McDonald's Deemed More Credit-Worthy than U.S.

McDonald's Deemed More Credit-Worthy than U.S.

watchingamerica.com

The State of Finland and fast-food chain McDonald’s are now deemed more credit-worthy than the U.S. when measured by prices of CDS-derivatives (credit default swaps).

The insurance risk-premium for a 10-year U.S. treasury bond shifted on Friday up to 0.3% according to a broker in a Finnish bank. In practice this means that if an investor wishes to insure 10 million dollars worth of U.S. T-bonds against a government default the insurance will cost 30,000 dollars. Such an insurance for the same amount of investments on Finnish bonds cost on Friday only about half of that at 16,000 dollars. Even loans to McDonald’s would be cheaper to insure than U.S.-bonds, at 28,000 dollars per 10 million.

CDS-derivative prices are an indicator of investors’ views and mood, but as such they reveal nothing of the true financial state and wealth of their targets. Thus, while Finland’s and McDonald’s risk of bankruptcy is now smaller in investors’ opinion than that of the U.S. this does not mean that Finland and McDonald’s would necessarily be any wealthier and thus safer targets of investment than the U.S.

This being said, it is extremely rare for a fast-food chain’s corporate loan to be viewed as a safer investment than the bonds of the world’s most powerful country.

(visit the link for the full news article)



[edit on 27-9-2008 by grover]

This is most disturbing and not good at all...

... more than anything it is in essence a vote of no confidence in the American economy... at least that is my understanding of it.

If international investors start viewing the American economy as a bad bet, what does it mean for those of us who live here... and what would happen if those investors start pulling their funds out?

Would that then cause a snowball effect and cause China and Japan to call in their loans to us?



watchingamerica.com
(visit the link for the full news article)

[edit on 27-9-2008 by grover]

reply to post by grover


Yes, very disturbing, but very forseeable when you have the government opening its balance sheet to bailout the criminals who geared up beyond any sane amount. That along with interest on existing debt and all the promises that government makes and yeah Mickie D's is probably safer to lend to than the government right now.

On the bright side treasuries are not to my knowledge callable. (Though there may be some GSE debt that might be, but I haven't seen any yet).All they can do is dump them which would spike their currency and kill their export business.

I have a gut level feeling that if we do nothing we are screwed and if we do the wrong thing we are screwed... and I don't see anyone who seems to know what the right thing is.

reply to post by grover


Yup, if we bailout we're screwed if we don't we're screwed. If this bailout passes without radical change from what Paulson proposed, it's like giving the criminals a credit card with a 700b limit. From what I understand that 700b limit is "at any one time".

I say let it burn, and let it burn now. That way we won't have to wait 2 years for CONgress and 4 years for president to put the bastards out on their butts.

Would that then cause a snowball effect and cause China and Japan to call in their loans to us?

I hope for your sake..no.

A couple of hundred trillion???

You would be screwed by proxy.. you can say a slow bye bye to State jobs, followed by US military superiority, slowly followed by infrastructure breakdown, mass emigration etc.

They might actually call in on those loans if the US eco situation gets any worse.