US to Default on Credit Aug. 2 - Even if Solution Found Today
(To review: CDS are a kind of "default insurance." The buyer of a CDS is buying insurance against default by a specific issuer of debt, whether that be a company or a country. The greater the apparent likelihood of a default, the higher the price insurance. That's why the price of a Greek CDS is 1,000 times greater than the price of a Norwegian CDS.)
This extreme pricing difference is to be expected. In absolute numbers, the national annual deficits of Greece and Norway are identical. But while the Greeks are running a budget deficit equal to about 14% of its GDP, the Norwegians are running a budget surplus equal to about 14% of GDP. Greece might default tomorrow. Norway is unlikely to default any time this century... or at least not until its North Sea oil runs out.
Interestingly, the price of 5-year CDS on US debt is also higher than that of Norwegian CDS. Both issuers are rated AAA. And not so long ago, CDS prices on both of these sovereign borrowers were identical. For a short while, in fact, Norwegian CDS were more expensive than their US counterparts. But the spread between the two has been widening out during the last several months. In other words, US CDS prices are rising relative to Norwegian CDS.
As of this morning, US CDS are more expensive than the CDS of six other AAA-rated sovereign borrowers. According to CDS buyers, the United States is less secure and deserving of its AAA rating than..... Norway, Sweden, Switzerland, Finland, Netherlands and Germany.
Counterintuitively, despite the threat of downgrades and the rising price's of CDS, demand for long-dated Treasury bonds has some unknown hidden support at the moment and appears to be OK....... no doubt from more fake printed money made out of thin air... so it is not real. In entertainment terms it is called magic..... watch..... my hands never left my wrists!
But the fact that this is happening at all shows that ......... 1. America has an enormous debt problem. 2. appears to have low resolve at dealing with it and 3. "That's why the world has made gold and silver."