Category: Debt

Venezuela Goes Bust

WSJ/The Editorial Board/11-14-17

On Monday Caracas missed interest payments due on two government bonds and one bond issued by the state-owned oil monopoly known by its Spanish initials PdVSA. Venezuela owed creditors $280 million, which it couldn’t manage even after a 30-day grace period.

Venezuela is broke, which takes some doing. For much of the second half of the 20th century, a gusher of oil exports made dollars abundant in Venezuela and the country imported the finest of everything. There were rough patches in the 1980s and 1990s, but by 2001 Venezuela was the richest country in South America.

PG View: As the editorial board points out, any hope for restructuring Venezuela’s debts is very much dependent on the economy returning to growth. That is going to be very difficult if the government of President Maduro continues to cling to socialism.

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Posted in Debt, Economy |

Weekend Reading: It’s The Debt, Stupid Written

Real Investment Advice/Lance Roberts/11-10-17

Don’t be bamboozled by the idea that tax cuts and reforms will lead to sustained economic growth. There is simply NO evidence that such is the case over the long-term.

However, there is plenty of evidence to suggest that further costly reforms and run-away budgets will lead to an increase of the current national debt and the ongoing low-growth economy that has plagued the U.S. since the turn of the century.

In other words….“it’s the debt, stupid.”

You can’t solve a debt problem, by issuing more debt.
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Posted in Debt, Politics |

Venezuela’s Debt Problems Are About to Get Even Worse

Bloomberg/Christine Jenkins/11-08-17

Venezuela is set to fall even further behind on its debt.

With the national oil company already at risk of triggering default-insurance contracts because bondholders haven’t received a $1.1 billion principal payment that was due last week, the state electricity utility now faces the end of a 30-day grace period for $28 million in interest that it owes. To make matters worse, buffers for an additional $280 million of obligations from the government and Petroleos de Venezuela expire over the weekend.

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Posted in Debt |

Get Ready for a Washington Train Wreck in December

Bloomberg/Anna Edgerton/11-09-17

Republicans in Congress are so focused on passing a massive tax overhaul this year that they’re saying little publicly about another December deadline — the day the government would shut down if the GOP can’t reach a deal with Democrats on spending and other hot-button issues.

Current funding expires Dec. 8, and as hard as it is for Republicans and Democrats to agree on spending, they’ve made the situation worse by punting other difficult issues to December.

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Posted in Debt, Politics |

Republicans Release Tax Plan, Cutting Corporate and Middle-Class Taxes

NYT/Jim Tankersley, Thomas Kaplan & Alan Rappeport/11-02-17

Republican lawmakers unveiled the most sweeping rewrite of the tax code in decades, outlining a $1.51 trillion plan to cut taxes for corporations, reduce them for some middle-class families and tilt the United States closer, but not entirely, toward the kind of tax system long championed by businesses, according to talking points circulated on Thursday.

The House plan, released after weeks of internal debate, conflict and delay, is far from final and will ignite a legislative and lobbying fight as Democrats, business groups and other special interests tear into the text ahead of a Republican sprint to get the legislation passed and to President Trump’s desk by Christmas.

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Posted in Debt, Politics |

Americans have more debt than ever — and it’s creating an economic trap

BusinessInsider/Pedro Nicolaci da Costa/10-22-17

A scary little statistic is buried beneath the US economy’s apparent stability: Consumer-debt levels are now well above those seen before the Great Recession.

As of June, US households were more than half a trillion dollars deeper in debt than they were a year earlier, according to the latest figures from the Federal Reserve. Total household debt now totals $12.84 trillion — also, incidentally, about two-thirds of gross domestic product.

The proportion of overall debt that was delinquent in the second quarter was steady at 4.8%, but the New York Fed warned over transitions of credit-card balances into delinquency, which “ticked up notably.”

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Posted in Debt |

Senate narrowly passes 2018 budget, paving way for tax reform

The Hill/Jordain Carney & Niv Elis/10-19-17

Senate Republicans took the first step Thursday evening toward passing a tax plan and fulfilling a long-held campaign pledge.

Senators narrowly voted 51-49 to pass the fiscal 2018 budget after a grueling hours-long marathon on the Senate floor. Sen. Rand Paul (R-Ky.) joined with every Democrat and independent to vote against the bill.

…The budget would allow the Senate GOP’s tax plan to add up to $1.5 trillion to the deficit over a decade, a proposal that has raised concerns with fiscal hawks in the GOP. Its instructions call for the Senate Finance Committee to report a tax bill by Nov. 13.

PG View: There’s not much in the way of spending cuts in this budget, so there’s probably a whole lot more debt in our future.

