Category Archives: Debt

By Ambrose Evans-Pritchard
26-Mar (Telegraph) — Japan’s public debt has reached worrying levels and could lead to a bond buyers’ strike unless the government brings the budget deficit under control, the country’s top currency official has warned.
Mr Yen cautions on Japan’s ‘unsafe’ debt trajectory

“A debt ratio of 245pc of GDP is not really safe, and it is not happening because we are investing,” said Takehiko Nakao, Japan’s ‘Mr Yen’ or vice finance minister in charge of the exchange rate.

Mr Nakao said the scope for further fiscal stimulus is running out and the country must restore public finances to a sustainable path by the middle of the decade. “We can’t continue to expect people to lend money to us,” he told The Daily Telegraph.

The comments touch on an acutely sensitive topic. A number of global hedge funds and banks have begun “shorting” Japan’s debt, the world’s biggest at $23 trillion.

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PG View: As long as Kuroda’s BoJ, with PM Abe’s support, is prepared to print yen and buy unlimited JGBs, does Japan really need anybody else to lend them money?

19-Feb (Politico) — The idea that the White House and congressional Republicans can reach a “grand bargain” over debt reduction “is at best on life support,” one of the leaders of President Barack Obama’s now defunct debt commission said Tuesday.

The former heads of the commission — Erskine Bowles and Alan Simpson — unveiled a new debt reduction plan Tuesday they said is intended to pressure the White House and Congress to stop squabbling and act.

But they weren’t expressing much optimism a big deal is on the horizon.

“The idea of a grand bargain is at best on life support,” Bowles told reporters at a briefing ahead of a POLITICO Playbook Breakfast where he and Simpson will discuss the proposal. “It seems like both sides are beginning to retreat to their own talking points. This may be good politics, but it doesn’t put us any closer to having our fiscal house in order.”

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By Paul Krugman
07-Feb (New York Times) — John Boehner, the speaker of the House, claims to be exasperated. “At some point, Washington has to deal with its spending problem,” he said Wednesday. “I’ve watched them kick this can down the road for 22 years since I’ve been here. I’ve had enough of it. It’s time to act.”
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Actually, Mr. Boehner needs to refresh his memory. During the first decade of his time in Congress, the U.S. government was doing just fine on the fiscal front. In particular, the ratio of federal debt to G.D.P. was a third lower when Bill Clinton left office than it was when he came in. It was only when George W. Bush arrived and squandered the Clinton surplus on tax cuts and unfunded wars that the budget outlook began deteriorating again.

…The key point is this: While it’s true that we will eventually need some combination of revenue increases and spending cuts to rein in the growth of U.S. government debt, now is very much not the time to act. Given the state we’re in, it would be irresponsible and destructive not to kick that can down the road.

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PG View: The can was going to get kicked with or without the endorsement of Mr. Krugman…

24-Jan (Financial Times) — Japan’s trade deficit nearly tripled in 2012 to Y6.93tn ($77bn), an unprecedented shortfall for the traditional export powerhouse as it faces criticism that it is weakening the yen to favour Toyota and other Japanese manufacturers.

The sharp expansion of the deficit, from Y2.56tn in 2011, in part reflected falling sales of Japanese goods abroad, a problem that has been traced to a strong yen, the weak economy in Europe and anti-Japanese boycotts by consumers in China.

It was only the third year since 1980 that export sales failed to cover the cost of imports. Japan is better known for the large and persistent trade surpluses that in decades past were a source of both national pride and political friction, particularly with the US.

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18-Jan (New York Times) — Backing down from their hard-line stance, House Republicans said Friday that they would agree to lift the federal government’s statutory borrowing limit for three months, with a requirement that both chambers of Congress pass a budget in that time to clear the way for negotiations on long-term deficit reduction.

The agreement, reached in closed-door negotiations at a party retreat in Williamsburg, Va., was a tactical retreat for House Republicans, who were increasingly isolated in their refusal to lift the debt ceiling. Speaker John A. Boehner of Ohio had previously said he would raise it only if paired with immediate spending cuts of equivalent value.

The decision by Republicans seemed to significantly reduce the threat of a federal government default in coming weeks and was welcomed by Senate Democrats. The House will consider the plan next week.

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PG View: At best, such a measure is nothing but a very short kick of the can down the road. Or it is a simple tactical political maneuver to make the Democrat controlled Senate say “no” to a debt ceiling increase. Either way, it does nothing to solve our monumental debt problem that gets worse every day that Congress refuses to do anything meaningful about it. In either case, it may not succeed in forestalling another downgrade of our debt.

15-Jan (The Hill) — The federal government has stopped fully investing in a retirement fund for federal employees due to reaching its $16.4 trillion borrowing limit.

Treasury Secretary Timothy Geithner told congressional leaders Tuesday that he is no longer able to fully invest in the “G Fund” of the retirement system for federal employees.

The move is one of the “extraordinary measures” Geithner is currently employing to free up funds, since the government can no longer issue new debt after reaching the debt ceiling on Dec. 31. When the government can no longer borrow funds, these measures allow it to meet vital obligations for a period of time, giving Congress time to hike the borrowing cap.

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12-Jan (Reuters) – So much for the $1 trillion platinum coin idea.

The U.S. Treasury Department said on Saturday it will not produce platinum coins as a way of generating $1 trillion in revenue and avoiding a battle in Congress over raising the U.S. debt ceiling.

The idea of creating $1 trillion by minting platinum coins has gained some currency among Democrats in recent days as a way of sidestepping congressional Republicans who are threatening to reject a necessary increase in the debt ceiling unless deep spending cuts are made.

The Treasury Department and the Federal Reserve, both independent of one another, each concluded this was not a viable option.

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PG View: It’s somewhat reassuring that common sense won out over gimmickry, but be assured, the debt ceiling will get raised. At that point, the borrowing and spending will continue as the march toward the new debt ceiling commences.

By EDWARD D. KLEINBARD
09-Jan (New York Times) — The fiscal cliff may have been avoided, but an even higher-stakes political standoff — this time, over the federal debt ceiling — is just around the bend.

Congressional Republicans have said they will demand immense cuts to popular government programs in exchange for agreeing to raise the nation’s authorized borrowing limit of $16.4 trillion. The Treasury Department briefly nudged against that ceiling on Dec. 31, but used “extraordinary” financial measures to buy more time. If nothing is done, the government will soon be unable to pay all of its bills in a timely manner. This unprecedented event would profoundly damage the government’s credit rating and send the financial system into a tailspin.

…There are no great options.

… Other supposed solutions — like the notion that the Treasury Department could create a $1 trillion dollar platinum coin and deposit it in its own account at the Federal Reserve — are even more fantastical.

However, there is a plausible course of action, one that the president should publicly adopt in the coming weeks as his contingency plan should debt-ceiling negotiations falter. He should threaten to issue scrip — “registered warrants” — to existing claims holders (other than those who own actual government debt) in lieu of money.

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PG View: That some very serious people are contemplating such schemes to circumvent the debt ceiling, such as a $1 trillion coin and government IOUs, is reflective of a country reeling under the weight of its own debt. As Tim Iacono says in the title of the previous post, this is truly how money dies…