Apology must be Kevin Rudd’s favorite word. He is either making no apology for some or other policy, or apologising on behalf of the nation. Well it seems he owes Barnaby Joyce an apology.
Prime Minister Kevin Rudd has accused Barnaby Joyce of irresponsibility after the Opposition’s new finance spokesman suggested the United States may default on its debt and force the world into an economic meltdown.
…
Mr Rudd has demanded Opposition Leader Tony Abbott confirm or repudiate Senator Joyce’s comments.“For someone, as the alternative finance minister of Australia, to run around the place saying America could default, Australian state governments could default, that’s not responsible economic policy,” he said.
“That’s shooting from the lip, making it up on the run, I think being very, very irresponsible about basic Australian interests.”
The Wall Street Journal Asia reports
Trading in the credit-default swap market this week shows that investors now view a default by the U.S. Treasury as more likely than a default by the Coca-Cola Company. Until very recently, this scenario seemed about as likely as Coke winning a taste infringement suit against Coke Zero. Now the United States has taken its place next to Italy and Spain in a special club that no major country wants to join — countries whose debt is considered less safe than that of Blue Chip businesses.
Mr. Obama may not be deterred by the verdicts rendered by voters in Massachusetts, New Jersey and Virginia lately. But he won’t be able to ignore investors if they send Washington’s currently cheap borrowing costs soaring. That would surely be the result if markets become convinced that spending and inflation are destined to run out of control under the combo of Nancy Pelosi and Ben Bernanke. To be sure, we’re not there yet. But the recent financial crisis should have taught us that, when markets make up their mind that the story has changed, they can turn against you with blinding speed.
As the WSJ indicates we’re not there yet, but it seems Rudd has no idea about the potential risks out there. Does the government have a contingency plan, and if not, why not? The last time they got caught unawares, they paniced and blew the budget surplus and racked up heaps of debt. Australia simply cannot afford the kind of economic inexperience, yet supreme arrogance, that Rudd and his government display.
I was looking for a league table showing public debt as % of GDP, and found this:
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html
I never realised that Singapore’s debt is so high, or that Russia’s is so (relatively) low.
Capitalist Piggy
1 Feb 10 at 8:52 am
I understand that a majority of recent UST bond purchases are by direct (undisclosed) purchases by the Fed. This in addition to massive purchases through the Cayman Islands. Meanwhile Chinese and Japanese interest is steadily declining. This is all that is depressing bond yields. If this market becomes under-subscribed bond prices will collapse.
An indication of this likelihood is that greater than 50% of USTs are now less than 5 years duration. No one wants to hold this stuff for the longer durations. Default fears would one reason for this.
Meanwhile Obama promises to tighten govt spending – next year, after the mid term elections. Right then, everything is under control.
Rudd knows nothing of economics, and takes his marching orders from Henry, who thinks he can continually apply increasing taxation. This suits Rudd well with his manure theory of money. Labor’s metric of success in spending – it doesn’t matter that the spending is effective, or that money is diverted through various rorts, Labor will still claim that it saved the nation by enslaving it to bond holders.
Keith
1 Feb 10 at 10:10 am
Take 2:
Labor’s metric of success is spending
Keith
1 Feb 10 at 10:12 am
Any suggestions on what they could actually do if the US government did default? It seems to that if that happened, there are going to be fun times for all no matter what is done.
conrad
1 Feb 10 at 10:20 am
Let’s not forget the knee-jerk bank guarantees. It took ages for them to clarify the details of the fee structure and the fee for large deposits was clearly only established after much criticism of the original policy. The moral hazard unleashed by this one panicked move is huge…
Skuter
1 Feb 10 at 10:21 am
Can’t find the source, but I seem to recall Chris Richardson from Access Economics blathering on about how dangerous it was that Joyce was so close to being in a position of power. It was on the ABC, of course.