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Posted in Debt, Politics |

Opinion: It would take a 50% hike in income tax to fund our deficit

MarketWatch/John Mauldin/10-10-17

The projected total U.S. debt will be $30 trillion within 10 years, using the Congressional Budget Office’s own numbers. But the CBO also makes the rosy assumptions that there will be no recessions and that gross domestic product will grow at a 4% nominal rate.

Now, that’s possible; I’m inclined to haircut it a bit.

If you asked me to bet the “over/under” on the debt in 2027, I would bet the over at $35 trillion.

PG View: Mauldin concludes that Social Security becomes “impossible” under such a debt load. My big concern would be the dollar. The only way to service a national debt of this scale would be to severely devalue the dollar and the way to protect against that is to buy gold.

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Posted in Debt |

ECB asks banks to set aside more cash for bad debt amid €1tn problem

The Guardian//10-04-17

The European Central Bank is attempting to put a lid on the near €1tn (£886bn) of bad debts stored in eurozone banks by asking lenders to be more prudent about the way they handle new customers falling behind on repayments.

…The ECB wants lenders to set aside 100% of the value of an unsecured loan within two years and gives lenders seven years to put aside the full amount of a secured loan, such as a mortgage.

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Posted in Debt |

RAY DALIO: US economy looks like 1937 and we need to be careful

Business Insider/Henry Blodget/09-23-17

Business Insider CEO Henry Blodget spoke with Bridgewater’s Ray Dalio about the current circumstances of the US economy.

In my opinion, the risks are asymmetric on the downside. In other words, if you tighten monetary policy, certainly by more than is discounted in the market — and what’s discounted in the market is very minor rising market — that will reverberate through asset class prices, as well as then you can have a situation in terms of the economy. So, what’s similar in that: interest rates are close to zero, not much room on the downside, obligations are large, there was a political division, there is more populism. Therefore there’s more conflict. And therefore we need to be very careful at this moment. — Ray Dalio
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Posted in Debt, Economy |

Gold’s fear trade intensifies on debt and equity risk


WGC/Frank Holmes/09-20-17

Global debt levels have reached unprecedented levels, pension deficits are rising and the US interest rate cycle is on the turn. Frank Holmes, chief executive of highly regarded investment management group US Global Investors, believes that investing in gold is a logical response to current, unnerving conditions.

“For centuries, investors and savers have depended on gold in times of economic and political strife, and its investment case right now is as compelling as it’s ever been.”
“Total global debt levels reached an astronomical US$217 trillion in the first quarter – that’s 327% of world GDP.”
“Gold’s investment case becomes even more compelling when we consider the US Federal Reserve’s next moves.”
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Posted in Debt, Gold News, Gold Price, Gold Views |

The amazing disgrace of our $20T national debt

NYPost/John Crudele/09-13-17

A disgraceful milestone was reached this week when US government debt busted through the $20 trillion level and quickly went over $20.1 trillion.

Can $21 trillion, or $25 trillion, be far ahead? Why not $40 trillion, so our grandkids and their grandkids can be even more indebted to the Chinese and other countries that buy our debt but aren’t very nice to us.

This isn’t the kind of milestone you celebrate or even want noticed. So you didn’t hear a peep about it from the White House or from Congress, which is responsible for our wanton spending.

PG View: This massive — and growing — debt is going to require that rates be kept extraordinarily low and the dollar weak. With the Fed seemingly destined to start selling assets into that market, there are going to be some opposing forces in play, which could lead to market volatility.

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Posted in Debt |

Toys R Us could file for bankruptcy as soon as this week, sources say

CNBC/Lauren Hirsch/09-18-17

Toys R Us could file for bankruptcy as soon as this week, according to sources familiar with the matter.

The sources noted that the bankruptcy plans are not definite, and both its plans to file and its timing could change.

…Addressing the retailer’s debt load prior to the crucial holiday season could give its major vendors such as Mattel and Hasbro clarity into the company’s long-term viability to help ensure the toymakers continue to stock its shelves throughout the holiday.

PG View: If you missed our special report on the death of brick-and-mortar retail and the broader implications, you can view it HERE.

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Posted in Debt, Markets |

The Golden Solution to America’s Debt Crisis

Daily Reckoning/James Rickards/09-15-17

Right now, the United States is officially $20 trillion in debt. Over half of that $20 trillion was added over the past decade.

And it looks like annual deficits will be at the trillion dollar level sooner than later when projected spending is factored in.

Basically, the United States is going broke.

…There’s only one solution left, inflation.

