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The Ever Increasing Divergence Between Top-Down And Bottom-Up US Default Risk
An interesting observation that has developed over the past year is the ballooning spread between default risk for the US as a standalone entity (based on the country's CDS spread, which was last seen just inside 50 bps), and the cumulative risk of the constituent states that make up the US, once again based on their own standalone spreads, when adjusted by GDP contribution. This can be seen on the chart below. The computation takes the 16 states with quoted spreads from CMA (with the remaining states assigned the US spread itself), juxtaposed to the CDS of the US itself. As is evident, the spread continues to widen, and at last check was around 100 bps, just marginally tighter compared to the all time wides seen in June of 2010 when it hit over 120 bps. In retrospect this should not be all that surprising, as the general US CDS looks at the country as a whole, and gives benefit to the possible intervention that the Fed can (and does) do on a daily basis to prevent increasing default risk to the US as a whole: after all the US can always monetize its own debt, while California... can't. Nonetheless, if these spreads continue to diverge, we expect that convexity alone will start dragging the CDS of the US wider as well.
Courtesy of John Lohman
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But why does it matter?
Time to cash in the IRA before the government thugs put a higher premium on me taking MY money before they do...
It means that everybody can see the monkey in the mirror except the monkey himself
He is on t.v. every other day?
the states have debt denominated in USD and they do not control the USD, so in that sense they are like Greece, Spain, etc.
the USA has debt denominated in USD and they do control the USD, so in that sense they are nothing like Greece, Spain, etc.
comparing the two is like comparing apples and bowling balls.
states can default for sure, although they likely would not as ObaMao would bail out the states to save his public sector union voters.
the USD does not default, in the way a state can be forced to default, because it controls the currency.
the federal govt will never default because it does not rely on anyone to fund its operations. the federal govt just spends. it does not need permission from you, me, china, JPM, BAC, WFC, japan, nobody.
if there is inflation, it will be when spending (public and private) exceeds productive capacity, and not before.
USD never default? Would you consider a material revision of entitlements to be a default? What about in the case of a war, where we could selectively default on certain foreign held bonds?
I do not agree with your definition of inflation. There is inflation now, see shadowstats.com for a look an un-manipulated CPI index over time. College tuition rose 14% two years in a row locally. Health premiums up double-digits. Look at food, gas, etc.
And the ultimate end game will be hyper-inflation, described nicely by B9K9 as goods being withdrawn from exchange for FRN's as opposed to demand pull inflation. Hyper-deflation and hyper-inflation are the same things as eventually they result in a currency collapse.
Do you really think there is a way to get out from under all of the debt? I get the sense you might be an MMT'er, but one issue with applying an MMT concept to our current system is that the Fed and UST are distinct institutions, with sometimes different goals.
revision of entitlements is not a default, but if your definition includes that then ok, DEFAULT!
war? ok, whatever.
yeah, yeah, shadowstats, college, whatever. there is minimal inflation right now. more than what the Bureau of Lies and Scams says, less than what hyperinflationista John Williams says.
goods being withdrawn from exchange for USD? really? when is that going to happen? is that before or after the nuclear war with China?
is there a way to get out from under the debt? you mean "pay it back"? who says anybody wants their "money" back? to put where? back into treasuries? Enough to service that debt? I think so. After all, it is serviceable by taxing authority over the world's largest and technology intensive economy (24% of world output)
Does the USA have issues? absolutely. Are most politicians uninformed morons that are incapable of running a pizza slice shop? absolutely. Is ObaMao a socialist and a danger to the country? "You betcha!".
Is the world going to turn away from the USA and "force" a default of its currency and debt? Please. I am more concerned with the sun flaring into a red giant and incinerating earth in my lifetime
I think what you're saying (among other things, and very wittily at that) is that the U.S. position as printer of what is still the world's reserve currency buys us time. Our big creditors have to be careful in the unwind until it's safe to dump us, and that won't happen immediately. It will happen, probably, because the assistant manager trainees at the pizza slice shop are in charge, at a time before the sun leaves the Main Sequence, but not immediately. Beyond that limitation, American Exceptionalism is coming to an end, and probably in the not very distant future. The United States remains "innovative," but not exceptionally so and not enough to overcome its accumulated problems. Massive monetization and hyperinflation lie directly in our future.
Uniform Commercial Code
UCC law binds global commerce together.
States of the union are bound by UCC law.
THEY CAN NOT DEFAULT.
Until they do.
They default and they'll be completely asset stripped like Greece is being...all totally legal rape.
10-yr. yields are still at 2.68% with the SPX over 1120?
If we break out over the August highs.
Bears could get slaughtered this fall.
Nobody is taking any chances, that is why the put/call ratio is skying today.
Did anyone think the market would crash in May?
ya but the total $CPC is blah... otherwise i agree
And if we don't, longs will get slaughtered. OK, good now that we are clear that this market could do anything at anytime, back to your regularly scheduled posting.
PS...why do your posts sound kind of desperate at this point? You are regularly pumping a break out which often has nothing to do with the topic at hand. It's quite a change from your previous posts.