DavidLeyonhjelm
1 Feb 10 at 11:06 am
““For someone, as the alternative finance minister of Australia, to run around the place saying America could default, Australian state governments could default, that’s not responsible economic policy,””
It’s not a *policy* at all you muppet, Rudd.
America’s default is unlikely, their tax base will simply be captured by interest payments. This will influence exchange rates for years though.
Semi Regular Libertarian
1 Feb 10 at 11:23 am
That’s interesting, so Richardson thinks Joyce is dangerous but has no problem with an illiterate like Rudd who pulls proposals like sending 43 billion on a fiber wire out of his arse.
JC
1 Feb 10 at 11:26 am
…not to mention that the fibre won’t service everyone anyway as promised and that the private sector already provides 100Mbit internet services…and the NBN will take so long to construct it will be obsolete when completed.
http://www.nbnco.com.au/default.aspx
Semi Regular Libertarian
1 Feb 10 at 11:29 am
according to Andrew Carr, Rudd is now talking about bringing back a State bank! (Bird would probably love the idea)
http://andrewcarr.org/?p=1714
jtfsoon
1 Feb 10 at 11:30 am
Rudd is worse than Nixon. Smart, but doesn’t give a damn about policy, populist and ignorant of economics.
What is hilarious about the Aus Post bank proposal is that Australia Post is a sheltered industry in postal services and the franchisees of the retail stores have a vested interest in keeping this monopoly and vertically integrating other industries they can dominate.
Rudd’s policy is the exact opposite of what we need.
Semi Regular Libertarian
1 Feb 10 at 11:55 am
I wonder what Chris Richardson would say about a Post Bank being the leading macro-economic thinker he accuses himself of being… especially when the ABC, Our ABC need a couple of words that support ALP policy.
Heads Access Economics’ Macroeconomic Group and is one of Australia’s leading macroeconomists.
JC
1 Feb 10 at 12:03 pm
what a stupid column.
does the market think the US will default?
No of course not.
Bear in mind in the midst of the GFC the credit default rates on Norway’s bonds rose dramatically.
What are current 10 year bond yields on the US?
What are the Japanese 10 year bond yields and what is it’s debt.
perhaps Sinkers should apologise for this article!
Butterfield, Bloomfield & Bishop
1 Feb 10 at 1:26 pm
What an amazing example of denial, Homer. I wouldn’t have thought it was possible. Indeed I would have thought you’d stay away from this one, but here you are.
Abu Chowdah
1 Feb 10 at 1:29 pm
Homer’s last great call was that the “GFC” was comparable to the Great Depression.
Then Kevin built lots of toilet blocks and it went away.
C.L.
1 Feb 10 at 1:38 pm
On this one I have to agree with BBB, I find it hard to believe that the US would default on its loans. Its more likely to just print more money. Is there anyone here who believes the US would default?
Capitalist Piggy
1 Feb 10 at 1:46 pm
Is there anyone here who believes the US would default?
.
isn’t it all just a question of probabilities?
(and small ones at that)? ie the expected value of your money drops if you factor in even a minuscule possibility of something like that happening. That’s my understanding anyway.
daddy dave
1 Feb 10 at 1:48 pm
does the market think the US will default?
Not immediately. However if it continues to follow ad hoc, populist fiscal policies it will potentially either default or go into hyperinflation. The tipping point according to some economists is debt/GDP ratio of 90%. On that basis we could safely argue that Japan will either default or go into hyper-inflation mode this decade.
Homer, I’m willing to bet $20,000 with the money escrow-ed that japan will default or go into hyperinflation between now and 2020.
Bear in mind in the midst of the GFC the credit default rates on Norway’s bonds rose dramatically.
And so they should seeing the oil price which is what the country’s entire welfare system is based on fell from 145 dollars a barrel to $30 with people suggesting it was going to $10. Of course their CDO’s would be bid up, you doofus.
What are current 10 year bond yields on the US?
look it up. Don’t ask us to help you with everything.
