Saturday, December 26, 2009

Venezuela and default probability

Reuters reports on CMA Datavision default probability numbers. WSJ reports on some of the"progressive" political antics that caused the problem. HT Carpe Diem.

Looking at the CMA Datavision report, the top sovereign default probabilities are Venezuela(57.7), Ukraine(54.6) and Argentina (49.1). For comparison, Greece (17%) at eighth place.

The method is to use insurance premiums for their debt to cumulative probability of default in the next five years. Bottom line on the computation is to create an trend model of the previous history of debt insurance and see how probable the model converges to a higher and unsustainable insurance premium.

Earlier, CMA put California default probability at 27%. Given that California is part of the USA, that is a very high default probability.

Congress is in a race, a race to keep the dollar internationally sound while inflating debt away. I do not think that is possible with the eyes of all investors watching inflation rates. Congress will sooner or later either engage in serious financial reorganization, or the US economy will enter another deflation. I am with Mish on this. The international reserve system is gearing up for alternative to the dollar and they will move fast once Congress begins the debt inflation.

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