Mme. Lagarde is wasting no time settling into her new job as head of the IMF. She wasted no time unpacking her office move-in before brokering Greece's adhesive bandage version of a bailout. Now she does her part to endorse the mounting elite chorus singing the siren song of sovereign debt. She wants the U.S. to get its debt deal done so it can keep borrowing into bankruptcy.
Her concerns are well-founded, at least in mainstream elite thinking. The U.S. sovereign credit rating is currently the most stable in the world, so any uncertainty over its ability to pay its national bills will destroy the global bond market's confidence in any and all sovereign debt. The short term impact of a bond market crash would be an immediate spike in interest rates, including LIBOR. Mme. Lagarde is probably well-aware of the number of European banks that would be destroyed by an interest rate spike.
Their is no escaping contagion in global bond markets. Any sovereign default anywhere will knock over dominoes on both sides of the Atlantic. The crash is inevitable. Timing it is impossible.
