Will people not be able to pay their mortgage, student loans, credit cards in a default?

[jtown1123]

How does this work? Will interest rates go so high everything will be unaffordable?

[Raven]

1. Fixed rate mortgages will be ok, I think. Credit cards will be a

problem and student loans will be a problem. Any interest rate that is tied to the market will be affected.

[girl gone mad]

2. The Federal Reserve controls short-term interest rates...

through open market operations. The Fed just proved through quantitative easing that they can and will be buyer of last resort. The yield curve as indicated by the term structure of interest rates reflects market expectations of future short-term interest rates. Long Treasury rates reflect inflation and interest rate expectations. We may see an increase in the long rate, but it's highly unlikely to be anything dramatic. Bond markets are much more rational than Congress.