I see (via Felix Salmon) that the credit default swap marked, distrusted by Chris Cox of the Securities and Exchange Commission and beloved by Alan Greenspan, now believes that the US government is more likely to default on its debts than McDonald’s.
FT Alphaville reports that:
One broker quoted McDonald’s CDS at about 26.5 basis points, compared with 30bp for the US, on Friday morning and another desk quoted both about 25bp. The picture has worsened since the news that politicians and public servants in Washington failed to seal a financial bail-out deal on Thursday night. McDonald’s closed at 28bp versus 25bp for the US on Thursday, according to Markit.
The Economist magazine calculates purchasing power parity of currencies using the Big Mac Index – the price which you have to pay for the company’s flagship hamburger in various countries.
Perhaps we should also have a Big Mac Swap Spread – the gap between the price of CDS on McDonald’s debt and US Treasuries. At the moment, the BMSS shows that investors trust Ronald McDonald more than Hank Paulson.
Actually, this makes some kind of sense, even if the US government has a triple-A rating from the credit agencies. Other banking crises, in Japan and Scandinavian countries, have led to sovereigns being downgraded.
In addition, the US government is taking the brunt of the financial crisis and the economic downturn, whereas McDonald’s cashflow could rise as a result. People have a tendency to comfort themselves with cheap food, such as chocolates and hamburgers, in recessions.