What are the Japanese 10 year bond yields and what is it’s debt.
I’m short of JGB’s and will continue to run a short as a core investment position. You can of course decide to go long against me and I would be happy to take up your challenge and mirror and futures position between ourselves. Would you like to?
Japanese law requires pension savings to be “invested” in JGBS. The fact that very few foreigners are willing to buy JGB’s and that most of the money invested in Japanese bonds is captured capital I’m not surprised where the bond rate is in reference to the deflation rate. It will crack and it’s only a matter of when.
perhaps Sinkers should apologise for this article!
The only person that should be offering an apology here is you for the crap you post and the disturbing comments you’ve made about Nazi economics.
JC
1 Feb 10 at 1:53 pm
Abu if you really want to look at a country where investors think they will default then look at Greece.
Gee the credit default market and bond markets are in agreement. fancy that
Sinkers could have done that but it would destroy his argument and he has never been one to let facts get in the way of his writings.
CL what did the IMF just recently say about the GFC.
Unprecedented
policy support has “forestalled another
Great Depression” and confidence has
rebounded strongly.
CL wrong AGAIN. fancy that
Butterfield, Bloomfield & Bishop
1 Feb 10 at 1:54 pm
Then:
“Prime Minister Kevin Rudd has accused Barnaby Joyce of irresponsibility after the Opposition’s new finance spokesman suggested the United States may default on its debt.”
Now:
“Trading in the credit-default swap market this week shows that investors now view a default by the U.S. Treasury as more likely than a default by the Coca-Cola Company.”
It’s simple, really. Rudd overreacted because he understands economics less well than Joyce. But if we are to hold him to his rhetoric, he should now apologise.
Those who defend Rudd and ignore this contradiction are as unprincipled as he is.
Abu Chowdah
1 Feb 10 at 1:54 pm
Homer – more misdirection? Concede defeat on this one, old chap. It’s the HONOURABLE thing.
Abu Chowdah
1 Feb 10 at 1:56 pm
Joyce is an idiot. As I said what is the bond market doing.
I can look it up so I know the answer.
Forrest shows utter stupidity again. I am sure he wrote this rubbish.
If a country is going to default it means its debt is so large it doesn’t have the money to pay investors in its bonds.
Norway has NO net debt at all.
Showing that the credit default market can be as stupid as Forrest.
Butterfield, Bloomfield & Bishop
1 Feb 10 at 1:59 pm
Prime Minister Kevin Rudd has accused Barnaby Joyce of irresponsibility…
Is this the same Kevin Rudd who ran around last year talking about “climate change” and who wanted to introduce a new carbon tax that would have absolutely no effect on anything – just for the hell of it? The Kevin Rudd who backed the IPCC as infallible? The Kevin Rudd who blew more than $40 billion to stave off a catastrophic recession that wasn’t coming anyway? That Kevin Rudd?
C.L.
1 Feb 10 at 2:02 pm
Abu if you understood a little of the subject you would realise you are in error.
If the US was going to default there are quite a lot of other countries ahead of it.
Sinkers goes full bore into utter stupidity by implying Australia needs to look out given its debt.
err our debt is LESS than 10% of GDP and the debt occurred because of the GFC. the Stimulus actually reduced it.
If Sinkers plans were put in place Australia would still be in negative growth territory and our debt would be higher!!
Butterfield, Bloomfield & Bishop
1 Feb 10 at 2:03 pm
On this one I have to agree with BBB, I find it hard to believe that the US would default on its loans. Its more likely to just print more money. Is there anyone here who believes the US would default?
I’m not entirely certain that you can bet hyperinflation, Piggy as I think it’s a 60/40 bet in favor of hyperinflation.
I would argue that on balance an outright default would be a better alternative than hyperinflation as there isn’t much end to the latter. How do you stop it?
Outright default on the other hand isn’t a bad option.
