Monday, August 08, 2011

Lower Credit Rating = Higher the Risk Premium = Higher Interest Payment

The credit rating tends to be determined by the frequency of trade of this national debt. Long (buy) = higher the rate; Short (sell) = lower the rate. This decline in the credit rate means rise in the risk premium so that the interest payment has to go up. The investors (the saving curve) requires higher security on investment to the government (the investment curve): The saving curve shifts left along the investment curve. Therefore, the quantity traded goes down, and then the value of this share goes down...

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