ROUBINI: US Is The Only Country Where A Downgrade Causes Interest Rates To Fall


Photo: flickr/World Economic Forum

The debt debate ceiling is starting to heat up after President Obama said yesterday that he sees no alternative to raising the debt ceiling and that Congress would be “irresponsible” not to do so.Since then Fitch has come out to say that it the U.S. risks its AAA credit rating if it doesn’t raise the debt ceiling.

But doomsayer Nouriel Roubini says the U.S. doesn’t need to panic over the debt ceiling or a downgrade for now.

Speaking at a Reuters conference quoted by CNBC, Roubini explained that this is because of the U.S. dollar and treasury’s safe haven status. From CNBC:

“In absolute terms, the United States has significant fiscal, growth and unemployment problems. …[But] paradoxically, if we don’t reach an agreement in March on the fiscal debt ceiling and we get another downgrade, yields are going to fall, they’re not going to go up. Everywhere else, if a country gets a downgrade, the yields go up, in the U.S. it is the opposite.

…”We have low growth, we have low inflation below target, we have zero federal funds…in 2015, we’re doing QE3 (a third round of quantitative easing), maybe QE4. …Every time there is a global bout of risk aversion people go into the dollar and Treasuries. At the peak of the crisis, the dollar rallied because we are the safest.”

Bond vigilantes can rest easy for now he said.

Read the entire piece at CNBC >

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