Category: 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 |

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.

[source]

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.”

[source]

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

[source]

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.

[source]

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 (Investing.com) — 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.

[source]

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.

[source]

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.

[source]

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.

[source]

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 |

Abe adviser fears BOJ has den of conspirators opposing reflation

27-Apr (Bloomberg, via JapanTimes) — The Bank of Japan appears to be wavering in its commitment to unprecedented monetary easing, said Kozo Yamamoto, an adviser to Prime Minister Shinzo Abe and an advocate of reflationary policies.

“I’m worried the BOJ’s attitude is wavering,” Yamamoto said in an interview in Tokyo on Friday. “I wonder if Kuroda is being affected by fukumaden,” he said, which translated means “a den of conspirators.”

Yamamoto made the remarks after Gov. Haruhiko Kuroda signaled confidence that consumer price gains remain on track for a 2 percent target, even as inflation ground to a halt by the bank’s key gauge. The Abe administration is pursuing a strategy of shock therapy to revive the world’s third-biggest economy with steps including record purchases of government debt by the central bank.

Abe’s government and the BOJ agreed in January 2013 to set a 2 percent inflation target. Kuroda took over in March that year and unleashed unprecedented monetary easing the following month. The inflation target is not laid out in the current BOJ law.

[source]

PG View: For 20-years Japan has been ringing up the debt and printing yen with abandon, but rather than blaming the bad policy, let’s get paranoid and blame a ‘den of conspirators’.

Posted in Central Banks, Currency Wars, Debt, Deflation, Monetary Policy, QE |

Fitch drops ratings on Japanese debt as the country attempts to rein in debt and spur growth

27-Apr (AP, via USNews) — Fitch Ratings has lowered Japan’s credit rating as the country continues to wrestle with staggering debt.

Fitch said Monday that the government did not include sufficient measures in its budget to replace a sales tax hike it put off in the current fiscal year, which ends next March.

Japan’s debt is the largest among developed nations and more than twice the size of its economy. The country eventually has to boost taxes to cover rising costs for health and elder care as the average age in the nation rises. But a sales tax increase last spring hurt consumer and business spending as the Japanese economy slipped into a recession.

That led Prime Minister Shinzo Abe to put off a second, planned hike, illustrating the tough position in which government leaders have found themselves.

Fitch said Monday that Japan’s main credit and rating weakness is due to its high and rising level of government debt. The ratings agency noted that the government has already cut corporate tax rates and plans to do so again in fiscal 2016.

[source]

Posted in Debt |

Puerto Rico officials warn government shutdown imminent

22-Apr (Reuters) – Puerto Rico’s top finance officials said the government of the U.S. territory will likely shutdown in three months because of a looming liquidity crisis and warned of a devastating impact on the island’s economy.

In a letter to leading lawmakers, including Governor Alejandro Padilla, the officials said a financing deal that could potentially salvage the government’s finances currently looked unlikely to succeed. It warned of laying off government employees and reducing public services

“A government shutdown is very probable in the next three months due to the absence of liquidity to operate,” the officials said. “The likelihood of completing a market transaction to finance the government’s operations and keep the government open is currently remote.”

[source]

Posted in Debt |

Greece ‘in a corner’ as Europe blocks payment

26-Mar (CNBC) — Greece’s last-ditch attempt to get desperately-needed funds from its euro zone neighbors failed on Wednesday, but the country appears eternally optimistic that a list of reforms — as yet to materialize — will unlock vital aid.

Greece appealed for the European Financial Stability Facility (EFSF) to return 1.2 billion euros ($1.32 billion) it said it had overpaid when it transferred bonds intended for bank recapitalization back to the fund this month, Reuters reported Wednesday.

However, euro zone officials ruled that Greece was not legally entitled to the money, the news wire said.

[source]

Posted in Debt, European Debt Crisis |

ECB Prepares For Grexit, Anticipates 95% Loss On Greek Debt

18-Mar (ZeroHedge) — Dear Greek readers: the writing is now on the wall, and it is in very clear 48-point, double bold, and underlined font: when the ECB “leaks” that it is modelling a Grexit, something Draghi lied about over and over in 2012 and directly in our face too, take it seriously, because it is time to start planning about what happens on “the day after.” And incidentally to all those curious what the fair value of peripheral European bonds is excluding ECB backstops, the ECB has a handy back of the envelope calculation: a 95% loss.

Which also is the punchline, because while the ECB is making it very clear what happens next in the case of a “Graccident”, it has yet to provide an explanation how it will resolve the billions of Greek debt held on its own balance sheet which are about to be “marked-to-default”…

[source]

Posted in Debt, European Debt Crisis |

IMF Considers Greece Its Most Unhelpful Client Ever

18-Feb (Bloomberg) — International Monetary Fund officials told their euro-area colleagues that Greece is the most unhelpful country the organization has dealt with in its 70-year history, according to two people familiar with the talks.