We see the South Americans doing it all the time. It won’t even have to be total default as a 50% haircut could do the trick. South Americans never default they just get a work through and cut the value of their bonds through negotiation.
I believe Argentina, perhaps the biggest deadbeat in that region is currently playing chicken with it creditors as we speak.
Here’s an aside… I think the SEC and all the supervising bodies around the world ought to ensure that all Argentinian bonds from now on carry a huge caution disclaimer that the country is a deadbeat and has been for over 100 years and to be very cautious lending the place any money.
It would be a similar disclaimer as that carried on cig packets with pics of lung cancer etc to show just how deadly those fuckers are in paying back the principle and interest on their loans.
Something like…..
“lending money to Argentina can be dangerous to your financial health in the same way as lung cancer is dangerous to your physical health”
……along side that have a pic of a cancerous lung.
JC
1 Feb 10 at 2:07 pm
Concede defeat on this one, old chap. It’s the HONOURABLE thing.
You could run a tank over the bastard and he’d still wouldn’t concede defeat… as no beta male ever would.
Homer was at one stage suggesting Hitler was nice to the Jews for putting them in work camps and still hasn’t apologized for that disturbing nonsense.
JC
1 Feb 10 at 2:10 pm
hyperinflation where in Japan where they have had deflation confirmed again in their CPI figures.
It is equally absurd about the US.
Ah I wondered when Forrest would start about the lies of Jews and concentration camps.
I actually never mentioned that at all as it started in 1938.
At first you believe people such as Forrest and CL who perpetuate this nonsense simply do not know German history but after they repeat again and again you realise they simply lie and will continue to lie.
Butterfield, Bloomfield & Bishop
1 Feb 10 at 2:17 pm
Abu if you understood a little of the subject you would realise you are in error.
hahahahahahahhahahahahahah
The “I know more than you” approach. Talk about never changing your lines. He isn’t “in error” you dope. You are and always are.
If the US was going to default there are quite a lot of other countries ahead of it.
So what? We know that, you moron. We weren’t arguing about whom is going off the plank first, moron. We arguing about the largest economy in the world could be risking default by following ad hoc, populist fiscal policies.
Sinkers goes full bore into utter stupidity by implying Australia needs to look out given its debt.
We do. Like anyone else in debt or going into debt. Sovereign debt should never be taken lightly especially for building dunnies.
err our debt is LESS than 10% of GDP and the debt occurred because of the GFC. the Stimulus actually reduced it.
Well no, our projected debt will head to 25% of GDP not counting the fiber roll out.
If Sinkers plans were put in place Australia would still be in negative growth territory and our debt would be higher!!
You have evidence for that or just taking it out of your Nazi economics text book.
JC
1 Feb 10 at 2:19 pm
idiot do you ever read budget documents oh that’s right you can’t read.
Net debt is far more accurate. Oh that’s right the Government doesn’t have any assets according to you!!
Oh dear we now have the credit default market being a tad inconsistent . Never mind if people just look at bond yields we know what the market is thinking
Butterfield, Bloomfield & Bishop
1 Feb 10 at 2:27 pm
hyperinflation where in Japan where they have had deflation confirmed again in their CPI figures.
Yes fuck-knuckle even with deflation being confirmed in their core inflation rate..
In fact with their debt to GDP ration of 230%,
their demographics being the worse in the western world
their savings rate heading to negative as the population ages
and the pension fund finally having to sell bonds to fund the retirement of the aged
it confirms they will default by either going into hyperinflation or reneging on their debt.
Fuckknuckle, when the marginal buyer disappears and their bond auctions aren’t bid, the only thing left is for the bank of Japan to buy the bonds or they default. That will be hyperinflation. This is as close to 100% as you can get. Japan is a dead man walking; it’s just that no one has gone around to feel its pulse. In fact Japan is exhibit A where ad hoc populist Keynesian fiscal policy can get you.
It is equally absurd about the US.
No it’s not. On current projections and if they continue to follow ad hoc, populist fiscal policies they will end up in the same boat too.
