Why does a “contract from the account” come to the bond market

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The last reduction to the American credit rating can be the tip of the ideal iceberg.

“I don’t know if we have a day of account or a contract of account,” the Brookings Institute Ben Harris Tell Yahoo Financial Editor Brian Suzy On a new Opening offer Podcast (see the video above or listen below). “I don’t know if this will happen slowly or if it will happen quickly.”

“When Moody reduces your credit rating, although it is expected, this red flag,” said the director of economic studies. He pointed out that the default was not dangerous in the past, and investors are not seeking to pricing it in the possibility of failure to pay. The US Treasury may have some inflation, currency or other risks, but investors expect them to be paid.

“If we go from a 100 % chance to get your cabinet salaries to 99.8 % chance to get the cabinet salaries, this is a tremendous transformation,” Harris explained. “This is no longer one of the risk -free assets. This is the risk -framed origin in terms of virtual risks, and this makes our financial outlook much worse.”

Harris recently worked as an assistant secretary of economic policy and chief economist in the US Treasury. He is widely seen as the main architect of the Biden Administration Economic Plan.

On May 16, Moodyz shrinked The American credit classification to AA1 from its long -term location from AAA. Then, on May 22, the House of Representatives approved the reconciliation package in Trump, nicknamed “Big bill, beautiful,” Which included tax cuts and a 4 trillion dollar elevator.

Return on the treasury for 10 years (^TnxHe continued to climb amid fears of debts out of control of the United States.

Read more: What is the treasury note for 10 years, and how does it affect your money?

Harris said that if interest rates rise to 5 % over 10 years, even 6 % or higher, investors may buy more treasury instead of other assets, such as companies or stocks. This will withdraw the macroeconomic economy, which Harris says is “guaranteed” if the United States takes 4 trillion dollars or more of debts.

“The real threat is that this can raise a kind of financial crisis,” said Harris. “This may happen if we get to the roof of debt where you start seeing the failure to pay for securities. This may happen if investors lose their confidence in the independence of the federal reserve. This may happen if you see really strict transformations from foreign central banks away from the cabinet, like a type of official announcement that we do not go to buy weights for us anymore.”