Category: Debt

US credit tightens ahead of Federal Reserve policy shift

30-Nov (USAGOLD) — Dear future historians: Janet Yellen did not cause the late-2010s recession.

If a Federal Reserve interest rate rise in December is followed in short order by an economic slowdown, the temptation will be to blame the central bank and its chair for a premature tightening of monetary policy. But there are a growing number of red flags that suggest the US credit cycle has already turned, with consequences for the real economy next year, even before the Fed makes its move.

Smart money investors have positioned themselves for a rise in corporate defaults, a pullback in lending, and contagion across asset classes. The question is whether this is the start of a self-reinforcing downward spiral.

The answer depends in part on the complex chain that links the deepest recesses of the credit markets to the real economy.

A booming leveraged-loan market has fuelled the mergers and acquisitions mania of the past few years, boosting the stock market and the economic feelgood factor in the process — but it is in sharp reverse.

…It is too early to predict a downward spiral where caution begets more caution and deleveraging begets more deleveraging, but the emerging dynamics in credit markets are worrisome. Credit seems to be tightening, Fed or no Fed.


PG View: Which begs the question; will an inherently dovish Fed really tighten into a credit cycle that is already tightening on its own?

Posted in Central Banks, Debt, Monetary Policy |

Swiss 10-year yield hits new low of -0.41%

30-Nov (FT) — How low can you go? No, really. This is getting bizarre.

Switzerland’s 10-year yield has hit a new record low of minus 0.41 per cent, as anticipation further easing at the ECB’s Thursday meeting drags European bond yields even deeper into negative territory, writes Joel Lewin.

Although Switzerland isn’t in the eurozone, further easing from the ECB could force the Swiss National Bank to follow suit.

The Swiss 10-year yield fell (meaning prices rose) 0.02 percentage points this morning, touching minus 0.41 per cent, breaking the previous record low of minus 0.39 per cent it hit last week.


Posted in Debt, Markets |

House Speaker Paul Ryan Warns of Budget, Guantanamo Confrontations With White House

17-Nov (WSJ) — New House Speaker Paul Ryan struck a confrontational stance with the Obama administration Tuesday, setting the stage for showdowns over domestic spending and national security matters as Congress works to wrap up business for the year.

Mr. Ryan, speaking at The Wall Street Journal CEO Council annual meeting, said a spending bill needed to avoid a government shutdown in December must include Republican policy measures, injecting fresh drama into the year’s final budget fight.

He also forcefully warned President Barack Obama against using executive action to close the detention center at Guantanamo Bay, Cuba, and transfer its detainees to the U.S.

The Wisconsin Republican didn’t explicitly suggest government operations could lapse when funding expires on Dec. 11, but he didn’t rule out such a possibility. He said Republicans will force Mr. Obama to accept some conservative provisions, known as “riders,” in the sweeping spending bill.


PG View: In the wake of the latest suspension of the debt ceiling, somebody needs to address spending and the mounting government debt. The omnibus spending bill will have to be passed by December 11 to avoid a government shutdown and it looks like t’s shaping up to be contentions. That deadline is less than a week before the next FOMC meeting.

Posted in Debt, Politics |

The never-ending story

First America, then Europe. Now the debt crisis has reached emerging markets

12-Nov (Economist) — IT IS close to ten years since America’s housing bubble burst. It is six since Greece’s insolvency sparked the euro crisis. Linking these episodes was a rapid build-up of debt, followed by a bust. A third instalment in the chronicles of debt is now unfolding. This time the setting is emerging markets. Investors have already dumped assets in the developing world, but the full agony of the slowdown still lies ahead.

Debt crises in poorer countries are nothing new. In some ways this one will be less dramatic than the defaults and broken currency pegs that marked crashes in the 1980s and 1990s. Today’s emerging markets, by and large, have more flexible exchange rates, bigger reserves and a smaller share of their debts in foreign currency. Nonetheless, the bust will hit growth harder than people now expect, weakening the world economy even as the Federal Reserve begins to raise interest rates.


PG View: Or given the threat, will the Fed fail to push the launch-button yet again?

