McDonalds is a safer credit-risk than the government of the United States, according to the Credit Default Swap (CDS) market last week. The cost of insuring against the default of US government debt was quoted at 0.28%, meaning that it would cost you $28,000 per annum to insure against the default of $10,000,000 face value of debt (an all time high). The comparable cost of insuring against the same face vale of McDonalds Corporation debt was quoted at $26,000. Not much difference you may think - but thats the point! The psychology of this is huge.
But, lets get this into perspective guys. Uncle Sam has endured a revolution, civil war, the Great Depression, two World Wars, the Cold War and the terrors of 9/11. Its resilience and strength is astounding. As bad as the current financial crisis is, Uncle Sam will eventually come through - of that, I have no doubt. So, as much as I like my Big Macs, the markets got this one wrong.
