Tag Archives: debt and deficit

Greek Debt Woes Rising

8 Apr

From the Associated Press:

European stock markets fell Wednesday amid mounting concerns about Greece’s debt crisis while U.S. shares drifted lower as the Dow Jones industrial average fell short of breaking above 11,000.

Once again, Greece took center stage as investors continued to fret about the country’s ability to pay off its debts — the ten-year spread between Greek and Germany bond yields stood at 4 percentage points, having earlier hit 4.12 percent, its highest level since the euro was introduced in 1999. The spread is also way up on the 3 percent level when the EU agreed on an aid program that would involve the International Monetary Fund.

“All of this puts a question mark over longer term debt sustainability as well as the threat of contagion elsewhere in the eurozone,” said Neil Mackinnon, global macro strategist at VTB Capital.

With fiscal retrenchment due in Greece, as well as Portugal and Spain, there are also mounting concerns that the debt crisis will weigh on eurozone economic growth for a long time yet, particularly as lower demand for German goods could squeeze the eurozone’s biggest economy.

“This does not look like a sensible strategy and will likely end up in economic slump for the eurozone generally alongside the risk of deflation,” said Mackinnon.

Worries about the strength of the eurozone economy were stoked further on Wednesday with the news that economic growth ground to a halt in the last three months of 2009 as output stagnated in Germany and contracted once again in Italy.

Tags: , , , , , , , , ,

Yields On Aussie Bonds Rising

8 Apr

And so it begins.

Have we just heard the ‘canary in the coalmine’ of government debt pause its happy singing?  When the government finds it has to start offering higher yields in order to sell its longer-dated sovereign bonds, you know that the market is beginning to smell inflation… and/or, losing faith in the government’s ability to pay up on maturity.

From The Australian:

The federal government drew solid demand today for an auction of new July 2022 bonds, its longest nominal debt on issue, but had to pay an attractive premium to sell the bonds.

In the latest extension of its yield curve, the Australian Office of Financial Management sold $1.0 billion of 5.75 per cent July 2022 bonds with a weighted average yield of 5.9642 per cent.

“The Commonwealth had to pay up to get good demand,” Westpac strategist Damien McColough said, noting good interest from buyers on yields closer to the 6.0 per cent level.

Over the past two months, the yield on the more common 10-year Australian Government bonds has risen from 5.48% to 5.85%.

Tags: , , , , , , ,

PIMCO Fears UK ‘Debt Trap’

2 Apr

From the UK’s Telegraph:

The US bond fund PIMCO has warned that Britain risks a vicious circle of rising debt costs as global investors demand a penalty fee on gilts to protect against inflation.

Bill Gross, the fund’s chief and emminence grise of bond vigilantes, said the UK was on its list of “must avoid” countries along with Greece and others in eurozone’s Club Med.

The flood of British debt is likely to “lead to inflationary conditions and a depreciating currency”, lowering the return on bonds. “If that view becomes consensus, then at some point the UK may fail to attain escape velocity from its debt trap,” he wrote in his April monthly note.

Mr Gross said the UK is not yet in crisis but gilts are sitting on a “bed of nitroglycerine” and must be handled delicately.

Michael Saunders from Citigroup said the UK has “no credible medium-term path back to fiscal sustainability”.

UPDATE:

From Reuters –

PIMCO Sees UK Downgrade

PIMCO sees Europe’s action on Greece as ineffective in fixing the country’s problems, while Britain’s sovereign debt rating could be downgraded within a year, a top executive of the world’s largest bond fund said.

Scott Mather, head of global portfolio management at Pacific Investment Management Co (PIMCO), told a briefing in Taipei on Thursday that the company was underweighting UK, U.S. and pan-European 10-year sovereign bonds.

“Miracles are needed in the next six months in order to keep economic growth in the developed world,” Mather said.

Last month, PIMCO said it was maintaining its negative stance on British gilts because the amount of debt the country would have to issue in the future should lead to inflation and a depreciating currency.

The country’s record-high debt has caused disquiet among investors, and Standard & Poor’s has put the country’s top-notch triple-A rating on a negative watch.

Tags: , , , , , , , , ,

Default Possible On ‘Stunningly Small’ Debts

1 Apr

Recently Professor Ken Rogoff, former chief economist for the IMF, warned that ballooning debts could cause “a bunch of sovereign defaults”.

He has also warned that China is in a bubble that will burst within 10 years, sparking a regional crisis.

In 2008 he correctly forewarned of the possibility of large bank failures in the USA.

Now his latest research offers very important insights for all Australians who believe the Rudd Labor “spin”, that our national debts are very low, and no cause for concern.

From the New York Times:

Professor Rogoff, who has spent most of his career studying global debt crises, has combed through several centuries’ worth of records with a fellow economist, Carmen M. Reinhart of the University of Maryland, looking for signs that a country was about to default.