Posted in Debt |

Debt in corporate America has quietly doubled since 2008

10-Nov (BusinessInsider) — US corporations have loaded up on a lot of debt since the financial crisis.

In fact, America’s corporations have doubled their total debt levels, according to a note Tuesday from analysts at Goldman Sachs.

The debt has been raised by American firms to fund mergers and acquisitions and to buy back their own shares.

And despite seven years of zero-interest rates and quantitative easing, interest payments have climbed by nearly 40% since 2008. The rate of interest paid, however, has fallen to around 4% from nearly 6% since 2009.


PG View: Load up on debt while rates are low. What could possibly go wrong?

I’d be willing to bet there are a bunch of CFOs getting a little twitchy over the prospect of a Fed tightening cycle . . .

Posted in Debt |

Fed Proves Irrelevant in $2.6 Trillion Slice of U.S. Debt Market

10-Nov (Bloomberg) — The blowout U.S. jobs report for October means the Federal Reserve may be weeks away from raising interest rates. For U.S. savers earning next to nothing on $2.6 trillion of money-market mutual funds, the move will barely register.

The reason is that there’s an unprecedented shortfall in the safest assets, especially Treasury bills — a mainstay of those funds and traditionally the government obligations that are most sensitive to changes in Fed policy. The shortage means some key money-market rates will probably remain near historic lows even if the central bank increases its benchmark from near zero next month.

As a share of U.S. government debt, the amount of bills is the lowest since at least 1996, at about 10 percent, and the Treasury is just beginning to ramp up issuance of the securities after slashing it amid the debt-ceiling impasse. Meanwhile, regulators’ efforts to curb risk after the financial crisis are stoking increased demand: Money-market industry rules set to take effect in October 2016 may lead investors and fund companies to shift as much as $650 billion into short-maturity government obligations, according to JPMorgan Chase & Co.

…While the U.S. government stands to benefit as the imbalance holds down borrowing costs, it’s proving the bane of savers. Average yields for the biggest money-market funds, which buy a sizable chunk of the $1.3 trillion Treasury bills market, haven’t topped 0.1 percent since 2010, according to Crane Data LLC. In 2007, they were above 5 percent before the Fed started slashing rates to support the economy.


PG View: Whether the Fed actually succeeded in supporting the economy by engaging in ZIRP and QE remains subject to debate. One thing that is not up for debate is the lambasting savers have taken as the yield on money market accounts tumbled from 5% to near-0%.

Take some of your savings out of they system and put it in physical gold!

Posted in Central Banks, Debt, Markets, Monetary Policy |

Debt ceiling lifted, and the same day, debt jumps $339B

03-Nov (Washington Examiner) — The U.S. national debt jumped $339 billion on Monday, the same day President Obama signed into law legislation suspending the debt ceiling.

That legislation allowed the government to borrow as much as it wants above the $18.1 trillion debt ceiling that had been in place.

The website that reports the exact tally of the debt said the U.S. government owed $18.153 trillion last Friday, and said that number surged to $18.492 on Monday.


PG View: The National Debt tweet for today shows that the debt has continued to rise as the week has progressed:

I suspect this is going to be a one-way street for some time to come.

And if you missed it, make sure you read MK’s post from this past weekend, where he notes the very distinct correlation between the national debt and the price of gold. That would suggest that the recent retreat into the lower reaches of the range are a real gift for those looking to accumulate some portfolio insurance.

Posted in Debt |

Obama signs 2-year budget, debt deal before default deadline

02-Nov (AP, via DenverPost) — President Barack Obama on Monday signed into law a bipartisan budget bill that avoids a catastrophic U.S. default and puts off the next round of fighting over federal spending and debt until after next year’s presidential and congressional elections.

Obama praised the rare bipartisan cooperation behind the deal, saying that 2-year agreement puts the government on a responsible path.

“It should finally free us from the cycle of shutdown threats and last-minute fixes and allows us to, therefore, plan for the future,” Obama said in brief remarks as he signed the bill.

Tuesday was the deadline for averting a default on U.S. financial obligations by raising the debt limit.

