Wednesday, May 25, 2011

US Default ‘More Likely Than in Indonesia’

James Mackintosh at FT has taken a look at the cost of one-year US credit default swaps, which insure against default and notes that US default swaps have tripled in the last 6 days.

Mac writes:
According to this – far from perfect – measure, the US is now more likely to default than Indonesia or Slovenia in the next 12 months.
I suspect that those buying US default swaps aren't betting as much on a full default on the part of the US, as much as a technical default, which would scare the markets and push the price of default swaps even higher. Eventually, there will be enough fear that Congress and the president will agree to raise the debt ceiling and continue to kick the can down the road until after the 2012 elections at which time the politicians will all shed their costumes and declare that raising taxes will be necessary.

2 comments:

  1. 2013, the year DC brought its legions home, perhaps.

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  2. The link in the first sentence says "Page Not Found - CNBC".

    ReplyDelete