Saturday, July 30, 2011

Is Our Goose Already Cooked?

Is Our Country's Sovereign Credit Goose Already Cooked? - Is our cost of credit already sure to rise, with all the consequent increased cost which will end up being taken from the peoples' wallets?

In determining the interest rates for lending, credit ratings are important, but they aren't the sole determinant of credit risk and thus cost of credit. Credit costs depend on how potential "lenders" (in this case treasury bill purchasers) perceive US sovereign debt risk.

The market - the "free markets" - will determine how much risky they perceive US debt to be and the interest rates we have to pay will vary accordingly.

It seems to me that the GOP's battle to the death has already made it likely that our credit is already damaged and we will have to pay more for our sovereign borrowing - we'll have to wait to see how the T-bill auctions go.

1 comment:

  1. I think they have to not raise the debt ceiling but do away with it entirely so the credit markets will understand we won't be going through this again. Of course it is not gonna happen.