Category: Debt

US faces ‘disastrous’ $3.4tn pension funding hole

12-Apr (FT) — The US public pension system has developed a $3.4tn funding hole that will pile pressure on cities and states to cut spending or raise taxes to avoid Detroit-style bankruptcies.

According to academic research shared exclusively with FTfm, the collective funding shortfall of US public pension funds is three times larger than official figures showed, and is getting bigger.

Devin Nunes, a US Republican congressman, said: “It has been clear for years that many cities and states are critically underfunding their pension programmes and hiding the fiscal holes with accounting tricks.”

Mr Nunes, who put forward a bill to the House of Representatives last month to overhaul how public pension plans report their figures, added: “When these pension funds go insolvent, they will create problems so disastrous that the fund officials assume the federal government will have to bail them out.”

[source]

PG View: $3.4 trillion?! That’s nearly 20% of our entire GDP! There will be an uproar of epic proportion if folks without a pension are forced to pay for the pensions of other people.

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Posted in Debt |

Olivier Blanchard eyes ugly ‘end game’ for Japan on debt spiral

by Ambrose Evans-Pritchard
11-Apr (Telegraph) — Japan is heading for a full-blown solvency crisis as the country runs out of local investors and may ultimately be forced to inflate away its debt in a desperate end-game, one of the world’s most influential economists has warned.

Olivier Blanchard, former chief economist at the International Monetary Fund, said zero interest rates have disguised the underlying danger posed by Japan’s public debt, likely to reach 250pc of GDP this year and spiralling upwards on an unsustainable trajectory.

‘One day the BoJ may well get a call from the finance ministry saying please think about us – it is a life or death question – and keep rates at zero’ – Olivier Blanchard

“To our surprise, Japanese retirees have been willing to hold government debt at zero rates, but the marginal investor will soon not be a Japanese retiree,” he said.

Prof Blanchard said the Japanese treasury will have to tap foreign funds to plug the gap and this will prove far more costly, threatening to bring the long-feared funding crisis to a head.

[source]

Posted in Debt, Economy |

Japanese banks to impose negative rates on clients

30-Mar (FT) — Some Japanese banks will start imposing charges on the money they hold for clients such as pension funds, in a bid to curb the cost they incur from the Bank of Japan’s negative interest rate policy.

Mitsubishi UFJ Trust and Banking, as well as Sumitomo Mitsui Trust Bank, have already notified customers of their decision, they confirmed.

Mitsubishi will impose a fee of 0.1 per cent on any new cash it receives from investment trusts, and 0.06 per cent on extra cash it holds on behalf of pension funds. Sumitomo will charge maximum fees of 0.1 per cent on client money held at its banking account, to offset the cost from the BoJ’s negative rate of 0.1 per cent.

Japanese financial institutions had previously been reluctant to pass on the costs of the BoJ’s negative interest rate policy. Ordinary banks have kept their deposit rates in positive territory, with the BoJ claiming banks were “in a healthy state” to shoulder the cost of negative rates. But the new negative rates on clients from the trust banks could potentially prompt other financial institutions to follow suit, and pass on the cost to clients.

[source]

PG View: I would expect an uptick in gold demand from the Land of the Rising Sun…

Posted in Debt |

U.K. Economy Faces ‘Cocktail of Risks’ Says George Osborne

16-Mar (WSJ) — U.K. Treasury chief George Osborne announced downgraded growth forecasts for the U.K. amid a darkening global outlook but said he remains on track to close the nation’s budget deficit.

In presenting his annual tax-and-spending plan to parliament on Wednesday, Mr. Osborne, the Chancellor of the Exchequer, said that the British economy faces “a cocktail of risks” in light of the weaker outlook for the global economy.

“Financial markets are turbulent. Productivity growth across the West is too low. And the outlook for the global economy is weak. It makes for a dangerous cocktail of risks,” Mr. Osborne said.

“But one that Britain is well-prepared to handle, if we act now so we don’t pay later,” he added.

Reflecting the darker outlook, the Office for Budget Responsibility, the U.K.’s fiscal watchdog, on Wednesday cut its forecasts for growth in the U.K. over the next four years. It said it expects growth of 2% this year, compared with a previous forecast of 2.4%.

[source]

PG View: Can we safely assume the BoE won’t be raising rates any time soon? I believe we can . . .

Posted in Debt, Economy |

Long-term Japanese bonds set new record lows

08-Mar (FT) — Longer dated Japanese government bond yields declined to new depths on Tuesday, with the seven-, 10-, and 30-year benchmark yields all setting record lows.

While new lows for the JGB market are not unusual after the Bank of Japan cut interest rates below zero last month, a closely watched, Y800bn 30-year auction of new debt was unexpectedly strong — a reminder of the new scarcity of yield in one of the world’s major sovereign bond markets. JGBs with maturities out to 11 years are currently trading with negative yields.

The search for yield also encouraged Japanese investors to buy record amounts of foreign long-term debt securities last month.

