So Krugman has this post on dual equilibrium in default. He draws a couple of graphs and labels the post as (very wonkish).

He is a very successful writer so I assume he knows his audience. However, it seems to me that his basic point – that there are multiple equlibria associated with an expectation of default – is so blindingly obvious that I am not sure how you consider the question without coming up with that answer.

Now maybe that simply because I am in the process of winning back the title of most detached econ blogger. But, its just not clear to me. What else would someone think?