…The plan will lift caps on the appropriated spending passed by Congress each year by $50 billion in 2016 and $30 billion in 2017, evenly divided between defense and domestic programs. Another approximately $16 billion would come each year in the form of inflated war spending, evenly split between the Defense and State departments.


PG View: Let the ascent of the national debt resume. And be sure to take note of MK’s weekend post about the correlation between the national debt and the price of gold.

Posted in Debt |

BofA Looks At Europe’s Record €2.6 Trillion In Negative-Yielding Debt, Is Shocked At What It Finds

29=Oct (ZeroHedge) — Yesterday we reported on something that has never happened before in Europe: more than half of European sovereign issuers just saw the yield on their 2 Year Notes trade not only below zero, but hit never before seen negative yields.

As we further noted, this brought back memories of a post we did back in January when JPM was shocked to find that “in the aftermath of the ECB’s NIRP policy, and subsequently QE, an unprecedented €1.4 trillion in European debt with a maturity of more than 1 year traded down to subzero, as in negative, yields.”

Overnight BofA’s Barnaby Martin decided to break down the most recent total and found something staggering: that €1.4 trillion number is a long gone memory and has been replaced with a “negative-yielding wonderland.” To wit:

The easing bias of central banks in Europe over the last week has exacerbated the shortage of positive-yielding assets. Negative-yielding government debt in the Eurozone has jumped from €2tr to €2.6tr over the last week and now stands at a record high. The previous peak in negative-yielding government debt was €2.4tr, reached in April this year prior to the “Bundshock”.

This was the be expected, as now every single activist central-bank is exporting deflation with a passion. The result is that negative yields have led to even more… deflation.


PG View: One sure fire way to make the U.S. an even bigger target for all that exported deflation is to widen the policy divergence in December. Another reason why it won’t happen . . .

Posted in Debt, Deflation |

Obama’s radical proposal for Puerto Rico’s debt

28-Oct (Politico) — Puerto Rico’s debt crisis exploded into view at the end of June, when Governor Alejandro García Padilla revealed that the island’s fiscal situation was so bad it wouldn’t be able to repay the $73 billion it owed to bondholders.

The unexpected statement sent Congress scrambling for a solution, and since then, the debate has centered on whether Puerto Rico’s public corporations, like utilities—which hold a significant amount of its debt—should be allowed to declare chapter 9 bankruptcy, an option available in all 50 U.S. states, but not in Puerto Rico. Both Jeb Bush and Hillary Clinton have expressed support for the idea. In July Senators Richard Blumenthal (D-Conn.) and Chuck Schumer (D-N.Y.) introduced a chapter 9 law for Puerto Rico, and the Senate Finance Committee held a contentious hearing on the island’s finances in September.

This week the Obama administration weighed in with its own plan, and it’s considerably more radical.

In a 10-page document issued Wednesday night, it proposed allowing Puerto Rico itself to go through bankruptcy and restructure its bonds. This is an option no U.S. state enjoys.

“It would be unprecedented in the American context,” said Robert Shapiro, the former undersecretary of commerce for economic affairs. “We don’t have a provision for states going bankrupt.”

…Fortuño has been a strong voice in favor of giving chapter 9 protection to the island, but worries that this new proposal—so-called “super chapter 9”—goes too far. “It could be viewed as a precedent,” he said. “And the question a number of people would ask [is] if the territories can have a super chapter 9, why not Illinois or California?”


PG View: I was in Illinois for a wedding last weekend and was surprised by the number of people I spoke to that are considering fleeing the state. IF PR sets the precedent, I suspect Illinois would be the next state to seek protection under chapter 9.

Posted in Debt |

Republicans Reach Deal on U.S. Debt Ceiling Extension, Spending Plan

27-Oct (Bloomberg) — President Barack Obama and top lawmakers from both parties reached a tentative budget agreement that would avert a U.S. debt default and lower chances of a government shutdown, lessening years of political friction over fiscal policy in Washington.

The accord would extend U.S. borrowing authority until March 2017 — preventing a default as soon as next week — and include a two-year deal on spending levels. Details are to be worked out later, raising the prospect it will be punted to the next president. It was postedon the House website about midnight and will be discussed by lawmakers in both chambers during private meetings Tuesday morning.

