JasonC

The Credit Spreads Blow-Up

If it were currency risk it would appear in T-bill yields, which instead are zero, and in spreads of inflation adjusted treasuries over straight treasuries - instead those are reversed. It is not inflation expectations, there is no expectation of inflation, there is actual and prospective deflation at ferocious rates.

The wide spreads reflect both a fear of high rates of default and the destruction of all risk taking capital in the credit markets. Either the Fed steps in and takes credit risks, or nearly every existing company is bankrupt.

I can personally, today, lend money to major banks for twice the rate they are willing to lend money to me. Meanwhile those with nearly unlimited funds are only willing to lend to the US government, and are willing to do so at 1%.