on September 16 was flat,
while the curve on September 30 showed a slight uptick and October 1 went nuts,
which seems to be an abnormal phenomenon. If the treasury bonds are not at any
risk of genuine default, the author put forward 2 reasons to explain this. One is
that some bond coupons have genuine risk and cannot be paid since the Treasury’s
computer system cannot easily prioritize payments. Another is that Wall Street system
cannot simply distinguish bonds with technical default with others, which would
lead those bonds to be rejected on the repo market as collateral. If the theory
is correct, the author predicted some forms may happen in the markets and
suggested the debt ceiling crisis may be solved by a market catastrophe.
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