Ah I wondered when Forrest would start about the lies of Jews and concentration camps.
I actually never mentioned that at all as it started in 1938.
I never did mention the concentration camps, you lying dickwead. It was you that suggested Jews were well treated in the work camps.
At first you believe people such as Forrest and CL who perpetuate this nonsense simply do not know German history but after they repeat again and again you realise they simply lie and will continue to lie.
I’m not lying at all. I’m just using your own words against you .
JC
1 Feb 10 at 2:33 pm
Ah so BBB is the site’s resident rusted on apparatchik, impervious to facts or nuance? Got it.
Abu Chowdah
1 Feb 10 at 2:34 pm
It’s being reported that Barry will break his own record with a $1.6 trillion deficit for FY 2011.
Jimmy Carter is said to be thrilled.
C.L.
1 Feb 10 at 2:34 pm
Interesting tactic, however: When the WSJ agrees with a conservative opponent, then merely assert the WSJ is no longer a credible source on economics.
Hope it works for you Homer.
Abu Chowdah
1 Feb 10 at 2:35 pm
idiot do you ever read budget documents oh that’s right you can’t read.
Oh we’re back to “budget documents” are we? Homer, you claim to have read every “budget document” since Federation and you’re still an economic illiterate of the worst order.
Net debt is far more accurate. Oh that’s right the Government doesn’t have any assets according to you!!
What net debt, Fuckknuckle? If you own a bond, you want you money back not a claim to a fucking bridge. That’s a default, you moron.
Oh dear we now have the credit default market being a tad inconsistent . Never mind if people just look at bond yields we know what the market is thinking
Bonds yields are impacted by many other things such as liquidity ratios for banks and pension funds. They tell you nothing of potential default. CDO’s are a far better measure, fuck-knuckle.
JC
1 Feb 10 at 2:37 pm
oh well we now have Forrest’s theory of how hyperinflation will start.
Except we know Japan did not stimulate their economy in the 90s at all. oops
Once a liar always a liar. you brought the Jews and Concentration camps not me. I had to mention they were only put into concentration camps as Jews in 1938. Gellately wrote about that but you cannot read.
Oh dear we do not know what the assets are.
If you could read you might know they hold financial assets.
wow Forrest does it again and shows incredible ignorance about a topic.
Well bond markets are more affected by future inflation rates but they also get affected by defaults as any reading of corporate bond markets show.
Abu,
I have already shown the default argument to be bunk but never mind you go on living in never never land
Butterfield, Bloomfield & Bishop
1 Feb 10 at 2:48 pm
oh well we now have Forrest’s theory of how hyperinflation will start.
Not my theory, Dopey. It’s how every hyperinflation starts.
Except we know Japan did not stimulate their economy in the 90s at all. Oops
They did, numerous times. You’re just lying as usual. In fact you’re such a degenerate liar that you think the only time Keynes has ever been tried was during Nazi era (which you seem to adore).
Once a liar always a liar. you brought the Jews and Concentration camps not me. I had to mention they were only put into concentration camps as Jews in 1938. Gellately wrote about that but you cannot read.
Homer, you degenerate liar, you continually told us how well the Nazis treated the Jews before 1938. I don’t need to mention the concentration camps to show your rank, distorted, revisionist, denialist view of history.
Oh dear we do not know what the assets are.
If you could read you might know they hold financial assets.
What financial assets, Homer? Bonds? You’re now promoting fire sales to cover debt problems? Fucking moron.
wow Forrest does it again and shows incredible ignorance about a topic.
Yea right, Einstein.
Well bond markets are more affected by future inflation rates but they also get affected by defaults as any reading of corporate bond markets show.
Dickhead, the US Treasury reportedly purchased 90% of last years bond issuance. How on earth do you expect that sort of buying power not to affect the marginal price? CDOs are the best indicator of how markets feel about potential default, you moron. Period.
