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Suresh
Joined: 16 Sep 2005
Posts: 8391
Location: Maryland
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Subject: Gross' Ring of Fire: Ireland, Spain, UK, France, USA, Greece, Italy, Japan
 Posted: Tue Jan 26, 2010 4:02 pm |
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FT Alphaville: An eye-catching quote…
…from the eye-catching-quote machine that is Mr Bill Gross.
| Quote: | | The UK is a must to avoid. Its Gilts are resting on a bed of nitroglycerine.... |
[In his February letter to investors, Mr. Gross tipped his hat to Reinhart/Rogoff's This Time It’s Different and drew] three iron conclusions:
| Quote: | | 1. The true legacy of banking crises is greater public indebtedness, far beyond the direct headline costs of bailout packages. On average a country’s outstanding debt nearly doubles within three years following the crisis. |
| Quote: | | 2. The aftermath of banking crises is associated with an average increase of seven percentage points in the unemployment rate, which remains elevated for five years. |
| Quote: | | 3. Once a country’s public debt exceeds 90% of GDP, its economic growth rate slows by 1%. |
And then he presents us with this marvelous chart:
Leading Gross to observe:
| Quote: |
Of all of the developed countries, three broad fixed-income observations stand out: 1) given enough liquidity and current yields I would prefer to invest money in Canada. Its conservative banks never did participate in the housing crisis and it moved toward and stayed closer to fiscal balance than any other country, 2) Germany is the safest, most liquid sovereign alternative, although its leadership and the EU’s potential stance toward bailouts of Greece and Ireland must be watched. Think AIG and GMAC and you have a similar comparative predicament, and 3) the UK is a must to avoid. Its Gilts are resting on a bed of nitroglycerine. High debt with the potential to devalue its currency present high risks for bond investors. In addition, its interest rates are already artificially influenced by accounting standards that at one point last year produced long-term real interest rates of 1/2 % and lower. |
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Suresh
Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture. |
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Suresh
Joined: 16 Sep 2005
Posts: 8391
Location: Maryland
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Subject: Sovereign debt maturity profile raises concerns re: Spain's ability to refi
Posted: Wed Feb 03, 2010 12:54 pm |
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FT Alphaville: Next to the trough…
These little --PIIGS-- eurozone countries issued a lot of short-term debt:
The chart is from the latest issue of the National Institute Economic Review, in which NIESR’s Nathan Foley-Fisher notes that:
| Quote: | | A moderate increase in rolled over debt is not a problem in normal times, but when the magnitudes of maturing debt are particularly large levels of net borrowing are high, and creditors are scrutinising the actions of the government, and one another, a different story may emerge. |
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Lucky for the UK then, that its debt issued in 2009 has a longer maturity profile than some other European sovereigns. (Note, however, that the chart is just for 2009-issued debt. On the basis of existing debt, the UK’s funding profile looks very different).
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The following graphs come by way of a FT Alphaville post back in December 2009.
U.S.
Japan:
U.K.
Greece
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Suresh
Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture. |
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Suresh
Joined: 16 Sep 2005
Posts: 8391
Location: Maryland
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Subject: Corruption score indicates likelihood of voluntary fiscal deflation
Posted: Wed Mar 10, 2010 1:30 pm |
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Zero Hedge: Columbia Prof Who Called Argentina Crisis: "Corruption Is The Reason Italy Will Be Next"
Columbia's Charles Calomiris, who predicted the Argentina sovereign debt crisis[,] ... was on Bloomberg TV....
| Quote: | | I think we need to focus on the unsustainable situation that Greece has gotten itself into, with the highest consumption to GDP ration in Europe, one of the lowest labor force participation rates in Europe, one of the highest government social protection rates in Europe, and deficits that have been outsized for several years during the boom, and the of course the fraudulent accounting. I should also note that within the Eurozone, Greece has the worst corruption score according to Transparency International which is a problem because it is telling you is that the institutional quality of the Greek government for reforming itself is very low." |
Not surprisingly the next casualty of the rolling crisis (because, to quote Dubya, make no mistake, the crisis will be back very soon) will be not Spain or Portugal, but Italy - another nation using swap gimmickry to enter the Eurozone back in the day.
| Quote: | | "The real concern right now should be on Italy. Italy is the country that is most like Greece in this current situation. Highest Debt to GDP ratio, not as high deficits so with smaller changes they can stop the problem. They also, however are very corrupt. They are second to Greece in the level of corruption within the Eurozone." |
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Suresh
Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture. |
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Suresh
Joined: 16 Sep 2005
Posts: 8391
Location: Maryland
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Subject: For debt sustainability, a country's growth rate must equal its debt yield
Posted: Wed Apr 14, 2010 11:28 am |
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FT Alphaville: Greece – ‘It’s not that different’
SocGen’s Dylan Grice ... believes [Greece] ... is the beginning of a wave of government funding crises, not the end....
The reason? The colossal amount of government debt that needs to be issued.
| Quote: | | ... by taking Bloomberg’s data for existing debt maturity for each government (red) and using the OECD’s projected 2010 deficits as a proxy for net new issuance (grey) my numbers shouldn’t be too far out. But if my numbers are even roughly right and issuance is the problem, Greece should have had almost the least to worry about! |
This concerns Grice because of the unavoidable arithmetic behind debt sustainability, namely, the interest [rate] a country pays on its debt must equal the nominal growth rate of that country.
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| Quote: | | If it does, the incremental government revenue generated by the economic growth will pay for the coupons on the debt. If it doesn’t, a shortfall develops between incremental revenues and incremental coupon payments and in the absence of further austerity, more debt is required to finance the deficit. |
| Quote: | | This might sound abstract, but it’s exactly what happened in Greece. When the first austerity plan was presented, Greece cut public sector wages by a painful 10% causing angry protest and social unrest, although it saved the government EUR650m. But the same austerity plan assumed Greece’s interest cost would be 4.7% and by late February it was paying 6.25%. According to the WSJ, this has blown a EUR700m hole in its budget, more than offsetting the savage public sector wage cuts already enacted. |
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Suresh
Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture. |
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Suresh
Joined: 16 Sep 2005
Posts: 8391
Location: Maryland
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Subject: PIIGs bailout would cost $2 trillion over 3 years, IMF has $700 billion
Posted: Fri Apr 30, 2010 2:28 pm |
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Zero Hedge: With $2 Trillion In 3 Year Funding Needs By the PIIGS, The IMF Is Helpless To Do Anything But Sit Back And Watch
Total PIIGS funding needs (defined as the sum of debt maturities and budget deficits) over the next 3 years amount to $2 trillion. Total PIIGS funding needs in 2010 alone amount to $600 billion. Total IMF bail out capacity: around $700 billion. Sorry - it simply does not compute.
Below is a table summarizing the funding needs of just the PIIGS.
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So just how equipped is the IMF to deal with this funding requirement?
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the top two countries on the hook to fund the World bailout are the US and Japan, the two countries caught in the greatest deflationary throes since the great depression.
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Suresh
Please feel free to agree with or critique the article excerpts and our comments. Also, please post excerpts from current articles that you've read and which may help all of us get a more complete macroeconomic big picture. |
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