Have central banks reached the limit of what they can do to fix the global economic crisis? The answer is yes, if you believe that the price of Credit Default Swaps (CDSs) is any indication. With CDS premiums for corporate bonds reaching a new high, investors in the thinly traded, unregulated and poorly-disclosed corner of our financial markets are signaling that central banks cannot fix what ails the global financial markets. That scares me.

How are these CDS premiums measured? By a couple of complex CDS indices in the U.S. and Europe. For example, there's the Markit iTraxx Crossover Index of 50 high-risk, high-yield credit ratings corporate bond issuers whose premium climbed 18 basis points (100 basis points is 1%) to 956 this morning. in London. And there's the Markit iTraxx Europe index of 125 investment-grade corporate bond issuers which climbed 3.5 basis points to 191.5 having earlier traded at a record 198. Similar indices in Australia and Japan are at record levels as well.

Central banks around the world have cut their short-term lending rates to near zero and yet things keep deteriorating. As I posted, the next step for central banks could be trying to lower the rates of longer-dated, e.g., two year, government securities. But none of these efforts will work because banks are so afraid to lend since it is so hard to find businesses and individuals who are safe bets to pay back the money. So absent global infrastructure programs by governments around the world, this crisis could continue to explode.