One finding was that countries “can default on stunningly small amounts of debt,” he said, perhaps just one-fourth of what stopped Greece in its tracks. “The fact that the states’ debts aren’t as big as Greece’s doesn’t mean it can’t happen.”

Also, officials and their lenders often refused to admit they had a debt problem until too late.

“When an accident is waiting to happen, it eventually does,” the two economists wrote in their book, titled “This Time Is Different” — the words often on the lips of policy makers just before a debt bomb exploded.

Barnaby Joyce has been ridiculed up hill and down dale since late 2009, for daring to raise questions about the unbelievably huge US debt (see chart here), and Australia’s own ever-growing national debts.

Professor Rogoff’s research shows that even a debt that is only one-fourth of Greece’s can be enough to cause a sovereign default.

In December, Greece’s debt was $482bn.

Australia’s public debt is $131.682bn.  And growing at around $2bn per fortnight.

Barnaby is right.

Tags: , , , , , , ,

Treasuries Sell-Off Raises US Debt Fears

31 Mar

From the UK’s Telegraph:

Investors are braced for a further sell-off in US Treasuries after dramatic moves last week raised fears that the surfeit of US government debt is starting to saturate bond markets.

The yield on 10-year Treasuries – the benchmark price of global capital – surged 30 basis points in just two days last week to over 3.9pc, the highest level since the Lehman crisis. Alan Greenspan, ex-head of the US Federal Reserve, said the abrupt move may be “the canary in the coal mine”, a warning to Washington that it can no longer borrow with impunity. He said there is a “huge overhang of federal debt, which we have never seen before”.

David Rosenberg at Gluskin Sheff said Treasury yields have ratcheted up 90 basis points since December in a “destabilising fashion”…

Mr Rosenberg said the yield spike recalls the move in the spring of 2007 just as the credit system started to unravel.

Looming over everything is the worry that markets will not be able to absorb the glut of US debt as the Fed winds down its policy of bond purchases, starting with an exit from mortgage-backed securities. It currently holds a quarter of the $5 trillion of the MBS market.

The rise in US bond yields has set off mayhem in the 10-year US swaps markets. Spreads turned negative last week, touching the lowest level in 20 years.

Barnaby Joyce has been warning of the dangers of sovereign debt levels – and in particular the massive US debts – since October 2009. He has been ceaselessly ridiculed by the Labor government, and the mainstream media, for daring to say so.

Please take the time to browse the dozens of articles on this blog, from all around the world, citing leading economists, financiers, traders, and commentators – some of whom predicted the first round of the GFC. Not one of our economic “authorities” did.

Barnaby Joyce is far from the only one who is questioning our economic future, due to massive (and rising) sovereign debt levels, especially in the USA, UK, and Europe.

Tags: , , , , , , , ,

Australia’s ‘Goldilocks’ Economy

31 Mar

From The Intelligent Investor:

Australia is the western world’s ‘Goldilocks economy’. My own particular concern is that the market now assumes this status to be a permanent state of affairs. Most domestic commentators, alive to the opportunities that stem from our increasing reliance on China, are asleep to the potential risks.

The consequences of a significant Chinese downturn will be enormous for us; the Goldilocks economy may start to look like other western nations; indebted, economically promiscuous and unable to spend less than we earn. The resources, banking and property sectors look particularly exposed.

While not all of our analysts are as concerned as I am about the potential dangers of a Chinese downturn, we all agree it’s important for Australian investors to consider the possibility that the Chinese miracle may sour for at least a few years.

A few questions should be asked of your portfolio and financial circumstances; Does your brand of diversification mean that the 15 stocks in your portfolio are all in the mining business? Do you own some genuinely defensive investments? Do you have some spare cash reserves or term deposits? Have you paid down your margin loan? Now’s the time to consider these questions.

Tags: , , , , ,

Only US Collapse Can Save The Euro

30 Mar

From Zerohedge:

For once, some actually good insight from a CNBC guest. Philip Manduca, Head of Investment of the ECU Group, discusses Greece and the very severe implications of what the final outcome will look like. “Trichet (Ed: President of the European Central Bank) said the Greeks are crooks, and they’ve been lying about the numbers. There is a deeply embedded corruption within the Eurozone. Combined with the endemic European socialism and there is just no way you are going to get spending cuts and tax raises and maintain a GDP that makes any sense of the percentage aspect of debt to GDP. So the whole show is wrong. This is an intractable situation, this is going to continue on and on. The only hope for the Eurozone, and the Euro as a currency, is that someone takes the spotlight soon, and that may be the United States.”

Tags: , , , , , , , , , , , ,

We’re About To Discover That Sovereign Nations Can Go Bust Just Like Companies

30 Mar

From BusinessInsider:

Bill Gross (Ed: Head of PIMCO, the world’s largest bond trading firm) knocks the halo off of sovereign bonds in his latest March outlook.

He highlights how sovereign debt has been struck with more bad news than corporate debt lately.

