EPIC FAIL: California Now Has A Higher Default Risk Than Battle Zone Thailand

Please allow a moment of humour during extremely tense times I’m watching closely in Thailand…. So Thai credit default swap spreads have been soaring as central Bangkok remains a war zone. Investors are getting quite concerned about Thailand’s sovereign creditworthiness due to political clashes, long-term violence, and its potential economic effects.

Yet credit default spreads for Thai debt are still FAR lower, ie. debt has lower perceived risk, than California. This is despite the fact that California also probably has the U.S federal government backing its liabilities to boot.

California, 272.80 basis point CDS spread:

From CMA Datavision:


Thailand, just 159.64 basis points, ie. lower perceived risk of default than California.

From CMA Datavision:


Obviously California’s problems are financial while Thailand’s are political/cultural, but this still makes California look pretty bankrtupt. We agree with the CDSs though. Despite the turmoil, Thailand’s government is actually in pretty good shape financially, given that they were once bitten and twice shy since the 1997 Asia crisis (which started in Thailand and caused the currency to lose half its value in an instant).

If anything though, the Thai comparison shows how country’s, or even California, can bounce back from complete financial melt-downs, since again, now just 13 years later Thailand’s finances are in pretty good shape even if its political situation isn’t. Thailand made a complete recovery from an ugly 1997 financial crisis after restructuring banks, reorganising its government finances, and simply enduring tons of bankruptcies. So while California might have a financial collapse ahead, not all will be lost if we simply let it happen. California will just go through an extremely difficult learning experience, but history shows that many places can emerge from financial crises quite quickly.

Don’t miss: 16 reasons California is the new Greece >

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