[source]

Posted in Debt |

OECD’s William White: Monetary Policy Has Failed and Economists Are Making a “Profound Ontological Error”

26-Feb (FinancialSense) — William White, chairman of the Economic and Development Review Committee at the OECD and former chief economist at the Bank for International Settlements (BIS), says the risks posed by global debt levels are greater today than they were in 2007 and that central banking monetary policy has lost its effectiveness. He also explains the crucial differences between modern macroeconomic modeling and complexity theory (or viewing the economy as a complex adaptive system) and the key lessons this has for policymakers, both fiscal and monetary.

“Total non-financial debt — that is to say the debt of governments, corporations and households — as a percentage of GDP; that number has gone from 210% in 2007, to 250% today.” ± William White

[source]

PG View: There is a growing consensus that monetary policy has been a failure. While central banks will continue to forge ahead down this path to nowhere, politicians better start making a plan or there will be hell to pay . . .

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

China is rapidly becoming one of the most indebted countries in the world

19-Feb (Economist) — THIS week began with the release of a staggering number. In January, new debt issued in China rose to just over $500 billion, an all-time high. Not all of the “new” debt was actually new; some represented a move out of foreign-currency loans and into local-currency borrowing (in order to reduce foreign-currency risk). But the flow of red ink is not a mirage. China’s government opened the credit taps early in 2016 in order to reduce the odds of a sharp economic slowdown. Private borrowing in China has grown rapidly and steadily since 2008, even as nominal output growth has slowed. As of 2014, according to an estimate by the McKinsey Global Institute, total debt in China stood at 282% of GDP. China is rapidly becoming one of the most indebted countries in the world.

So what? There is a cottage industry of analysts out there gaming out the ways in which a crisis of some sort might unfold within China. But with debts of this magnitude accumulating, you don’t need to posit a looming crisis to draw some reasonably strong, and reasonably gloomy conclusions about the near-term future of the Chinese economy—and the world as a whole.

…Zero rates and QE would place significant downward pressure on the value of the yuan. That’s just as well, since another thing history tells us is that demand-deficient, deleveraging economies depreciate their currencies and rely on exernal demand to support growth.

…Who knows what might happen next. Perhaps the euro zone would slip back into recession and then break up. Perhaps everyone would simply grit their teeth through another few years of economic difficulty. But the bigger China’s debt pile grows, the bigger a Chinese deleveraging episode looms ahead, somewhere in the not-so-distant future.

[source]

PG View: The burden of debt is causing the world’s economic engines to sputter and stall. First it was Japan. Then America. Now China . . .

Posted in Debt |

Philadelphia’s $5.7bn ‘quiet crisis’

19-Feb (FT) — The numbers for the city’s municipal pension fund are so troubling that there seems to be no point in adopting a softly-softly approach.

This is a scheme with a funding hole of $5.7bn; it owes far more money to present and future pensioners that it has in its coffers. The fund has less than half what it needs, with assets of $4.8bn in mid-2014.

The scheme, which manages the retirement funds of 64,000 current and former employees for the Pennsylvanian city, has been branded one of the worst-funded pension funds in the US. Its financial position has long been labelled the “quiet crisis” of Philadelphia.

[source]

Posted in Debt |

Illinois is facing a $10 billion shortfall

18-Feb (Fiscal Times, via BusinessInsider) — The messy budget situation in Illinois, one of the country’s largest economies, became even worse Wednesday afternoon when first-term Governor Bruce Rauner (R) delivered his second budget speech. Rauner’s first budget never passed, and this one has even less of a chance of a being blessed by the Democrat-controlled state legislature.

Without a budget, Illinois is running on fumes.

The bitter impasse began after Rauner’s inaugural budget address a year ago, when his proposed spending plan included deep cuts to Medicaid and higher education. The budget slashed by half the amount of income tax funds – about $634 million – the state would share with its 1,400 local governments and saved $2 billion by reducing state worker benefits — all to fill a projected $7 billion hole in the Land of Lincoln’s budget without raising taxes.

…Then there’s the looming $10 billion shortfall in the budget year that starts July 1.

[source]

Posted in Debt |

How Big is the U.S. Debt?

Posted in Debt |

Yield on 10-year Japan government bond falls below zero for first time

09-Feb (CNBC) — Yields on Japan’s benchmark 10-year government bond fell below zero for the first time, as investors clamored for safe-haven assets in the wake of a global market rout.

The yield on the 10-year Japan government bond (JGB) dropped as low as negative 0.007 percent. The fall came on the heels of a global stock market sell-off overnight that likely spurred safe haven flows back into Japan. Bond prices move inversely to yields.

The U.S. five-year Treasury yield also fell to around 1.1112 percent in Asia trading hours, its lowest since June 2013, when markets convulsed during the taper tantrum after the U.S. Federal Reserve first broached the idea that it would taper its quantitative easing program. The U.S. 10-year Treasury yield fell as low as levels around 1.6947 percent, a more than one-year low, on Tuesday.

[source]

PG View: A 10-year investment in a foundering economy with a massive debt overhang and the investor garners less than nothing in return. Talk about your mispriced risk . . .

Posted in Debt, Markets |

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]

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.

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