Its happening. The fallout of the financial crisis of 2008 is finally unfolding around the world. Expect to see 3-10 EU nations default by December 2011
Default Swaps Trading on U.S. Debt Doubles on Deficit Wrangling
A total of 819 contracts covering a net notional $4 billion
of debt were outstanding as of May 20, up from 449 contracts
covering $2 billion a year ago, according to the Depository
Trust & Clearing Corp. Average daily trading volume surged to
$490 million last week from $10 million the week before, making
the U.S. the fourth most active among 1,000 contracts tracked by
DTCC, up from 633rd.
“In a way, it’s worse than in Greece because no one can
bail out the U.S.,” said Georg Grodzki, the London-based head
of credit research at Legal & General Investment Management,
which oversees $580 billion of assets. “Complete political
paralysis is OK if your deficit is 3 percent, but not if it’s 10
percent.”
This year’s federal budget deficit is projected to reach
$1.5 trillion, or 9.8 percent of gross domestic product,
according to the Congressional Budget Office. The government
will run out of options to avoid a default if the limit is not
raised by early August, Treasury Secretary Timothy F. Geithner
said May 2.
Greek debt is the world’s most expensive to insure at about
1,400 basis points for five years and more than 2,000 basis
points for one year. Swaps on Norway are the world’s least
expensive at 17 basis points for five years and 5.5 basis points
for one year.
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