Debt Ceiling Gives Investors Master Class in Complacency

The Republicans in Congress have backed down and agreed to suspend the debt ceiling, so the U.S. is, at least for now, not likely to default on its obligations. But the threat leaves a question, not least because it is merely delayed to December: Were investors overly complacent, or were they right to believe nothing serious would happen?

Investors clearly expected Republicans to cave in, with short-term Treasury bill prices showing that even if a default happened, any problems would be short lived. Markets, however, are terrible at assessing high-impact events that are very unlikely to happen. This can create sudden huge shifts in prices. The result is a form of permanent complacency, where unlikely but really bad events are ignored until they are so close they demand immediate attention.

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Source:" WSJ "

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