An article today detailed the rise in the costs to protect one's US Government issued bonds. It was once inconceivable that the United States government might default on its debt, like Russia, Argentina, and countries in Asia have in the past. Yet, there is a growing bet in the derivatives market that is pointing towards exactly that. It now costs $97,000 to protect $10mm in US debt which may not sound like a lot. But also realize that amount is 7 times or 700% more than what it cost to protect $10mm of US debt just one year ago.
The reasons that the companies who are selling the protection (akin to an insurance policy on your bonds) for higher premiums is that the market is perceiving a growing risk that the US government might default on its debt obligations. Although a default is still semi-unlikely, it is apparent that the actions of the US Government to take on the risks of the private sector are shifting the debtload onto the US tax payer's account.
A default by the US Government on its debt would be disastorous for the value of our hard-earned dollars. I will continue to follow this story line.
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