CUMULATIVE PROBABILITY OF DEFAULT
It’s nice to see the USA making a few top ten lists these days although this isn’t exactly a list you want to be on. The following chart shows the credit spreads and the cumulative probability of default for various countries and US states. The probability of Greek default has surged in recent weeks as pressures in Europe have reemerged. An equally interesting development is the ascent in Illinois and California spreads. Are these two vital US states truly at risk of default within a supposedly UNITED States of America? The key differentiating factor between the USA and Europe is the lack of true unity in Europe so it’s interesting to consistently see these US spreads widen when the sovereign debt fears in Europe flare up. It’s also interesting to note the persistent rise in Greek funding costs. Despite an ECB that claims to have everything under control the market simply continues to press the issue. I still maintain that the market will press the issue until a true resolution is discovered. What that is? Who knows. The options appear to be depression or true unity. Unfortunately, thousands of years of history make the latter look unlikely….
Greece, Portugal, Ireland and other top 10 countries are relatively contained issues (small size) compared to California, or for that matter, Spain. The global impact of any of these will be felt, but mildly.
If the bigger states get in trouble, we jump into a completely different league (and I’d guess Spain’s rank is not too far from the top 10).
Chris Whalen, said today he feels it is inevitable that Ca. will default.
He is pretty good at what he does. His words should not be taken lightly.
TPC – Allowing CA to default would be the dumbest thing on the planet. I like Whalen’s work, but there is just no way that happens….
Source?
Looks like a bloomberg.com chart.
Yeah, BB and CMA.
Thanks.
Pardon my interjection, but didn’t Arkansas (a member of the UNITED States of America) default on its bonds in 1933?
California is a massive piece of the U.S. economic pie. My backyard has a bigger GDP than Arkansas. It’s not the same.
Yes, a CA default would be a nice way to guarantee a depression here in the USA.
well instaed of a complete default ,how about a cram down, give bondholders a choice….nada or a piece of something
I believe you’re right. But just because it has happened before doesn’t mean it should happen again.
TPC – are you saying that the US will step in and bailout CA (IL, NY, NJ, etc.)?
CA has 20+ $Billion deficits built in as far as the eye can see.
Or are you saying that there will be REAL re-structuring under the guidance of the US in exchange for short term relief?
I’d be happy to guess that NY or NJ are #11 too.
I respect you TPC, but I don’t put anything past the politicians in Washington.
If gop holds congress and prez in 2012 ca goes under.
This is why munis are blowing out since the election.
The dems will bail out anything that moves. Even bush did. But a true conservative or tea party type will not. Hence you will see fireworks if that brand of gop takes over. If its the corporate socialism brand of gop then you get a repeat of Bush bailouts
At the end of the interview, Chris promotes CA defaulting, and restructuring it’s debts with creditors.