The story from today’s papers with the biggest potential long-term impact on New York’s economy doesn’t even contain the words “New York.” That’s Gillian Tett’s FT piece on global investors’ assessment of the credit of the United States of America. Parsing data from the world of credit insurance and comparing the cost of insuring Treasury bonds vs. McDonald’s corporate bonds against any losses from possible default, Tett finds:

This week, the cost of insuring against a US default … hit record levels. … [T]he entity that brought us big fries and the floppy clown commands as much gravitas in the credit world as the might US of A. … There are at least two factors making investors jittery. One is the rising cost of US bail-out plans. … [T]he rescue proposals from Hank Paulson … are threatening to push gross US debt well above 70 percent of GDP for the first time since 1954. … [T]he more pernicious challenge is psychological.

Whereas once a future default by the United States seemed inconceivable, today, it’s “extremely unlikely.” Cold comfort. The world may believe that strains on the U.S. balance sheet — from our protection of Fannie Mae, Freddie Mac, AIG, and Bear Stearns, as well as our proposed $700 billion toxic-securities bailout — increasingly tempt the nation to debase its own currency to repay its growing obligations in cheaper dollars.

This perception would make it more difficult for New York’s finance industry to recover from its current woes. Wall Street is Wall Street in large part because the world does its business in our currency.

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