“It is a good deal,” said House Rules Committee Chairman Pete Sessions, a Texas Republican. He said the budget plan would raise spending caps for defense and non-defense programs for two years, though it would keep discretionary spending below 2008 levels.

The agreement wouldn’t eliminate the chance of a government shutdown if lawmakers can’t resolve differences over spending priorities and policy riders by Dec. 11, when current funding expires. Still, “it really dramatically lowers the chances for a shutdown,” Representative Tom Cole, an Oklahoma Republican, told reporters.


PG View: You had to know that was coming . . .

Posted in Debt |

Regulator Raises Red Flag on Auto Lending

22-Oct (WSJ) — A top financial regulator warned of risks in the fast-expanding auto-lending sector, raising the prospect of fresh regulatory pressure in an area that has been a bright spot for banks.

While policy makers have generally declared the U.S. banking system recovered from the financial crisis, Comptroller of the Currency Thomas Curry raised a rare red flag, saying in a speech that some activity in auto loans “reminds me of what happened in mortgage-backed securities in the run-up to the crisis.”

“We will be looking at those institutions that have a significant auto-lending operation,” he told reporters after the speech. Many mortgage-backed securities thought to be safe turned sour during the financial crisis, leading to heavy losses across Wall Street.

The comments are likely to raise concerns in particular at firms like Wells Fargo & Co. and other national banks active in auto lending that are regulated by the comptroller’s office. Mr. Curry’s vow of closer scrutiny wouldn’t affect their competitors at lenders owned by large auto manufacturers.


Posted in Debt, Economy |

Treasury Won’t Let Investors Pay It to Keep Their Cash Safe

12-Oct (Bloomberg) — Investors are so eager to buy Treasury bills that they’re willing to pay the U.S. to hold their money — if only the government would let them.

Rates on one-month bills, which have sporadically traded below zero in the secondary market since 2008, have been negative for weeks amid a supply drought as the Treasury reduces sales to keep the U.S. under its debt limit. Yet Treasury rules don’t permit auctioning new debt at negative rates, a phenomenon seen elsewhere in the world at times of heightened demand that means investors pay the government to hold their cash.

The lowest auction rates can currently go is zero, as they did on Oct. 5 when the government sold three-month bills, or a day later when it issued four-week securities. Amid the latest Washington standoff over a U.S. debt-ceiling accord, the auction rules may be causing the Treasury to forgo some potential income, while giving investors lucky enough to get orders filled a chance to flip the securities for a quick profit.

“Treasury officials are more concerned about whether or not the government is going to be funded and if the debt ceiling is going to be lifted,” said Ward McCarthy, chief financial economist in New York at Jefferies Group LLC, one of the 22 primary dealers obligated to bid at the auctions. “The concept of U.S. citizens paying the government instead of earning interest on Treasury debt would be a real political headache.”

…The Treasury is likely to exhaust measures to stay under the debt ceiling on or about Nov. 5, Secretary Jacob J. Lew said in a letter to House Speaker John Boehner Oct. 1. At that point, the U.S. won’t be able to sell additional debt and may have less than $30 billion of cash. The Treasury’s daily expenditures are as high as $60 billion, he said.


PG View: The Fed is not really an “investor,” so they don’t care whether there’s a yield or not.

Posted in Debt |

Obama warns Congress to not mess with the debt ceiling

02-Oct (Politico) — President Barack Obama lectured Congress on Friday, providing lawmakers with a basic economic lesson when it comes to the debt ceiling, which the U.S. is fast approaching.

He said the ceiling was not about spending more, but rather paying bills we’ve already incurred.

He said raising the ceiling is “a way for the U.S. to maintain its good credibility.”

“If it gets messed with, it would have profound impact for the global economy and put our financial system in tailspin,” Obama said during a press conference on Friday.


PG View: Let’s not forget we’re about a month away from hitting the debt ceiling . . . again.

There has never been a debt a ceiling that wasn’t eventually surpassed. We really need to get spending under control.