In a short and bad-tempered conference call on Tuesday, officials from the IMF, the European Central Bank and the European Commission complained that Greek officials aren’t adhering to a bailout extension deal reached in February or cooperating with creditors, said the people, who asked not to be identified because the call was private.

…Concern is growing among officials that the recalcitrance of Prime Minister Alexis Tsipras’s government may end up forcing Greece out of the euro, as the cash-strapped country refuses to take the action needed to trigger more financial support. Tsipras is pinning his hopes for a breakthrough on a meeting with ECB President Mario Draghi, German Chancellor Angela Merkel, French President Francois Hollande and European Commission head Jean-Claude Juncker this week in Brussels.

[source]

Posted in Debt, European Debt Crisis |

Tsipras Strikes Defiant Tone Ahead of Meeting With EU Leaders

18-Mar (Bloomberg) — Greek Prime Minister Alexis Tsipras struck a defiant tone as he prepared for meetings in Brussels with European leaders to discuss the cash-strapped country’s bailout.

“People have asked us to put an end to austerity and bailout agreements, to begin the process of reclaiming the dignity of the nation,” Tsipras said today in a speech to parliament. “Elected officials will negotiate with elected officials and technocrats will deal with technocrats.”

Tsipras is seeking a political deal at a European Union summit starting Thursday to unlock funds from the country’s 240 billion-euro ($254 billion) bailout package. Concern is growing among officials that the recalcitrance of his government may end up forcing Greece out of the euro, as the country refuses to take the action needed to trigger more financial support.

…“We will not back down from what we promised, and what society and economy need, in order to breathe,” Tsipras said Wednesday, adding that his government expected the “liquidity pressure.”

[source]

PG View: I keep hearing nobody really wants Greece out of the eurozone, but it sure doesn’t seem like negotiations are bringing either side closer to a deal. Today it was also reported that the ECB had run models on the debt impact of a Grexit.

Posted in Debt, European Debt Crisis |

Meet the new debt ceiling: $18,113,000,000,000

17-Mar (CNNMoney) — The suspense — or rather, the suspension — is over. The U.S. debt ceiling has been reset at $18.113 trillion, the Treasury Department said Tuesday.

That new limit on public debt is about $1 trillion above where it stood in February 2014, when lawmakers decided to “suspend” the ceiling through this past weekend.

That cool trillion reflects how much the Treasury Department has borrowed during the suspension to pay the country’s bills.

For lawmakers, a debt ceiling suspension is like a game of pretend. As in “We don’t want to publicly vote for an actual increase to cover all the spending we’ve already approved. So let’s pretend the debt ceiling doesn’t exist for awhile.”

The game isn’t quite over yet, either.

Yes, the suspension has ended and the country’s outstanding debt is now at its limit. But Treasury still needs to borrow.

[source]

Posted in Debt |

Greece has destroyed all the trust that was rebuilt, Germany’s Schaeuble says

16-Mar (Reuters) – German Finance Minister Wolfgang Schaeuble said on Monday that the new Greek government destroyed all the trust that had been rebuilt in the past.

Speaking at a panel in Berlin, Schaeuble also said that he did not expect Athens to keep its election promise to introduce higher taxes on ship owners. “Even a radical leftist government won’t keep that promise,” the conservative minister said.

Schaeuble reiterated his view that the reason for Greece’s debt problems was that the country lived far beyond its means in the past.

[source]

PG View: Seems like Germany is not so keen on the idea of working with Greece to resolve their issues.

Posted in all posts, Debt, European Debt Crisis |

It’s Back: Your Guide to the $18 Trillion Debt Ceiling

13-Mar (Bloomberg) — The cap on U.S. government borrowing kicks back into action Monday after Congress temporarily suspended it last year. The reinstatement means lawmakers in coming months must either lift or re-suspend the ceiling on the nation’s debt, which exceeds the size of the economy and which, divided among the world’s population, would make every person on the planet $2,500 poorer.

Partisan showdowns have become the norm for debt limit debates as congressional Republicans call for spending cuts and President Barack Obama refuses to sign legislation with strings attached. Whether this year’s negotiations bring renewed turmoil is important, for these reasons. . .

[source]

Posted in Budget/Debt Ceiling Crisis, Debt |

Roubini: Massive Contagion If Greece Leaves the Euro

13-Mar (Bloomberg) — In an exclusive interview, Roubini Global Economics Co-Founder Nouriel Roubini discusses what a Greek exit from the euro would look like.

[video]

PG View: Roubini does not think Grexit is likely, because if it happens it could be devastating and even the Germans know that.

