In a July post, "The Beginning of the End for America's AAA Rating?" I noted that the price of a credit default swap (or CDS, a form of "insurance" on creditworthiness) on 10-year U.S. government debt had climbed to a record 21.8 basis points (one-hundreths of a percentage point).
The rise indicated that investors were becoming increasingly worried about the financial health of the United States.
After treading water in the seven weeks that followed, the cost of insuring against a U.S. debt default has again moved higher, touching a fresh record of 24 basis points on Monday before easing back a tad to 23.3 bp today.
Amid bailout after bailout, is it any wonder that investors are beginning to anticipate what was once unthinkable -- an America that is unable to pay its bills?
Are CDS really a valid instrument? I mean who in their right mind would buy a CDS knowing that US Govt would look to avert disaster by preventing payment against it?
To add to that point, isn't a US Govt CDS a useless derivative? I mean the fiat monetary system will have failed if the US Govt fails. This derivative is only a political tool and reporting on it is misleading.
Posted by: Anonymous | September 17, 2008 at 06:00 AM
What's news here? Uncle Sam is bankrupt. Eventually the public will wake up and hyperinflation will follow. Oh yes, and have a nice day
Posted by: Independent Accountant | September 17, 2008 at 10:10 AM
Excellent chart Mike!!
Posted by: Jesse | September 17, 2008 at 03:45 PM
I suggest you read Satyajit Das two outstanding articles on this subject in
Eurointelligence, which you can link on Naked Capitalism. Nothing better, to my mind, has been written on the subject.
Posted by: RK | September 17, 2008 at 07:14 PM