By Atul Bhatia, CFA
Lower financing costs can help slow debt accumulation, but we believe they
are unlikely to make the country’s fiscal policy sustainable in the long
term. Instead, we think it’s increasingly clear that the U.S. will resort
to several of the tried-and-true tactics of overindebted sovereigns, such
as currency devaluation and bond market interventions, to mask some of the
costs of profligacy. While we don’t see even a miniscule chance of a U.S.
default, we do see implications for multiple asset classes as the U.S.
confronts its unwillingness to tax at levels commensurate with its
spending.
A rolling loan gathers no loss
The easiest way to deal with debt maturities is to repay them with
borrowed money, a process often referred to as “rolling over.”…
