America's 'too big to fail' moment

The US is in no danger of long-term default, but like Lehman it could trigger a dangerous derivatives squeeze. And European banks are more exposed to government bonds than ever before.

Australia will not escape serious flow-on effects if the US defaults on its government debt. Not only will global interest rates rise but a US default will have severe effects on the international derivatives market, where we are a significant player.

And, as I explain below, a prolonged US crisis could be the trigger that sends the European banking system into a downward spiral.

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