David R. Kotok quoted in…

The Cost of D.C. Dysfunction

By Randall W. Forsyth – Barron’s – March 01, 2024

Excerpt follows:

Since the beginning of last year, the cost of insuring U.S. Treasury debt against the default has risen, as shown by the nearby chart. That’s reflected by what Kotok terms the “political dysfunction” that sent CDS prices soaring last year during the debt ceiling fight. The deal that averted the first-ever U.S. default eventually cost former Rep. Kevin McCarthy his job as speaker of the House. So far, his successor, Mike Johnson (R., La.), has held on to the speaker’s gavel but may face similar opposition from his party’s right wing, especially over aid to Ukraine.

While CDS prices have subsided from those peaks, they remain 20 basis points higher than at the start of 2023. On $27 trillion of tradable U.S. government debt, the cost of the D.C. dysfunction equals some $55 billion in extra interest costs, Kotok writes in a client note. For perspective, that’s more than double the annual budget for NASA.

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