Market bets against hope

The Market is Now Pricing In the Genuine Possibility that the US will Default on Its Debt

While the chances that our economy will go into default has increased from 8 in January to over 25 basis points by mid September, the Daily Telegraph also reported that, as a result, market interest rates have also spiked going from -50 to 150 basis points in the same time.

Speculators have become increasing skeptical the sudden US move to price in another trillion dollars in government debt is a good one, and have bet against us. The result is making it harder for Uncle Sam and many Wall Street firms to seek the financing our economy needs to survive this crisis.

According to the George Washington blog posting on Saturday.

"You've heard of "credit default swaps". They are a type of derivative where one person places a bet that a certain company will go out of business, and another person on the other side of the contract places a bet that the company won't go out of business (see this and this).

Well, people are now starting to increase their use of credit default swaps to bet that the U.S. will default on its ability to pay on its treasury debt."

Last week we were witness to a wild ride on Wall Street and it looks like we are headed for more volatility in the future as the market reaction to more government debt is turning very negative.

As Reuters reports, as of Monday morning opening of the Asian markets ... "Stock futures off on rescue detail worry"

It seems our top economists are also helping to trigger the alarm bells this time. Avi Zenilman from the Politico reports Sunday that the experts have weighed in and don't seem too impressed.

This week will certainly see more wild fluctuations on Wall Street, and in markets abroad, sending us ever higher into the precipice of a final turn in one direction or the other. How long the markets can endure this dizzying pace of turmoil is anyone's guess, but we are certainly in need of stability not ever-increasing volatility.