Category: Debt

US debt hits record $19 trillion

03-Feb (RT) — The United States federal debt has surpassed $19 trillion for the first time in history according to the Treasury Department. However, the real figure could exceed $65 trillion, according to a former US Comptroller General.

The official debt of $19 trillion represents almost $60,000 for every man, woman and child living in America today.

President Barack Obama took office with $10.8 trillion debt that has grown more than $8 trillion in seven years. And such a record tempo is likely to continue, according to the Congressional Budget Office, quoted by the Washington Times.

This equals an additional $70,000 in net federal borrowing for each of the 117,480,000 American households, according to Census Bureau estimates.

About $13.7 trillion makes up public debt, and the rest comes from government borrowing.

The US currently functions without a debt ceiling. Legislation in November suspended it through March 2017 so borrowing can continue without a limit until that time.

“You have to consider not just the public debt; you have to consider the debt we owe to the Social Security and Medicare trust funds, as well as the huge unfunded obligations for our social insurance programs. When you add all those numbers up, the number is over $65 trillion, rather than the lower numbers a lot of the economists want to talk about.” — David Walker, former Comptroller General of the United States [the director of the Government Accountability Office]

[source]

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Posted in Debt |

Treasury Yields Reach New Lows; 10-Year Back Below 2%

20-Jan (Barron’s) — As global markets tanked, Treasuries rallied Wednesday morning. The yield on the benchmark 10-year note fell to levels last seen in April, 2015, dropping to 1.953% as of 4:20 a.m. ET. The yield was at 1.98% at 7 a.m ., still about an 8 basis point drop from Tuesday’s close.

Michael Cartine, senior rates analyst with Thompson Reuters, summed up:

Ongoing uncertainty around the world is pushing the fixed income bid, whether it be from China’s slowdown, the cratering price of oil, uncertainty in the Middle East or anywhere else. And while markets quite likely will adjust to this relatively heightened level of uncertainty over time, it is hard to see where the policy response will come from in the short term which can provide more immediate relief. So, until markets adjust over time, it looks like the present volatility is here to stay, to the benefit of fixed income.

Futures on the Dow Jones industrial average pointed to a nearly 300 point decline at the open. Chinese stocks fell and Japan entered a bear market. U.S. crude was around $27.60, another 3% decline from Tuesday.

[source]

Posted in Debt, Markets |

A Year of Sovereign Defaults?

by Carmen Reinhart
31-Dec (ProjectSydicate) — Like so many other features of the global economy, debt accumulation and default tends to occur in cycles. Since 1800, the global economy has endured several such cycles, with the share of independent countries undergoing restructuring during any given year oscillating between zero and 50% (see figure). Whereas one- and two-decade lulls in defaults are not uncommon, each quiet spell has invariably been followed by a new wave of defaults.

The most recent default cycle includes the emerging-market debt crises of the 1980s and 1990s. Most countries resolved their external-debt problems by the mid-1990s, but a substantial share of countries in the lowest-income group remain in chronic arrears with their official creditors.

Like outright default or the restructuring of debts to official creditors, such arrears are often swept under the rug, possibly because they tend to involve low-income debtors and relatively small dollar amounts. But that does not negate their eventual capacity to help spur a new round of crises, when sovereigns who never quite got a handle on their debts are, say, met with unfavorable global conditions.

As 2016 begins, there are clear signs of serious debt/default squalls on the horizon. We can already see the first white-capped waves.

[source]

Posted in Debt |

Here’s why the Fed must keep inflating the credit bubble

30-Dec (BusinessInsider) — We try to spend this quiet time between Christmas and New Year’s Day thinking more deeply, so let’s begin with an uncomfortable thought: Maybe we’re wrong.

Yes, but about what?

The money created post-1971 has a serious flaw: Unlike the gold-backed money that existed before then, this new money lacks natural limits.

The banks that control it can create almost as much as they want. The only constraints are imposed by banking regulators and the central bank – the Fed.

Bankers, being human, are prone to error… especially when it puts money in their own pockets.

They make profits by lending money out of thin air. The new system, as it evolved, allowed them to lend more than ever… including trillions of dollars that no one earned. And no one saved.

That’s why they no longer give out toaster ovens to people who open new accounts. They don’t care so much about depositors.

What they want are borrowers… and the entire industry has put its shoulder to the task of inventing ways to lend fictitious money to people who can’t pay it back.

Result?

About 45 times more debt today than when the new money system began.

And this huge buildup of debt has funded much of the world that we know today…

…the “financialization” of the U.S. economy.

…the rise of the “Deep State.”

…the fast development of China and $10 trillion of U.S. trade deficits. The run-up of the Dow from under 1,000 in 1982 to over 17,000 today. The loss of U.S. manufacturing… the decline of the middle class… and the enrichment of Wall Street.