Posted in Debt, European Debt Crisis |

The German government is discussing whether Greece should be cut from Europe like an ‘amputated leg’

13-Mar (BusinessInsider) — Even without the heat of official negotiations, relations between Athens and Berlin are getting more sour by the day. The latest example comes from Wolfgang Schaeuble, Germany’s finance minister.

When pressed by Austrian reporters on whether there could be a “Grexident” — an accidental series of events that could lead to Greece’s leaving the euro — Schaeuble said Greece’s future would be determined by Greek authorities “and since we do not know exactly what the authorities in Greece will do, we can not rule it out.”

Other German government officials are discussing whether Greece might be “amputated” from Europe like a “gangrenous limb,” according to the Financial Times. Greece’s official position is that it will stay in the euro, so Athens most likely will not appreciate the intervention.

[source]

Posted in Debt, European Debt Crisis |

Creditors Reject Greece’s Reform Proposals

09-Mar (Bloomberg) — Greece’s provisional agreement with creditors to avert a default started to crack as European officials said the country’s latest proposals fell far short of what was put forward two weeks ago and Greek ministers floated the prospect of a referendum if their reforms are rejected.

The measures Greece’s government sent to euro-region finance ministers last Friday, including the idea of hiring non-professional tax collectors, is “far” from complete and the country probably won’t receive an aid disbursement this month, Eurogroup Chairman Jeroen Dijsselbloem said on Sunday.

“We definitely still have an immense path ahead of us,” German Chancellor Angela Merkel said during a televised news conference in Tokyo. “We obviously have the political goal to keep Greece in the euro area. But at the same time, there always are two sides to the coin: the solidarity of European partners on the one hand and the readiness to carry out reforms and commitments in one’s own country on the other.”

[source]

PG View: Perhaps the kicked can didn’t go as far as expected…

Posted in Debt, European Debt Crisis |

Japan Public Debt is Keeping BNP’s Chief Credit Analyst Awake at Night

03-Mar (Bloomberg) — For most of her career, Mana Nakazora has taken a pre-dawn train to work regardless of whether she arrived home just hours earlier.

Her colleagues describe BNP Paribas SA’s Tokyo head of investment research as a powerhouse, and she was Japan’s No. 1 bond picker from 2010 to 2012 and No. 2 for the last two years in Nikkei Veritas newspaper polls. Even now, investors thank her for warning against getting into Lehman Brothers Holdings Inc. before the investment bank collapsed in September 2008.

“She’s frank and she says things that are difficult to say,” said Keisuke Tsumoto, the head of fixed income for Japan at Manulife Financial Corp.’s asset management unit in Tokyo, which manages money for Japan’s Government Pension Investment Fund. “What she can’t write down, she lets us know verbally.”

One thing keeping her up — analysis of Japan’s public debt, which is expected to climb to 1.06 quadrillion yen ($8.85 trillion) at the end of March. With a population that’s been shrinking for the past six years and annual debt servicing costs that are bigger than New Zealand’s gross domestic product, the world’s third-largest economy is quite simply running out of people who can pick up the tab.

[source]

PG View: Given the soaring debt burden and the realities of their demographic problem, I’m surprised anyone in Japan can sleep at night.

Posted in Debt |

CBO: Debt limit will have to be increased by October or November

03-Feb (Politico) — Lawmakers will have to raise the government’s borrowing authority in October or November, the Congressional Budget Office warned Tuesday.

The administration will have to begin using the accounting maneuvers known as the “extraordinary measures” later this month to stave off default, the nonpartisan budget agency said. That’s because the last debt limit hike, approved by Congress in February 2014, suspended the borrowing cap through March 15, 2015.

After that, if, as is likely, Congress does not immediately lift the debt limit, Treasury will have to begin shuffling money around in order to avoid slamming into the debt ceiling.

It will likely run out of those maneuvers as well as cash by October or November, CBO said, though the exact timing is still uncertain.

[source]

Posted in Debt |

The Negative Way to Growth?

by Nouriel Roubini
28-Feb (ProSyn) – Monetary policy has become increasingly unconventional in the last six years, with central banks implementing zero-interest-rate policies, quantitative easing, credit easing, forward guidance, and unlimited exchange-rate intervention. But now we have come to the most unconventional policy tool of them all: negative nominal interest rates.

Such rates currently prevail in the eurozone, Switzerland, Denmark, and Sweden. And it is not just short-term policy rates that are now negative in nominal terms: about $3 trillion of assets in Europe and Japan, at maturities as long as ten years (in the case of Swiss government bonds), now have negative interest rates.

At first blush, this seems absurd: Why would anyone want to lend money for a negative nominal return when they could simply hold on to the cash and at least not lose in nominal terms?

