Capitol Hill Blue Forums Political Issues Finance, the economy & Economics How will the financial crisis develop?

People are only really willing to lend or invest in what they truly know, and as we each individually or as institutions know very little, we will invest very little and at, for the economy, ruinously high rates.
The U.S.’s benchmark status as a “risk free” borrower is based on the idea that it is the best available credit, a solid gold borrower that will not default. And of course as Treasuries are denominated in dollars and as the state ultimately can raise taxes or print money to fulfill its obligations, that is correct.
But investors clearly are becoming increasingly spooked that the United States’ difficult situation and its absolutely huge borrowing plans are making it a less certain risk.
It now costs 60 basis points a year to buy a five-year credit default swap insurance policy against U.S. sovereign default, up from about 15 basis points in August and 100 times more than in January 2007 when it was 0.6 basis points. Clearly, somebody thinks risk free isn’t so risk free any more.