Wednesday, March 18, 2009

US Bonds No Longer Risk-Free

Marketwatch reports that credit-default swaps for US debt currently have risen "nearly seven times higher than a year ago and 60% higher than the end of last year."

In layman's terms, this means that the risk that the federal government won't be able to pay back its bonds has dramatically increased. Basically, faith that the US government will repay its debts has taken a severe hit, certainly due to the massive deficit spending incurred in the year so far.

What are the long-term impacts? Econ majors, feel free to comment on my reasoning, but not only will we now have trillions in more debt to pay, the federal government will also have to pay a higher interest rate to get people to buy the bonds. Last year, the US paid 8% of its entire 2008 budget merely on paying off interest. Perhaps this number will rise in the years to come as debt piles on and on.

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