Posted in Debt |

Brazil has debt rating cut to ‘junk’ status as problems mount

10-Sep (Guardian) — The Brazilian government’s sovereign debt rating has been cut to junk status by one of the major credit agencies, ratcheting up pressure on President Dilma Rousseff to find a way out of the country’s economic and political crisis.

Standard & Poor’s said in a note on Wednesday night that Brazil’s hard-fought investment-grade status was gone and that its outlook on the country was negative, just as the nation entered recession and was expected to see an even worse 2016.

That means it will be far more expensive for the Brazilian government to tap international credit markets and that much investor money, such as mutual funds that only plough money into investment-grade nations, will automatically be yanked out of the country.

S&P said that extreme political challenges for Rousseff “have continued to mount, weighing on the government’s ability” to shore up its finances as promised.


Posted in Debt |

The Central Bankers’ Malodorous War On Savers

28-Aug (ZeroHedge) — Well, that didn’t take long!

After just three days of market turmoil the monetary politburo swung into action. This time they sent out B-Dud to promise still another monetary sweetener. Said the head of the New York Fed,

“From my perspective, at this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago.”

Needless to say, “B-Dud” is a moniker implying extreme disrespect, and Bill Dudley deserves every bit of it. He is a crony capitalist fool and one of the Fed ring-leaders prosecuting a relentless, savage war on savers. Its only purpose is to keep carry trade speculators gorged with free funding in the money markets and to bloat the profits of Wall Street strip-mining operations, like that of his former employer, Goldman Sachs.

The fact is, any one who doesn’t imbibe in the Keynesian Kool-Aid dispensed by the central banking cartel can see in an instant that 80 months of ZIRP has done exactly nothing for the main street economy. Notwithtanding the Fed’s gussied-up theories about monetary “accommodation” and closing the “output gap” the litmus test is real simple.

…What these unspeakably dangerous fools argued was that cash should be abolished so that the central banks could get on with their job of stimulating “depressed” economies by setting interest at negative nominal rates.

In other words, it is apparently not enough that someone who saved $150,000 over a lifetime of work and foregone consumption should earn just $1 per day of interest on liquid savings deposits or treasury bills. No, the central bankers’ posse now wants to actually expropriate these savings by extracting a monthly levy, and by throwing anyone in jail who attempts to hide their wealth outside the controlled banking system by keeping it in private script or unconfiscated greenbacks.


Posted in Debt, Economy |

China Sells U.S. Treasuries to Support Yuan

27-Aug (Bloomberg) — China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter.

Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales, said another person. They didn’t reveal the size of the disposals.

The People’s Bank of China has been offloading dollars and buying yuan to support the exchange rate, a policy that’s contributed to a $315 billion drop in its foreign-exchange reserves over the last 12 months. The $3.65 trillion stockpile will fall by some $40 billion a month in the remainder of 2015 because of the intervention, according to the median estimate in a Bloomberg survey.

China selling Treasuries is “not a surprise, but possibly something which people haven’t fully priced in,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. “It would change the outlook on Treasuries quite a bit if you started to price in a fairly large liquidation of their reserves over the next six months or so as they manage the yuan to whatever level they have in mind.”

…“By selling Treasuries to defend the renminbi, they’re preventing Treasury yields from going lower despite the fact that we’ve seen a sharp drop in the stock market,” David Woo, head of global rates and currencies research at Bank of America Corp., said on Bloomberg Television on Wednesday. “China has a direct impact on global markets through U.S. rates.”


Posted in Central Banks, Currency Wars, Debt, Markets, Monetary Policy |

Treasury Yields Fall Below 2%

24-Aug (Wall Street Journal) — Yields on benchmark U.S. government bonds tumbled below 2% for the first time since April on Monday as a deepening turmoil in global stocks and crude-oil markets boosted demand for haven assets.

The flight for safety has been gathering speed over the past few weeks, underscoring growing anxiety over China’s slowing economy and its stock market rout, which has rippled through markets globally and clouded the global economic outlook.

The uncertainty over whether the Federal Reserve will raise interest rates next month or wait longer to act has contributed to growing volatility in riskier assets, driving many to shed their risk appetites and shift focus to preserve capital.

