Wednesday, January 7, 2009

Crowding Out

Crowding out: The U.S. government will be issuing billions upon billions of debt this year.  In addition, corporations of all types will also need to borrow.  Those with funds to invest have to make a decision regarding which bonds to purchase.  Should they buy bonds that are backed by the full taxing power of the federal government or a company that has seen its earnings fall 40% or more?  What additional yield will a prospective buyer require to purchase the riskier asset?

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