PG View: Despite massive and extraordinary efforts totaling in excess of $4 trillion, the Fed has failed to generate even 2% inflation. What does Rickards suggest? “The Fed can call a board meeting, vote on a new policy, walk outside and announce to the world that effective immediately, the price of gold is $5,000 per ounce,” says Rickards. Voila! Massive inflation.

“History shows that raising the dollar price of gold is the quickest way to cause general inflation. If the markets don’t do it, the government can. It works every time.” — James Rickards
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Posted in Debt, Gold News, Gold Price, Gold Views, U.S. Dollar |

US federal debt passes $20 trillion for first time

TheHill/Niv Elis/09-11-17

The U.S. federal government’s gross debt surpassed $20 trillion on Friday, according to a daily Treasury Department statement.

The debt jumped from $19.8 trillion to $20.1 trillion after Congress suspended the debt ceiling for three months, allowing the Treasury to borrow again on the open markets.

For months, it had been using off-book extraordinary measures to keep from defaulting. Since President Trump signed a bill including the debt-limit lift Friday, it was able to start unwinding those measures with regular borrowing and increase the debt.

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Posted in Debt, Politics |

Consumer Credit & The American Conundrum

Real Investment Advice/Lance Roberts/09-07-17

What to do? This is not as an innocuous question as one might think. For most American families, who have to balance their living standards to their income, they face this conundrum each and every month. Today, more than ever, the walk to the end of the driveway has become a dreaded thing as bills loom large in the dark crevices of the mailbox.

…The burden of debt that was accumulated during the credit boom can’t simply be disposed of. Many can’t sell their house because they can’t qualify to buy a new one and the cost to rent are now higher than current mortgage payments in many places. There is no ability to substantially increase disposable incomes because of deflationary wage pressures, and despite the mainstream spin on recent statistical economic improvements, the burdens on the average American family are increasing.

…Beginning in 2009, the gap between the real disposable incomes and the cost of living was no longer able to be filled by credit expansion. In other words, as opposed to prior 1980, the situation is quite different and a harbinger of potentially bigger problems ahead. The consumer is no longer turning to credit to leverage UP consumption – they are turning to credit to maintain their current living needs.

There are currently clear signs of stress emerging from credit. Commercial lending has taken a sharp dive as delinquencies have risen. These are signs of both a late stage economic expansion and a weakening environment.

PG View: This is a rather distressing assessment of the current situation and goes a long way toward explaining why growth remains anemic with little prospect for improvement.

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Posted in Debt, Economy |

Looming debt ceiling deadline pushing some U.S. fund managers to cash

Reuters/David Randall/09-01-17

A potential standoff over the U.S. federal debt ceiling is raising alarm bells among fund managers who fear a repeat of 2011 when a protracted showdown over increasing the government’s borrowing limit and subsequent downgrade of U.S. credit quality led to a more than 15 percent slump in the S&P 500 stock index.

U.S. investors are raising cash and buying protection, bracing for a messy fight ahead of the Treasury Department’s Sept. 29 deadline to raise the debt limit, a legal cap on how much the U.S. government is allowed to borrow.

Failure to increase the debt ceiling could lead to a recession and prompt the first significant sell-off of the Trump administration. The benchmark S&P 500 has not fallen by 5 percent or more in over a year, the longest streak without such a decline in more than 20 years.

PG View: Given the current trends in the dollar and gold, I’d opt for the latter as my preferred safe-haven . . .

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Posted in Debt, Politics |

Mnuchin says Harvey aid package could impact debt ceiling

MarketWatch/Robert Schroeder/08-31-17

Treasury Secretary Steven Mnuchin said Thursday that aid for Hurricane Harvey relief could impact the timing of the need to raise the debt ceiling. Mnuchin said Sept. 29 remains the date by which Congress should raise the borrowing limit, but added that Treasury’s spending will be affected in September by an aid package. “There could be some impact of a couple of days,” he said.

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Posted in Debt, Politics |

The Fed ponders the fractious politics of debt

FT/08-24-17

These days it is Ms Yellen who has more cause to fear political risk upsetting the bond markets. The US Congress has to raise the “debt ceiling” by late September to allow the government to continue financing itself. These occasions were bad enough when Mr Obama was president. The Republican Congress repeatedly used the threat of default to pursue its wrong-headed obsession with trying to cut spending.

Given Donald Trump’s eccentricity and his fraught relations with Mitch McConnell, the Senate leader, there is an even greater chance of chaos. Mr McConnell said this week there was “zero chance” that the debt ceiling would not be raised. But Mr Trump’s threat at his bombastic rally on Tuesday to close down the government if he did not win funding to build his Mexican wall sent shivers through debt and foreign exchange markets.