“This is a flight to quality and the actual level that the Treasury yield achieves in this environment is not meaningful,” said David Keeble, global head of fixed-income strategy at Crédit Agricole. “This is a time when you dig a deep hole, close your eyes and put your fingers in your ears.”


Posted in Debt, Markets |

Japanese Dump Most Treasuries in Two Years as Fed Liftoff Looms

10-Aug (Bloomberg) — Japanese dumped the most U.S. Treasuries in two years in June, as the Federal Reserve prepares to raise interest rates as soon as next month.

Investors also sold German bunds for a fourth month, and offloaded the most French sovereign debt on record in data going back to 2005, as low yields globally this year offered the smallest premium over Japanese government bonds since at least 1993. Swaps traders see 54 percent odds that the Fed will increase borrowing costs in September for the first time since 2006.

“Most Japanese are not bullish on the U.S. Treasury market, especially the short end,” which is more sensitive to monetary policy expectations, said Kazuyuki Takigawa, who manages about $6 billion of bonds as the chief fund investor for foreign fixed income at Resona Bank Ltd. in Tokyo. “German bunds are not attractive enough to lure investors from Japan because of the very low level of yields there.”


PG View: China is also dumping large amounts of Treasuries.

China Slashes U.S. Debt Stake by $180 Billion, Bonds Shrug

Posted in Debt, Markets |

Debt-plagued Puerto Rico defaults on a bond payment for the first time

04-Aug (Washington Post) — Debt-plagued Puerto Rico defaulted on a bond payment for the first time Monday, triggering what is likely to be a long battle with creditors as it seeks to restructure about $73 billion in loans.

The U.S. territory, whose governor has declared its debts “unpayable” and is seeking the largest restructuring ever in the country’s municipal bond market, paid just $628,000 of a $58 million payment owed by its Public Finance Corp. because the legislature didn’t provide enough money, according to the island’s Government Development Bank.

“Due to the lack of appropriated funds for this fiscal year the entirety of the PFC payment was not made today,” bank president Melba Acosta Febo said in a statement. “This was a decision that reflects the serious concerns about the commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico to ensure the essential services they deserve are maintained.”

The default marks an escalation of the financial crisis on the island, which has been caught in a nearly decade-long recession that has crimped government revenues and triggered an exodus to the U.S. mainland.


Posted in Debt |

Puerto Rico Lacks Cash for Aug. Bond Payment, Official Says

27-Jul (Bloomberg) — Puerto Rico currently lacks the funds needed to make a payment due next month on bonds sold by its Public Finance Corp., a government official said.

Victor Suarez, the chief of staff for Governor Alejandro Garcia Padilla, told reporters Monday in San Juan that whether the payment is made will depend on if the commonwealth has cash available. He didn’t say whether the island will be able to do so.

The payment will hinge on “the liquidity the government has to attend to each of its obligations,” he said. “The priority will always be to attend to the essential services to citizens, such as security, health care and education.”

Puerto Rico faces $58 million of interest and pricipal due Aug. 1 on the Public Finance Corp. bonds, according to Moody’s Investors Service. It may miss the payment because the legislature has failed to allocate the funds, which would be the first default by the commonwealth as it moves toward restructuring $72 billion of debt.


Posted in Debt |

Puerto Rico Misses First Debt Payment as Default Risk Rises

15-Jul (Bloomberg) — Puerto Rico said one of its agencies failed to transfer funds to a trustee to cover an Aug. 1 debt payment because the legislature didn’t appropriate the funds when it passed the budget last month.

It’s unclear whether the Public Finance Corp. will make the $36.3 million principal and interest payment on bonds maturing that day. If it doesn’t, that would mark the first time Puerto Rico has defaulted on a debt payment and would come as the commonwealth seeks to negotiate with creditors to restructure $72 billion of obligations.

“In accordance with the terms of these bonds, the transfer was not made due to the non-appropriation of funds,” Melba Acosta, president of the commonwealth’s Government Development Bank, said in an e-mailed statement.