Abu,
I have already shown the default argument to be bunk but never mind you go on living in never never land
No he doesn’t Abu, as he’s just a moron.
JC
1 Feb 10 at 3:00 pm
Forrest you complete ignoramus a person called Adam Posen actually wrote a whole book on what Japan did throughout the 90s. Read chapter 3 in particular.
He demolishes the claim the ‘stimulated’ the economy.
How surprising you go wood-ducked into believing such nonsense.
No I never said the Jews were treated well by the Nazis. All I did was show up several myths you and others perpetuated. like the one Jews were put into concentration camps for being Jews before 1938.
Oh dear still cannot read budget documents. They have quite a lot of financial assets. Treasury actually mentioned they rose in value and was one of the reasons net debt fell.
Be good if you could read sometimes.
And you should try again about who bought bonds last year
Butterfield, Bloomfield & Bishop
1 Feb 10 at 3:20 pm
whoever this Posen is, someone should check that Homer is representing him correctly given his past record. Meanwhile Posen should fear for his reputation if Homer is going to keep citing him
jtfsoon
1 Feb 10 at 3:32 pm
Well the one thing the US has, that Norway doesn’t, and that is a press that can print as much fiat currency as bond-holders will ever require.
Peter Patton
1 Feb 10 at 3:34 pm
Posen is right. The Japs didn’t stimulate the economy.
It didn’t work.
Posen’s argument – which I’ve read – amounts to saying (as all Keynesians do) that if there’s growth after “stimulus,” it “worked” (post hoc ergo propter hoc). If there was no improvement, they didn’t spend enough. Voila: it’s a form of voodoo whose continued credibility amongst leftists should amaze. I say should because, alas, we now live an age when a sex novelist train engineer and an failed overweight divinity student have convinced the liberal commentariat that the world is about to end because of “climate change.”
C.L.
1 Feb 10 at 3:34 pm
Oh, now I know why Homer cites Posen.
C.L.
1 Feb 10 at 3:36 pm
Forrest you complete ignoramus a person called Adam Posen actually wrote a whole book on what Japan did throughout the 90s. Read chapter 3 in particular.
He demolishes the claim the ’stimulated’ the economy.
This Adam Posen?
MPC member Adam Posen calls for house price bubble tax « The …
lol.
Japan’s Big-Works Stimulus Is Lesson
Japan’s rural areas are paved over and filled in with roads, dams, and other big infrastructure projects, after government spent trillions trying to end a downturn caused by the bursting of a real estate bubble in the late 1980s. During those nearly two decades, Japan accumulated the largest public debt in the developed world — totaling 180% of its $5.5 trillion economy — while failing to generate a convincing recovery.
Among ordinary Japanese, the spending is widely disparaged for having turned the nation into a public-works-based welfare state and making regional economies dependent on Tokyo for jobs.
By 1996, growth reached 3% then slowed. Pro-spending economists blame spending cuts and tax increases. While spending remained high in the late 1990s, they say it was not high enough.
They say that every 1 trillion yen, or about $11.2 billion, spent on infrastructure increased Japan’s GDP 1.37 trillion yen, on social services like care for the elderly and monthly pension payments raised GDP 1.64 trillion, and on education boosted GDP 1.74 trillion yen.
Between 1991 and 1995, Japan spent some $2.1 trillion on public works, in an economy roughly half as large as that of America. Pro-spenders say the US should spend far more than the current $820 billion.
In total, Japan spent $6.3 trillion on construction-related public investment between 1991 and September of last year. Most Japanese economists say Japan spent more than enough, but wasted too much of it on roads to nowhere and other unneeded projects. Instead of spreading beneficial ripple effects across the economy, the spending drove out private investors in business.
Does Posen have an answer to these figures Homer or is he now focusing on imposing a bubble tax? LOl
How surprising you go wood-ducked into believing such nonsense.
Says the lying degenerate who thinks Skanke ho is an Asian warlord’s mistress.