Given Donald Trump’s eccentricity and his fraught relations with Mitch McConnell, the Senate leader, there is an even greater chance of chaos…

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Posted in Central Banks, Debt, Monetary Policy |

The Lost Lesson of the Financial Crisis

Project Syndicate/Mohamed A. El-Erian/08-17-17

Ten years ago this month, the French bank BNP Paribas decided to limit investors’ access to the money they had deposited in three funds. It was the first loud signal of the financial stress that would, a year later, send the global economy into a tailspin. Yet the massive economic and financial dislocations that would come to a boil in late 2008 and continue through early 2009 – which brought the world to the brink of a devastating multi-year depression – took policymakers in advanced economies completely by surprise. They had clearly not paid enough attention to the lessons of crises in the emerging world.

Anyone who has experienced or studied developing-country financial crises will be painfully aware of their defining features. For starters, as the late Rüdiger Dornbusch argued, financial crises can take a long time to develop, but once they erupt, they tend to spread rapidly, widely, violently, and (seemingly) indiscriminately.

In this process of cascading failures, overall financial conditions quickly flip from feast to famine. Private credit factories that seemed indestructible are brought to their knees, and central banks and governments are confronted with tough, inherently uncertain policy choices. Moreover, policymakers also have to account for the risk of a “sudden stop” to economic activity, which can devastate employment, trade, and investment.

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Posted in Debt |

Household Debt At Record Level – Bigger Than China’s GDP


IRD/08-14-17

The economy continues to grow weaker despite all of the Fed, Wall St. and media propaganda to the contrary. The economy is growing weaker due to the deteriorating financial condition of the consumer, which is by far the biggest driver of GDP in the United States. The only way the policy-makers can avoid a systemic collapse is “helicopter” money printing, in which printed cash or digital currency credits is, in some manner, distributed to the populace.

The Fed reported that non-revolving consumer debt (not including mortgage debt) hit $2.6 trillion at the end of the first quarter. Student loans outstanding hit a record $1.44 trillion. Recall that at least 40% of this debt is in some form of delinquency, default or “approved” non-pay status. Auto loans hit a record $1.2 trillion. Of this, at the very least 30% is subprime. A meaningful portion of the auto debt is of such poor credit quality when it’s issued that it is not even rated. Credit card debt is now over $1 trillion dollars and at a record level. The average outstanding balance per capita is $9600 per card for those who don’t pay in full at the end of the month. Just counting the households with credit card debt balances, the average balance per household is $16,000. The average household auto loan balance for all households with a car loan is over $29,000.

The data shows a consumer that is buried in debt and will likely begin to default at an accelerating rate this year. In fact, I’d call these statistics an impending economic and financial disaster.

PG View: And they wonder why this has been the weakest recovery since the 1930s . . . IF the Fed resorts to money printing as the solution, gold is going to go through the roof.

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Posted in Debt, U.S. Dollar |

In Debt We Trust for U.S. Consumers With $12.7 Trillion Burden

Bloomberg/Vince Golle/08-10-17

After deleveraging in the aftermath of the last U.S. recession, Americans have once again taken on record debt loads that risk holding back the world’s largest economy.

Household debt outstanding — everything from mortgages to credit cards to car loans — reached $12.7 trillion in the first quarter, surpassing the previous peak in 2008 before the effects of the housing market collapse took its toll, Federal Reserve Bank of New York data show. To put the borrowing in perspective, it’s more than the size of China’s economy or almost four times that of Germany’s.

People are borrowing more not necessarily because they’re confident about their financial prospects. They’re doing it for necessities like education or transportation and, in many cases, just to get by.

PG View: We don’t really “trust” debt do we? It can certainly be a beneficial tool, but when it reaches $12.7 trillion, there is reason to be very concerned.

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Posted in Debt |

Treasury budget gap narrowed to -$42.9 bln in Jul, well inside expectations of -$76 bln, vs -$90.2 bln in Jun and -$113 bln a year ago.

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Posted in Debt |

Rogoff: Rising interest rates ‘threaten global economy’

BBCNews/08-09-17

Talking to the BBC’s World at One Mr Rogoff said that levels of personal and corporate debt had risen in the global economy.

This was while interest rates had been held at historic lows in many countries, to encourage investors to borrow and spend after the financial crisis.

“If something was to happen that pushes interest rates up, we could see a lot of soft spots – places where there is high debt – start to unravel,” Mr Rogoff said.

He also said that the economic policies of the White House were creating uncertainty, without naming specific policies.

