Monday, March 22, 2010

Another Milestone On The Road to National Bankruptcy?

From an NPR story:
Bonds sold by Berkshire Hathaway and a few other big companies are paying less interest than bonds sold by the U.S. government, Bloomberg reports.

That's very weird. Treasuries are supposed to be among the safest bonds in the world. But the market is saying that the U.S.A. is a riskier bet than that Berkshire, the big conglomerate run by Warren Buffett.

Bonds sold by Procter & Gamble, Johnson & Johnson and Lowe's have also been paying less interest than treasuries of comparable maturity, Bloomberg says.

The difference in yields between treasuries and the companies' bonds is very small -- less than one tenth of a percentage point (that's less than 10 basis points, in bondspeak). Still, it's worth noting, because corporate bonds almost always yield more than treasuries. A few factors are driving the current situation.

The big increase in U.S. debt is prompting some worries about the nation's long-term ability to pay its debts. "Preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion," Moody's wrote last week in a note aimed at the U.S. and a few other big countries.
Obamacare is probably the proximate cause, but our long term policies, instituted by both parties, have had us on this road for a long time now.

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