Posted in Debt |

Germany suggests Greece issue IOUs domestically

15-Jul (AP, via YahooNews) — The German government is arguing that one possible way to help Greece meet its financial obligations in coming days, before a full bailout program is established, is for the country to issue IOUs for domestic needs.

Finance Ministry spokesman Martin Jaeger said Wednesday that “we have included this element in the discussion” among eurozone nations on how to keep Greece afloat while talks proceed on the details of a full bailout deal. The talks are expected to last weeks.

Jaeger says that IOUs are just one of “various conceivable approaches.”


Posted in Debt, European Debt Crisis |

Why the Average American May Be Worse Off Than Greece

09-Jul (Time) — The fate of debt-troubled Greece is now only days away from being decided. Greek Prime Minister Alexis Tsipras requested bailout funds on Wednesday, promising to submit reform proposals later this week. Either the country will agree to severe austerity measures in exchange for a reprieve from its lenders or will have to exit the eurozone and strike out on its own.

Whatever happens, the average American may be worse off than Greece. Here are three ways to look at it:

• Americans actually have more debt relative to income earned
• Greece’s debt can be wiped out, but not yours
• Greece can print money, but you can’t


PG View: Well, Greece can’t print money YET, but if they return to the drachma or some form of parallel currency, they will surely print with wild abandon.

While it is true that individual Americans can’t print currency (at least without attracting the attention of the Secret Service), the Fed can and will continue to expand the money supply in order to support our ever-growing debt load.

Posted in Debt, European Debt Crisis |

The Coming Liquidation

by Hugo Salinas Price
18-Jun (24hgold) — Total world debt has been calculated recently at $223 Trillion dollars. World debt has increased some 40% since the crisis of 2008-2009; as I recall, it was about $157 Trillion at that time. The $223 Trillion is actual debt, and does not include the potential debt lying in derivates of this debt, which is another humongous amount and would become debt should there be any default on the $223 Trillion world debt.

The $223 Trillion world debt is like a huge cloud up in the sky.

It is of vital importance for the world of finance, as it presently exists, that the $223 Trillion world debt continue up in the sky, and that it not be subject to liquidation.

Liquidation and payment are two different things.

Liquidation means that holders of debt seek to exchange the debt they hold, for cash.

The problem for the world’s central bankers is to keep the debt cloud up in the sky and avoid at all costs a deluge of liquidation. That is to say, there must be no movement to get rid of bonds in exchange for cash.

World debt will continue to be a massive cloud up in the sky, as long as investors wish to own bonds; since central banks drove down interest rates all over the world to absurdly low levels – even to negative interest rates – prices of previously issued bonds rose to equally absurd levels and thus created huge profits for those who owned those bonds.

World debt is not being paid down and has to grow, because the debt is being rolled-over, and rollovers include interest due. So the debt cloud has to get bigger.

…Interest rates will have to rise, sooner or later; central bankers tremble when they see the slightest sign that interest rates are ticking up. Obviously, the FED and ECB cannot even think of raising interest rates; they are trapped and wait in dread for the deluge of bond liquidation when the $223 Trillion debt cloud hanging over the world turns into a cloudburst.


PG View: This will not end as well.

Posted in Debt |

The Debt To GDP Ratio For The Entire World: 286%

by Michael T. Snyder
18-May ( — Did you know that there is more than $28,000 of debt for every man, woman and child on the entire planet? And since close to 3 billion of those people survive on less than 2 dollars a day, your share of that debt is going to be much larger than that. If we took everything that the global economy produced this year and everything that the global economy produced next year and used it to pay all of this debt, it still would not be enough. According to a recent report put out by the McKinsey Global Institute entitled “Debt and (not much) deleveraging“, the total amount of debt on our planet has grown from 142 trillion dollars at the end of 2007 to 199 trillion dollars today. This is the largest mountain of debt in the history of the world, and those numbers mean that we are in substantially worse condition than we were just prior to the last financial crisis.

