Government Default and Riskfree Rates

I have several posts on potential government default and riskfree rates. I noticed this story in Business Week.

I know that this is only one observation but it is a troubling one. In emerging markets, it is not uncommon for companies to borrow money at rates lower than the government, but the saving grace is that the borrowings are in a foreign currency. I can see why bond holders saw less default risk in dollar bonds issued by Petrobras in 2004 than in dollar bonds issued by the Brazilian government.

In this case, lenders are actually perceiving less default risk to Berkshire Hathaway than to the US Government, for a US dollar bond. I know that Berkshire Hathaway has a much healthier balance sheet than the US government, but the US government has the power to print currency. Thus, I would not read too much analytical significance into the 3.5 basis point different. However, I think the market is sending a message to the US government which might or might not be getting through: You have to get your financial house in order soon or you will pay a price. Let's hope that someone is listening.