…Over time, of course, negative nominal and real returns may lead savers to save less and spend more. And that is precisely the goal of negative interest rates: In a world where supply outstrips demand and too much saving chases too few productive investments, the equilibrium interest rate is low, if not negative. Indeed, if the advanced economies were to suffer from secular stagnation, a world with negative interest rates on both short- and long-term bonds could become the new normal.

[source]

Posted in Central Banks, Debt, Monetary Policy |

Greece in talks for third bailout of up to €50bn, Spain says

02-Mar (Financial Times) — Negotiations have begun on a third bailout package for Greece worth between €30bn and €50bn, the Spanish economy minister said on Monday.

“We are negotiating a third rescue for Greece,” Luis de Guindos told a conference in Pamplona. The minister added that the Spanish government, which has been locked in an escalating war of words with Athens in recent days, would contribute 13-14 per cent of the new bailout. The new accord would provide for “flexibility” and would include new conditions for Greece.

…It has long been expected that Greece would have to seek yet another bailout to cover its financing needs. But Mr de Guindos is the first European minister to declare publicly that negotiations had begun, and to specify the amount of money at stake.

[source]

PG View: Use bailout 2 to pay down bailout 1. Use bailout 3 to pay down bailouts 1 and 2. Where does it end?

Posted in Debt, European Debt Crisis |

Germany is LITERALLY getting paid to borrow money

27-Feb (WashingtonPost) — Germany’s balanced budget couldn’t be more fiscally irresponsible.

It’s not just that Germany has gotten into the black by scrimping on repairs today that might end up costing it more tomorrow. It’s that Germany’s being so tight-fisted at the least opportune moment possible. It’s never going to have lower borrowing costs, so it might as well spend the money now that it’s eventually going to have to on upkeep and upgrading its infrastructure. In fact, it’s even worse than that. Germany is actually losing money by not borrowing money. That’s because it’s getting paid to borrow right now: for the first time, it just sold a 5-year bond at a negative interest rate.

[source]

PG View: Germany recently sold 5-year bunds at a -0.085 interest rate. German debt is certainly considered to be a low risk investment, because of the government’s fiscal prudence. However, the notion that there is less than no risk is nonsense. That is the direct result of activist central banks distorting the pricing of risk. This is not a healthy market.

Posted in Central Banks, Debt, Monetary Policy |

Greece Warns It May Default On IMF Loan As Soon As Next Week

26-Feb (ZeroHedge) — Now that the Greek tragicomedy of the new government “threatening” to leave the Eurozone if it doesn’t get its way, has been postponed for a few weeks, if not months, we can go back to the biggest story involving Greece, one we first covered in October of 2014, when we said that Greece needs about €43 billion through the end of 2015 to cover its funding needs. Earlier today, the broader market finally woke up to precisely this problem for Greece, when MarketNews reported that Greek creditors are now contemplating a third bailout which could be as large as €30 billion.

Of course, the only “use of proceeds” of this bailout would be to cover prior financing obligations: maturities and interest on pre-existing debt. None would actually go to the Greeks themselves; however a third bailout would certainly come with even more draconian conditions and terms that would make the current Greek “austerity” measures seem like a walk in the park.

So now that the Greek topic is back to overall debt sustainability, a few hours ago Greece Kathimerini reported that the Euro Working Group “discussed Greece’s imminent funding problems on Thursday amid mounting concern about how the country will meet its obligations next months.”

This follows a suggestion earlier in the day by the Greek Minister of State for Coordinating Government Operations Alekos Flambouraris that “Greece might delay payment to the International Monetary Fund if it cannot find the necessary money.”

According to Kathimerini calculations, Greece is due to pay the IMF 1.6 billion euros next month but Flambouraris said that Athens might ask to delay this payment for two months.

[source]

PG View: The 4-month kick-of-the-can may not even buy 4-months. It certainly solves nothing.

Posted in Debt, European Debt Crisis |

Greece’s Challenge: Appeasing Its Creditors and Its Population

27-Feb (Wall Street Journal) — Greece and the rest of the eurozone spent February fighting about the procedure for keeping the country afloat. They will spend the spring haggling over a tougher issue: Which economic policies can appease both Greece’s creditors and its population?
Analysis

This week’s agreement to carry on talking was hard enough to achieve. The next deal will be far harder because the airy communiqués that preserved a consensus so far must be turned into meaty policy decisions.

Part of the mistrust between Greece and its German-led creditors stems from an ideological rift over what has gone wrong in the small, distressed country over the past five years.

Berlin blames the economic collapse that followed Greece’s 2010 bailout on the fiscal and other sins that predated it. Greece’s new government blames the bailout for turning a financial crisis into a full-blown depression. Opposite policy prescriptions follow from these clashing interpretations.

Finding common ground will be the key to keeping Greece in the euro. The search must survive three stages, if Greece’s new drama isn’t to end in the drachma.

[source]

Posted in Debt, European Debt Crisis |