I only look at the pictures of scantily clad wimmin that he posts. I skip all that boring part. He has disappointed me today -- no wimmin!
price of protection rising with the market. instant online brain supplements are causing these clever humans to practice a policy of revisionism...just in case.
Even Blackstone came to feed at the troth of low rates and investor appetite today!! People are looking at all these bond deals pricing and think its a green light to advance the equity market as this money will be reinvested into product and profit generating activities (Read:Acquisitions these days). What if they do the deals because they CAN and because they see the horizon a little clearer than the rest? Time to store away provisions before the storm! I don't know who's buying this crap, but I hope they have a quick trigger finger.
Doh! Someone just intervened in the gold market...
Speaking of Greece, more tremors and smoke this week:
Greece stuffs its banks with more worthless paper, umm, I mean, makes mixed return to capital markets: http://www.ft.com/cms/s/0/4fc233ca-bfea-11df-9628-00144feab49a.html
Greece borrowed more than €1bn in the capital markets on Tuesday in its first debt issue in two months.
Athens had to pay very high rates for six month loans in a sign that the problems for Greece and the eurozone are far from over.
Padraic Garvey, global head of rates strategy at ING, said: “This is a good sign for Greece in as much as they managed to raise the money. ...
“However, the fact they paid nearly 5 per cent to borrow over six months shows they are nowhere near ready to issue longer-term bonds.”
Greece issued €1.17bn in six-month bills, paying a yield of 4.82 per cent compared with 4.65 per cent on July 13.
Greece May Miss Revenue Goal, Sell Diaspora Bond, Minister Says: http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a3brQp2ZBtYo
“We are a little bit behind in terms of revenue collection, but that is more than compensated by the fact that expenditures have been declining faster,”Papaconstantinou said in an interview today on Bloomberg Television’s “The Pulse” with Andrea Catherwood. “We may have some shortfall in revenue because the country is in a recession.
Papaconstantinou said the government plans to try to sell debt to Greeks abroad, saying there were as many living overseas as in the country itself.
“A diaspora bond which will tap the market and the willingness of Greeks abroad to contribute to this effort is something we want to do,” he said. “We’ll be rolling something like this out sometime in 2011.”
Thanks for the post Tom.
More proof the average American is a moron and that we are fucking DOOMED
Relax, don't worry, the employment numbers are going to get better.
Are poll workers being used to inflate jobs totals?"Workers at polling places for today's primary and November's general election are being required to file tax withholding forms for the first time ever in a move that could be aimed at inflating the nation's employment numbers.
Is this really a little Election Eve trick? Here's what I learned, you decide.
The New York City Board of Elections, which uses 30,000 to 36,000 temporary workers for both the primary and general election, said it is being ordered by the Internal Revenue Service to make "employees" out of the very temporary workers who tend the polling sites"
http://www.nypost.com/p/news/business/are_poll_workers_being_used_to_inflate_wPjTGS93ODzN8BXLg568iI#ixzz0zcKqjgkQ
Don't I recall from the snow debacle that you only actually have to be employed (report hours) one day during the reporting timeframe to be counted?
I don't know the answer to that question but the article says employment was for longer than one day: training, set-up, take down, primary and general. Three or more days it looks like.
Why doesn't Barry just F the BS and create the Dept of Digging Holes and the Dept of Filling in Holes?
Great idea! Add to that The Bureau of Falling in Holes, and the Committee to Consider Extraction of Those in Holes, and the Department of Compensation for Fallees.
If we get rid of the FED we get rid of the 2B2Jails. We take them both over (a new congress and presidency 2012) and we get all their assets and debt. They've got to be both holding between 40 adn 50% of our Nations debt so we wash that away. We take the money left over and do an RTC with our banking system. All the exotic (more than a grain or livestock hedge) Derivitives go south along with the CDO's and who cares,... they'll all go south sooner than later, sooner is better. You won't need the Blarny Frank/Dodd Comedy Act of 2010 anymore. All that money that's been buying Washington DC will be gone. The New American Bank (Central Bank) will replace the Fed and will be a clearing firm only for checks between banks with each region equal to all others (hear that NYC) and be owned 3/5ths by the United States Government. The rest of the stock can be sold, but the NAB will function much as the Suffolk Bank of New England prior to 1857. The $450,000,000 price to buy back the FED from its criminal owners will be put into escrow as criminal charges proceed against domestic and foreign 2B2Jail owners, ceo's, including Hank Paulson, and definitely T. Geithner, B. Baranke, and others. The Treasury puts a hold on all gold stocks in clearing banks to make sure that none of it is owned by any of the aforementioned which will be confiscated and placed into the US Treasury. Sure the world will collapse, but it will be collapse around a strong dollar that can serve as a benchmark currency but the new bills will be red and blue on white paper and say "Federal Treasury Note'. The worlds going to collapse anyway via Basel III and all the 2B2Jail,Fail,Bail are so far underwater it doesn't matter that they die a quick death. So collapse it now. Create an environment that's stable enough for people to do business. Do it now. The New American Revolution
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