While sovereign credit used to be generally considered more secure than that of private companies, suddenly the default of nations such as Greece, the U.K., or even Japan seems on the table, while that of many strong corporates remains remote.

What’s happening, according to Mr. Gross, is that government bonds are starting to look just like corporate bonds, rather than existing on some privileged less-risky peer as in the past. Because it’s anything goes and anyone can default in the new ‘unibond’ market.

Bill Gross commented that:

Government bailouts and guarantees such as those evidenced and envisioned in Dubai and Greece, as well as those for the last 18 months with banks and large industrial corporations across the globe, suggest a more homogeneous “unicredit” type of bond market. If core sovereigns such as the U.S., Germany, U.K., and Japan “absorb” more and more credit risk, then the credit spreads and yields of these sovereigns should look more and more like the markets that they guarantee. The Kings, in other words, in the process of increasingly shedding their clothes, begin to look more and more like their subjects. Kings and serfs begin to share the same castle.

Barnaby Joyce began raising questions about the possibility of ‘default’ by nations such as the USA last year. He was roundly ridiculed by all and sundry for doing so.

Unfortunately, no one raised the point that there is more than one way that a sovereign ‘default’ can occur. Historically, the most common form of ‘default’ is simply where the sovereign nation inflates away its debts. How? By destroying the value of its own currency:

Thus there are no longer any holy bond cows left in this world.

Heck, even U.S. bonds are subject to ‘stealth-default’ risk, which is simply the eating away of bond value over time via inflation and dollar depreciation.

Barnaby is right.

Tags: , , , , , , , , , ,

Global Turmoil Looms: Keating

27 Mar

From The Age:

Paul Keating has delivered a bearish assessment of the world economy, warning that another bout of global turmoil is possible if trade and capital imbalances go unaddressed.

The former prime minister and treasurer last night argued current account surplus nations such as China and Germany must urgently shrink their surpluses by lifting the role of domestic demand.

Failure to do so could trigger another sharp deterioration in global economic conditions, he said, damaging Australia’s growth prospects.

Mr Keating also casts doubt on China’s ability to continue growing at recent rates of near 10 per cent. He said this rate was being artificially supported by excessive investment and its pegged currency, which makes its exporters more competitive.

“Our biggest customer China is growing for the moment… but only on investment steroids,” he said.

The former prime minister also highlighted risks to foreign countries with large debts, such as the US and Europe.

In the event of a double-dip recession, Mr Keating said the developed world would not have the funding to support massive fiscal packages.

“If a financial crisis comes in the future there won’t be the method to deal with it as we’ve seen in this crisis,” he said.

Keating is correct.

Thanks to Rudd Labor’s panicked, massive “stimulus” spending – tens of billions of borrowed money wasted on pink batts, foil insulation, and Julia Gillard Memorial School Halls – Australia no longer has a safety net.

And despite the daily warnings of crisis dead ahead – now coming even from former “world’s greatest treasurer” Paul Keating – Rudd Labor is continuing to borrow well over $1bn a week.

When the next wave of the GFC comes, everyone will know that Barnaby is right.

Tags: , , , , , , , , , ,

China Says Greek Debt Crisis ‘Tip Of The Iceberg’

26 Mar

From the Sydney Morning Herald:

The euro slumped Thursday to a fresh 10-month low after a senior Chinese central bank official warned that the Greek debt crisis was just the “tip of the iceberg.”

Analysts said the comments, and a debt downgrade for Portugal on Wednesday, suggested the crisis was widening to take in the entire eurozone project.

“The fact that Zhu Min, the deputy governor of the People’s Bank of China, felt compelled … to call the Greek debt crisis ‘the tip of the iceberg,’ is as good an indication as any of how rapidly fundamental concerns are growing about the eurozone,” said analyst Neil Mellor at Bank of New York Mellon.

“Indeed, this comment might well signal the point that we stop talking about a ‘Greek debt crisis’ and start talking about a ‘Eurozone structural crisis’ instead,” Mellor said in a research note to clients.

Please take the time to browse the recent posts on this blog.

Our financial authorities – RBA Governor Glenn Stevens, Treasury Secretary Ken Henry, and the Labor Government – are all convinced that the global financial crisis is ‘over’.

They have publicly declared that Australia is all set for a new, multi-decade mining boom (thanks to China), that will provide us with a “period of unprecedented prosperity”.

They have ridiculed Barnaby Joyce, our only politician with the courage to publicly raise questions about the state of the rest of the world’s economies, and what calamity that might mean for Australia, since last October.

And, all of them (except Barnaby) completely failed to predict the GFC in the first place.

Yet, our media and the public believe that everything is fine.  That the Government can just keep right on borrowing around $2bn a fortnight, to continue squandering on a massive, rushed and bungled “stimulus”.

Barnaby is right.

Tags: , , , , , , , , , ,

← Older Entries
Newer Entries →

Design a site like this with WordPress.com
Get started