Eyepopping: U.K. & U.S. Government CDS Spreads
Nick Gogerty of Designing Better Futures makes some interesting points on credit default swap (CDS) spreads on government debt.
We understand why all sorts of CDS spreads would have blown out in the current financial crisis, but the U.S. government is one entity we're not worried about. With Uncle Ben able to print as much paper as it takes to satisfy the nominal claims on the U.S. Treasury, we don't see how an actual default is in the cards. If there were CDSs that referenced the U.S. government's ability to pay off its obligations in real dollars, however, we would be all over those instruments.