For example, the fear of the market effects of closeout and liquidation of LTCM's very large net positions motivated its counterparties to recapitalize the hedge fund in 1998. LTCM was able to become so large and so highly leveraged because its derivatives and repo market counterparties, perhaps awed by the reputations of its principals, failed to effectively manage their credit risk to LTCM.
Nonetheless, the upward pressure on inflation expectations is a double-edged sword: on the one hand, it is a factor contributing to declines in the expected real interest rates; on the other, it can lift up nominal interest rates.