All these things are consequences of a credit boom, made possible by the post-1971 “paper”-dollar monetary system.
Forever Blowing Bubbles

Good?

Bad?

We don’t know.

But our hypothesis is that, to continue living in the style to which we’ve become accustomed, this credit bubble has to expand further.

[source]

PG View: And that’s a pretty scary hypothesis, because at some point the whole thing comes crashing down on itself under the weight of that debt load. The experience of Japan suggests the economy can limp along for an extended period, but where Japan differs is that they’re a net exporter. We are a net importer and one has to wonder at what point the countries we import from will realize that the risks are just too great and refuse to extend us any more credit.

Posted in Debt, Economy |

Saudi Arabia unveils record deficit as it succumbs to oil price rout

28-Dec (Telegraph) — A brutal sell-off in oil prices has forced Saudi Arabia’s government to deliver the largest budget deficit in its history, as the state’s revenues have crumbled.

The country’s deficit rose to 367bn riyals (£66bn), after government spending rose 13pc above officials’ plans in the wake of declining oil prices and a war with Yemen. A Saudi official said that the deficit was “considered an acceptable figure” under the circumstances.

…The Saudi government has planned to narrow the deficit to 327bn riyals in 2016, by cutting back spending from 975bn riyals to 840bn riyals. The state has had to resort to tapping its foreign reserves and borrowing from debt markets to finance running costs this year, as it also adopted “some procedures” to cut back spending.

[source]

Posted in Debt |

Budget Deal Raises Spending, and the Deficit, Through Tax Breaks

16-Dec (NYT) — Congressional negotiators introduced a sweeping year-end spending and tax-break package early Wednesday that busts through previously agreed budget limits with $66 billion in new spending for 2016 and that makes permanent an array of tax benefits at a cost of adding more than a half-trillion dollars to the deficit.

The $1.1 trillion spending measure includes a provision to end the 40-year ban on exports of crude oil from the United States — a major priority of Republicans — and also provides a large increase in funds for medical research at the National Institutes of Health. It also reauthorizes and expands federal aid for emergency workers suffering from health ailments related to the Sept. 11 terrorist attacks in New York City.

[source]

PG View: More spending AND tax cuts? That ought to make everyone happy and keep the debt clock spinning at breakneck pace . . .

Posted in Debt |

Tighter policy will mean lower bond yields

09-Dec (FT) — Time for something different?

A US Federal Reserve tightening this month is now widely anticipated, but we are already looking beyond that. What if the first hike — and any subsequent ones — don’t stick? Why does consensus thinking expect a conventional outcome from unconventional policy? Some scenarios could see the Fed pause or even reverse course, as many other central banks have been forced to do since the financial crisis.

We are forecasting lower US and G4 bond yields, when most other analysts are forecasting higher ones, because we think there is now likely to be a non-conventional tightening of monetary policy to match the unconventional loosening of recent years. Almost by definition, history can be no guide to the future here.

In any case, flatter yield curves reflecting declining inflation expectations and weaker forward-looking data suggest the policy measures already implemented are not working.

[source]

Posted in Central Banks, Debt, Monetary Policy |

Puerto Rico has begun to default, governor says; status of payment unclear

01-Dec (Reuters) – Puerto Rico has begun to default on its debt in order to pay top-priority borrowings backed by its constitution and protect the commonwealth’s people, Governor Alejandro Garcia Padilla said on Tuesday, but the status of a Dec. 1 payment remained unclear.

There had been speculation that the U.S. territory would default on all or part of its $355 million notes issued by its financing arm, the Government Development Bank, and due Dec. 1. A default could trigger lawsuits, further spook investors and undermine the island’s efforts to climb out of $72 billion in debt.

[source]

Posted in Debt |

Global defaults climb to 6-year peak of $95bn

01-Dec (FT) — Companies have defaulted on $95bn worth of debt so far this year, with 2015 set to finish with the highest number of worldwide defaults since 2009, according to Standard & Poor’s.

The figures are the latest sign financial stress is beginning to rise for corporate borrowers, led by US oil and gas companies. The rising tide of defaults comes as investors reassess their exposure to companies that borrowed heavily in recent years against the backdrop of central bank policy suppressing interest rates.

Without a rebound in oil and commodity prices, and with the Federal Reserve seen lifting its policy rate for the first time in nine years, strategists predict a further rise in corporate defaults for 2016.

[source]

Posted in Debt |

US credit tightens ahead of Federal Reserve policy shift

yellen
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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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?”

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.

[source]

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.”

[source]

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.”

[source]

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.”

[source]

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.

[source]

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.

[source]

Posted in Debt |