The United States is not at risk of skyrocketing borrowing costs if Congress fails to raise the debt ceiling, said economist Nouriel Roubini.
Ironically, the opposite would happen — Treasury yields would go down, Roubini said at a Reuters conference.
"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," said Roubini, a New York University economist known as "Dr. Doom" because of his pessimistic forecasts.
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"Everywhere else, if a country gets a downgrade, the yields go up. I in the U.S. it is the opposite."
Investors turn to U.S. debt whenever global economic risk increases, he said. That includes the risk coming from U.S. domestic political squabbles and the risk of a U.S. ratings downgrade.
Whenever there's a bout of global economic fear, people dump the yen and euro and turn to the dollar.
Plus, China keeps financing the United States to maintain its export-led growth. If China were to drop the dollar, other emerging markets would scoop up Treasurys, he said.
"If China shuns the U.S. dollar then every other emerging market says 'Hey, I don't want to let my currency appreciate and lose market share to China' and so they intervene and buy dollar and Treasurys."
For those reasons in spite of our large and unsustainable debt, bond vigilantes are not a factor, Roubini said.
"Eventually if we don't solve our problem, at some point, the bond vigilantes are going to wake up. But not yet."
Congressional Republicans want to reduce government spending in return for raising the debt limit, which the government is expected to exceed by mid-February or early March. President Barack Obama has said he will not negotiate over the debt limit.
"To even entertain the idea of this happening, of the United States of America not paying its bills, is irresponsible," he said at a news conference. "It's absurd."
"They will not collect a ransom in exchange for not crashing the American economy," he said of Republicans. "The full faith and credit of the United States of America is not a bargaining chip."
Editor's Note: The Final Turning Predicted for America. See Proof.
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