No I never said the Jews were treated well by the Nazis.
Yes you did.
All I did was show up several myths you and others perpetuated. like the one Jews were put into concentration camps for being Jews before 1938.
That’s right, they were put into work camps that competed with the Four-Seasons chain for luxury.
Oh dear still cannot read budget documents. They have quite a lot of financial assets. Treasury actually mentioned they rose in value and was one of the reasons net debt fell.
What assets Fuck knuckle? How do you sell government bonds when people don’t want them in the first place if it ever came to that? You really are a fucking idiot, Homer.
And you should try again about who bought bonds last year
80% of US issuance was made to the Fed. If you think it’s wrong, prove or STFU, you moronic dope.
JC
1 Feb 10 at 3:38 pm
Rudd is worse than Nixon
A recent headline from the Phnom Penh Post??
Peter Patton
1 Feb 10 at 3:42 pm
I want to add one thing about Japan. The private economy would actually be doing fine if it wasn’t for that deadbeat government. The risk to the Japanese private economy is a consequence of the failed experiment of the 90′s which they continue to pursue thereby destroying the place and doing worse damage than the war ever did.
JC
1 Feb 10 at 3:44 pm
Unfortunately for some the dominant political party in Japan for decades had been a rightist party – it all happened on their watch.
rog
1 Feb 10 at 3:48 pm
There are rightist parties in Japan just as there are rightist parties in Europe. All it means is that they aren’t communist.
jtfsoon
1 Feb 10 at 3:50 pm
Who gives a shit if it were a right or left party, Rog? I would hasten to add that the term has difficulty translating in a western sense in japan.
They followed dead-wrong Keynesian policies like a junk addict and fucked the country up good and proper.
JC
1 Feb 10 at 3:52 pm
Come come, Rog, everything’s teh left’s fault.
- Rog, 31 January, 2006.
C.L.
1 Feb 10 at 3:55 pm
Once a liar always a liar. you brought the Jews and Concentration camps not me. I had to mention they were only put into concentration camps as Jews in 1938.
Homer, you didn’t just say that. You argued that “nothing of note” happened during the passage of the Nuremberg Laws.
Michael Fisk
1 Feb 10 at 4:09 pm
Unfortunately for some the dominant political party in Japan for decades had been a rightist party – it all happened on their watch.
Rog seems to have become the antipodean version of Charles Johnson, the proprietor of the decreasingly popular hate-blog “Little Green Footballs”. Five years ago, everything was the Left’s fault. Leftists were traitors, terrorist-sympathisers, losers, appeasers and so on. Now, he’s discovered the existence of another political wing, the “Right”, who are traitors, secessionists, racists, and hate-mongers. The Stalinist mentality of these people, right down to the Stalinist tactic of allying with your former enemies while “disappearing” your former allies down the memory hole, is frightening.
Michael Fisk
1 Feb 10 at 4:55 pm
Fisk, you are becoming hysterical.
rog
1 Feb 10 at 7:11 pm
Rog:
Wouldn’t a good non-thinking leftwing site populated by beta males and estrogen socked with top hens be a the place for you. I don’t mean this in a nasty way, but I would think that LP is the place for you. They’d love you over there.
Your talents are wasted here dude.
JC
1 Feb 10 at 7:42 pm
Thinking isn’t your strong suit JC, stick with the mindless stuff OK?
rog
1 Feb 10 at 9:04 pm
JC, your continued presence ensures that any talent is wasted here.
rog
1 Feb 10 at 9:05 pm
No, rog. He’s right. At LP you might even be an alpha male. Relatively speaking.
Abu Chowdah
1 Feb 10 at 9:43 pm
I thought as much.
One look at the CDS for US bonds and we find well err not much at all has happened.
As I said Sinkers should apologise for writing another column on which he had no knowledge and was AGAIN inaccurate.
Sinkers is trying to gain the Forrest award!
