May 27, 2011
“America Defaults!” Hype or Hysteria?
I realize this is the sort of short blog post that will have an obvious conclusion in a few months. But I find this interesting since I share a weakness with a few other armchair economists: the inability to perfectly foresee the future. Note that the graph is for 1Y CDS. That’s a Wall Street instrument that is a “bet” that the US will have some default event in the 12 months, which covers the Debt Ceiling debate. The cost of a five year “bet” of a serious US default has remained more stable. My read: the markets are beginning to suspect that over the summer Obama won’t agree to House Republican demands for serious cost cutting, and the Senate, marginally controlled by Democrats, has lost the ability to be the adult in the room. But also that in the mid-term, the economic picture remains pretty stable.