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Posted in Debt |

Shutdown risk grows as both parties balk on debt ceiling hike

Washington Examiner/Susan Ferrechio/08-08-17

Both Democrats and Republicans in Congress are poised to stand in the way of lifting the nation’s borrowing limit next month, increasing the chances of real problems for House and Senate leaders as they try to increase the debt ceiling by an end-of-September deadline.

House and Senate conservatives have long insisted that debt ceiling increases be accompanied by spending reforms, and that hasn’t changed this year, even under a Republican president who is insisting on a “clean” debt ceiling increase.

…Potentially more troubling for the prospects of a debt ceiling increase, the largest group of conservatives, the Republican Study Committee, announced Tuesday it will also oppose a straight increase without spending cuts.

That means if a “clean” debt ceiling hike is to happen, it will need support from a majority of Democrats. But this year, that may not happen.

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Posted in Debt, Politics |

U.S. Credit-Card Debt Surpasses Record Set at Brink of Crisis

Bloomberg/Jennifer Surane/08-08-17

U.S. consumer credit-card debt just passed an ominous milestone, beating a record set just before the global financial system almost collapsed in 2008.

Outstanding card loans reached $1.02 trillion in June, data from the Federal Reserve show, as lenders including Citigroup Inc. and JPMorgan Chase & Co. compete to sign up cardholders who may carry balances — a relatively lucrative business in a prolonged period of low interest rates.

The bet is that this time it won’t end so badly. In 2008, a drop in home prices spiraled into a global financial meltdown, and after the jobless rate surged toward 10 percent, banks wrote off more than $100 billion in credit-card loans over the next two years.

PG View: I’m sure this time it will be different . . .

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Posted in Debt |

Bailout costs will be a burden for years

FT/Alan Smith & Stephen Foley/08-08-17

A decade after the credit crisis began, it will still be years before there is a final reckoning on the costs of the government bailouts of the financial sector that followed.

The International Monetary Fund took a snapshot of the costs of the bailouts in 2015, calculating the extra debt taken on by governments relative to the size of their economy. The fund also calculated how much had been recouped by that point two years ago.

…In one country — the United States — taxpayers were already up on the deal…

Elsewhere, governments such as Ireland and Greece are not likely to recover the full amounts and will be working through the costs, borne in the form of higher public debt, for years to come.

PG View: Another ongoing drain on growth . . .

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Posted in Debt |

ALBERT EDWARDS: The same problems that caused the financial crisis are back

BusinessInsider/Akin Oyedele/08-03-17

The savings rates in the US and the UK are dropping, and economists are trying to figure out what that means.

When the US government released its annual revisions to economic growth last week, it made sharp downward revisions to the personal saving rate. Savings as a share of disposable income was 4.9% last year, not 5.7% as earlier calculated, the Bureau of Economic Analysis said.

The update showed that incomes were less than previously reported, while consumption was higher.

Albert Edwards, a Societe Generale strategist and permabear, published the doomsday interpretation of this data in a note on Thursday. For Edwards, it’s the eve of the financial crisis all over again.

“Every day more evidence mounts that almost exactly the same debt excesses that caused The Global Financial Crisis (GFC) in 2008, are present today,” he said.

Slumping savings rates in the US and the UK were last seen in 2007, “just before the bursting debt bubble blew the global economy and financial system to smithereens.”

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Posted in Debt, Economy |

Congress faces urgent deadlines to fund government, avert debt default

USAToday/Erin Kelly/08-01-17

Congress will confront a potentially devastating financial crisis in September as lawmakers scramble to avert a government shutdown and prevent the nation from defaulting on its debt for the first time in history.

Treasury Secretary Steven Mnuchin has warned congressional leaders that the government will run out of money to pay its bills by Sept. 29 unless lawmakers vote to raise the debt limit.

Funding to keep the government open is set to expire two days later, on Oct. 1, unless Congress can agree on a spending deal during the approximately three weeks it will be in session in September.

“September is going to be a very difficult month. Obviously all of this is coming into play right away,” House Freedom Caucus Chairman Mark Meadows, R-N.C., told reporters before the House adjourned for its August recess.

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Posted in Debt |

Debt-ceiling talks between White House, Senate break up with no progress

Washington Post/Damian Paletta/08-01-17

Talks between the White House and the Senate’s top Republican and Democrat broke up Tuesday with no progress on raising the country’s debt ceiling, an impasse that threatens a financial crisis if left unresolved.

The Senate and House have 12 joint working days before Sept. 29, when the Treasury Department says it would no longer be able to pay all of the government’s bills unless Congress acts. A default would likely set off a major disruption to the world financial system, with a stock market crash and surging interest rates that could send the economy into a recession.

PG View: Congress ALWAYS raises the debt ceiling, but only after much hand-wringing and delay . . .

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Posted in Debt |