Financial crisis: Default by the US government is no longer unthinkable

Financial crisis: Default by the US government is no longer unthinkable

www.telegraph.co.uk

So, here we are - the start of a new world order.

And by the way, the Fed has also just offered another $125bn of liquidity to banks outside the US that are desperate for dollars and can't access America's frozen credit markets - a move co-ordinated with central banks in Japan, the Eurozone, Switzerland, Canada and here in the UK.

In other words, even the banks themselves don't think the rescue plan will work. Expect more - and bigger - liquidity operations in weeks to come.

(visit the link for the full news article)

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It sounds insane, but the liabilities being taken on by the Fed and the US Treasury are now so enormous that the government itself could default.



Check out the chart showing the recent spikes in the US 10-year credit default swap. In other words, the market is now pricing-in the genuine possibility that the US will struggle to pay-back some of its long-term T-bills.

Yes siree, the mighty US government could default. That's how much the world has changed.


LITERALLY CHILLING

What Is Really Going On


www.telegraph.co.uk
(visit the link for the full news article)


[edit on 9-21-08 by tsEnigma]

The government won't default...our debt to GDP ratio is no where near it's highs. As I've said in other threads, this will effect interest rates...but the Government won't actually default, worst case is we go from AAA to AA in our credit rating. Just last week the rating agencies came out and reaffirmed our rating, but we will see. I think it's highly probably we will go to AA, but we won't default.

Edit: also if you are going to look at a true fear of default you need to look at the 2-year, not the 10-year. 10 and 30 year interest rates mostly reflect inflationary fears.

[edit on 21-9-2008 by yellowcard]

I'd like to see a Liabilities v Cash Flow chart.

That would really be interesting.

Well its very simple math and this can happen to anyone. When you borrow all sorts of money at interest and you dont pay down the debt eventually the interest will crush you. In 2009 we will have a 400 billion dollar interest only payment. Now considering our income was 2.2 trillion that means 20% of our income goes to just pay the interest only. Well with all these other bailouts maybe 2010 we will have to pay 600 billion in interest only. Now this wouldnt be a problem if government curbed their spending but they dont. The keep borrowing at interest. Yes eventually at this rate the interest on all the money we owe will kill us just like it does many families.