Speculators Are Now Placing Bets That The US Government Will Default On Its Debts

Bloomberg: Bets Offering 2,400% Payout on US Default Lure Growing Crowd 

In what is a traditionally moribund corner of Wall Street, speculators are piling into a bet that once seemed unthinkable: that the US government will default on its debts. 

With the Treasury Department inching ever closer to running out of cash — most estimates give it another few months — trading in the derivatives, known as credit-default swaps, is growing. The amount of money tied to the contracts, which will reward investors if the US misses any payments, has increased roughly eight-fold since the start of the year. 

This isn’t the first time that a mini-mania around this trade has erupted. There were episodes back in 2011, 2013, and to a lesser extent 2021. But this time, it all feels a bit different. For one, there’s a greater chance of a lapse in payments. The polarization in Washington is now so extreme that there’s no guarantee Republicans and Democrats can broker a deal to lift the debt ceiling in time to avert a crisis. 

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WNU Editor: The US government will not default on its debt obligations. But if current trends continue, I can see a scenario where the US government will make the decision to accelerate inflation thereby lowering the value of its debt, even if it means causing global harm to those countries who are dependent on trade in US dollars, and to Americans who save and/or are vulnerable to inflation shocks.