McDonald's More Credit-Worthy Than USA

Yes, that's right, McDonald's, the fast food chain, is more credit-worthy than the United States of America!

But, maybe it isn't so surprising in these uncertain economic times. With food prices rising, unemployment going up, banks failing, housing prices collapsing, and President Bush pushing a $700 billion bailout package for Wall Street (and the question of whether or not the US House and Senate will pass it), I suppose it shouldn't surprise us that the rest of the world sees the US as a risky investment.

How is it that McDonald's is deemed more credit-worthy than the US?

Here's how it is explained in Finland's Helsingin Sonomat (as translated by Watching America):

The insurance risk-premium for a 10-year U.S. treasury bond shifted on Friday up to 0.3% according to a broker in a Finnish bank. In practice this means that if an investor wishes to insure 10 million dollars worth of U.S. T-bonds against a government default the insurance will cost 30,000 dollars. Such an insurance for the same amount of investments on Finnish bonds cost on Friday only about half of that at 16,000 dollars. Even loans to McDonald’s would be cheaper to insure than U.S.-bonds, at 28,000 dollars per 10 million.

CDS-derivative prices are an indicator of investors’ views and mood, but as such they reveal nothing of the true financial state and wealth of their targets. Thus, while Finland’s and McDonald’s risk of bankruptcy is now smaller in investors’ opinion than that of the U.S. this does not mean that Finland and McDonald’s would necessarily be any wealthier and thus safer targets of investment than the U.S.

This being said, it is extremely rare for a fast-food chain’s corporate loan to be viewed as a safer investment than the bonds of the world’s most powerful country.