Butterfield, Bloomfield & Bishop
2 Feb 10 at 9:43 am
Butters,
Please explain why you’re a well respected financial economist and why you’re in a position to judge.
Having concern for a trading partner having 100% debt to GDP ratio is *irresponsible* is it?
Semi Regular Libertarian
2 Feb 10 at 9:46 am
Marky,
sinkers has written this article not knowing the facts.
the CDS for US bonds has hardly budged.
ouch another mistakes for the catalaxxian crackpots who find accuracy a difficult concept to understand and practice
Butterfield, Bloomfield & Bishop
2 Feb 10 at 10:05 am
a bit dated but BoA doesn’t think much of CDS market.
What to make of sovereign CDS then? In BoA’s opinion:
… the relevant question is whether a nation such as the U.S. or UK is likely to ever suffer a Credit Event, or if instead it would inflate its way out of a problem. If one believes that a default is unlikely, then such CDS protection is of little, if any, value to hedge against that Credit Event. However, to the extent there is a mark-to-market response, the CDS may provide benefit. This however creates a bit of a conundrum: if there is no ultimate Credit Event, why should there be any mark-to-market benefit?
Moreover, suppose that sovereign CDS referencing the U.S. or the UK were to suffer a Credit Event. Under the financial calamity that likely would follow, it seems doubtful that the protection seller-e.g., a bank or dealer-would remain able or willing to pay principal to the protection buyer. As such, a “hedge” currently recorded is likely of little value, if a protection buyer ultimately needed to exercise. Deep out-of-the-money puts on currency or calls on gold would seem a more effective hedge.
To be clear, if one believes that such a sovereign could default and that the protection seller would be able to pay principal, then sovereign CDS deals with inflation effects by denominating trades in foreign currency. For example, U.S. CDS is denominated in Euros, so that U.S. dollar inflation following a Credit Event should not erode the value of a CDS contract.5
So why the recent widening? Bank of America also has a list of possible explanations:
Market participants want a fundamental hedge but do not properly understand sovereign CDS, in the context of U.S. and UK where a Credit Event is less likely than money supply expansion.
Attempt to reduce regulatory capital, at a country level, by buying protection against underlying bond risk. But under Basel II (which applies to European banks), there is a zero risk weight for sovereigns with a triple-A to double-A-minus credit rating.7 So this potential explanation is unsatisfactory.
Internal regulations that aggregate risk to a country level, and allow a reduction in reserves for country risks that appear to be hedged. For example, a European institution may have purchased U.S. corporate bonds, and hedged those issuers using corporate CDS, but still be concerned (to a degree) about associated country risk. As such, the institution may buy U.S. CDS protection to reduce internal reserves. This explanation would concern us because, as discussed above, the likelihood of exercising that hedge seems low. (One potential exception may be if a foreign bank buys protection from another foreign bank.)
Consequence of recent government intervention: Suppose that a European bank wants to hedge risk on a U.S.-based issuer that appears “too big to fail.” If the institution buys protection on that entity, it would be expensive. To save premium, the institution instead buys protection on the United States, assuming that the only way the issuer defaults is if the United States defaults. On the surface, that may seem a way to save premium, but again as discussed above, the ability to exercise the sovereign CDS hedge seems low.
Investors who have no interest in exercising a hedge from a fundamental perspective, but look for a short- to medium-term trading opportunity before investors realize the problems with such sovereign CDS: For example, an investor may sell protection on recipients of TARP money and buy protection on the United States (as a provider of rescue funds). At least in the banking sector, these trades would have performed poorly of late, because bank CDS has underperformed U.S. CDS.
Butterfield, Bloomfield & Bishop
2 Feb 10 at 12:11 pm
Please answer the question you foaming at the mouth crackpot:
“Having concern for a trading partner having 100% debt to GDP ratio is *irresponsible* is it?”
Semi Regular Libertarian
2 Feb 10 at 12:13 pm