When it comes to debt, a lot of fingers get pointed at the United States, and rightly so. Just prior to the last recession, the U.S. national debt was sitting at about 9 trillion dollars. Today, it has crossed the 18 trillion dollar mark. But of course the U.S. is not the only one that is guilty. In fact, the McKinsey Global Institute says that debt levels have grown in all major economies since 2007. The following is an excerpt from the report…

Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points (Exhibit 1). That poses new risks to financial stability and may undermine global economic growth.


PG View: This is no surprise, but incredibly disturbing nonetheless. The world basically clawed its way back to mediocre by going another $57 trillion into debt; ignoring the first rule of getting out of holes . . . stop digging. Since governments and policy makers won’t stop digging, it behooves you to take defensive measures to preserve your wealth, which should include buying physical gold.

Here’s a link to the McKinsey & Co. report: Debt and (not much) deleveraging

Posted in Debt |

Demand For Physical Gold Remains Strong And Global Debt Explodes

by David Levenstein
19-May (Gold-Eagle) — Last week, gold prices gained an impressive $37 an ounce of 3.1%. And, on Monday prices hit a three month high and were trading just above the $1225 an ounce level.

Gold prices hit their highest level since mid-February as the dollar’s decline increased investors’ appetite for the precious metal. Much of golds rise was attributed to disappointing U.S economic data including sluggish U.S. retail sales data.

There is a growing perception that the Federal Reserve is likely to hold off hiking interest rates until September or December to ensure the economy is strong enough to withstand an increase in borrowing costs, and this is supporting gold prices at the moment.

…According to the WGC’s report, global gold demand slipped marginally by 1% in Q1 to 1079.3 tons. Demand was down by a mere 11 tons this year compared with a year ago.

…In the meantime, demand for gold bars and coins in Europe increased by 16%. Much of this came from German investors who are reported to be purchasing at massive rates, with the demand for total gold bar and coins jumping 20% in the first quarter of 2015.

…Global debt is now in the region of $200 trillion. The McKinsey Global Institute recently published a report highlighting the bloated, unsustainable levels of debt that have been accumulated globally and the huge risks when interest rates begin to rise again.

McKinsey concluded that total global debt was $199 trillion and the little covered report was released in February – 3 months ago – meaning that the figure is likely over $200 trillion. With a global population of 7.3 billion this works out at over $27,200 of debt for every man, woman and child alive in the world today.

Almost 29% of that debt – $57 trillion – has been accumulated in the relative short period since the financial crisis erupted in 2007 – just 8 years.


Posted in Debt, Gold News, Gold Views |

Debt-Choked Puerto Rico at Fiscal Brink as Bond Buyers Pull Back

18-May The sobering news arrived in San Juan via telephone from Washington.

It was April 28, and U.S. Treasury Secretary Jacob J. Lew called to tell Puerto Rico officials they must confront one of the island’s gravest financial crises without a bailout. Saddled with $72 billion in debt, the commonwealth — a U.S. territory since the Spanish-American War — needs a “credible” plan, Lew said.

The Caribbean island is hurtling toward the fiscal brink. After years of borrowing to paper over deficits, and with $630 million due to investors on July 1, Puerto Rico may confront the unthinkable: a default. The prospect has set Wall Street on edge as bond yields surpass those of Argentina and Greece; about half of municipal mutual funds hold commonwealth debt.


Posted in Debt |

U.S. National Debt: $18,152,438,060,107.24

Posted in Debt |

Moody’s downgrades Chicago debt to ‘junk’ with negative outlook

12-May (CNBC) — Moody’s downgraded Chicago’s credit rating down to junk level “Ba1” from “Baa2.”

The announcement, which the ratings agency released Tuesday afternoon, cited a recent Illinois court ruling voiding state pension reforms. Moody’s said it saw a negative outlook for the city’s credit.

Following that May court decision, Moody’s said it believes that “the city’s options for curbing growth in its own unfunded pension liabilities have narrowed considerably.”

… The downgrade affected $8.9 billion of general obligation, sales, and motor fuel tax debt, according to Moody’s.

The firm said its downgrades could trigger up to $2.2 billion in accelerated payments on Chicago debt.


PG View: The ratings agencies have been warning Chicago about this for at least a decade. The Windy City’s death spiral just accelerated markedly.

Posted in Debt |