Friday, February 26, 2010

A Fat-Tail Event for U.S. Government Financing?

I recently argued that those observers who only see long-term structural budgetary problems, fail to consider the potential for a fat-tail event adversely affecting U.S. government financing in the near term. Clive Crook considers this possibility by asking whether the U.S. government might soon face a crisis of confidence like that of Greece:
It depends on what you mean by "soon." At the moment, the United States is borrowing with no great sign of stress. Far from coming under pressure, the dollar is still strong, and the cost of U.S. government borrowing (the interest rate on Treasury bonds) shows no sign of spiking. Greece, to be sure, has some problems all its own. Where it leads, the United States need not follow. Yet one should not dismiss the parallel too blithely. Sentiment in financial markets can change abruptly, and the differences between Greece's financial condition and America's are not as vast as one would wish.
Read the rest here.

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