Category: 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.


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.


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.


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.


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.


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?

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.


Posted in Debt, European Debt Crisis |

German lawmakers to back Greek extension despite misgivings

26-Feb (Reuters) – German lawmakers signaled that they will approve an extension of Greece’s bailout with an overwhelming majority in parliament on Friday although many will do so reluctantly amid fears Athens will not deliver on its reform promises.

Angela Merkel’s coalition has a big enough majority to easily win the vote in the Bundestag lower house to extend the rescue by four months. But many lawmakers, including Finance Minister Wolfgang Schaeuble, have expressed concern in recent days about whether Athens is to be trusted.


PG View: I’m going to go out on a limb here and predict that Europe will be right back in crisis mode in June, after Greece fails to advance the reforms they’ve promised (again).

Posted in Debt, European Debt Crisis |

Germany Sells Five-Year Debt at Negative Yield for First Time on Record

25-Feb (Wall Street Journal) — Germany on Wednesday sold five-year government debt at a negative yield for the first time on record, reflecting plunging borrowing costs across the region in the run-up to the European Central Bank’s sovereign-bond-buying program.

The German Finance Agency sold €3.281 billion ($3.72 billion) of bonds maturing in April 2020 at an average yield of minus 0.08%. At a similar deal in January, the yield was 0.05%.

The negative yield means investors are effectively paying the German state for holding its debt. Even so, bond prices—which climb when yields drop—are expected to rise further once the ECB starts its latest round of stimulus measures next month, meaning investors could potentially sell the bonds at a profit.


Posted in Currency Wars, Debt |

IMF warns Greece reform plan lacks ‘clear’ committments

24-Feb (Economic Times) — The International Monetary Fund warned Tuesday that Greece’s reform plan submitted in exchange for a bailout extension lacked clear signs that the government will follow through on its promises.

In a number of areas, “including perhaps the most important ones,” the letter proposing the reforms “is not conveying clear assurances that the government intends to undertake the reforms envisaged,” said IMF managing director Christine Lagarde in a statement.


PG View: Who cares if they really intend to follow-through on reforms. Just keep the charade going for another 4-months…

Posted in Debt, European Debt Crisis |

Euro zone backs Greek reform plan, 4-month aid extension

24-Feb (Reuters) – Greece secured a four-month extension of its financial rescue on Tuesday when its euro zone partners approved a reform plan that backed down on key leftist measures and promised that spending to alleviate social distress would not derail its budget.

Finance ministers sealed the decision in a one-hour telephone conference convened by Eurogroup chairman Jeroen Dijsselbloem after the new leftist-led Athens government sent him a detailed list of reforms it plans to implement by July.

“Following Eurogroup teleconference decision, national procedures for extension of the Greek programme can begin,” Valdis Dombrovskis, the European Commission vice-president for the euro, said on Twitter.


PG View: Gold eked out a new 7-week low on the announcement, but quickly rebounded back above $1200.

Posted in Debt, Economic Data |

Greece debt: EU says reform proposals ‘valid’

24-Feb (BBC) — Greece is a step further on its way to receiving a bailout extension after its list of proposed reforms was backed by one of its key creditors.

Top European Commission officials called the proposals “sufficiently comprehensive to be a valid starting point”.

European finance ministers are set to discuss the list shortly.

Greece needs approval from international creditors to secure a four-month loan extension.

Newly elected Greek Prime Minister Alexis Tsipras is trying to balance satisfying the demands of creditors with meeting his pre-election pledges.


Posted in Debt, European Debt Crisis |

This Is The Biggest Problem Facing The World Today: 9 Countries Have Debt-To-GDP Over 300%

23-Feb (ZeroHedge) — If anyone has stopped to ask just why global central banks are in such a rush to create inflation (but only controlled inflation, not runaway hyperinflation… of course when they fail with the “controlled” part the money paradrop is only a matter of time) over the past 5 years, and have printed over $12 trillion in credit-money since Lehman, the bulk of which has ended up in the stock market, and which for the first time ever are about to monetize all global sovereign debt issuance in 2015, the answer is simple, and can be seen on the chart below.

It also shows the biggest problem facing the world today, namely that at least 9 countries have debt/GDP above 300%, and that a whopping 39% countries have debt-to-GDP of over 100%!


Posted in Debt |

Greece scrambles to send draft reforms to EU institutions

23-Feb (Financial Times) — The Greek government scrambled to come up with economic reform proposals to satisfy its international creditors, even as cracks emerged in the ruling Syriza party over Friday’s last-minute deal to extend Athens’ EU bailout by another four months.

A draft of the reform measures was submitted ahead of a formal evaluation on Monday by bailout monitors who will determine whether a tentative agreement to extend the €172bn rescue until June can proceed.

European markets reacted positively to the eleventh-hour deal in trading on Monday, with Greece’s three-year borrowing costs falling 219 basis points to 14.44 per cent. The country’s stock market was closed for a holiday. Yields on the debt of eurozone peripheral governments also benefited, with 10-year Spanish and Portuguese yields falling 6 bps and 9 bps respectively.

Monday’s evaluation by the European Commission, European Central Bank and International Monetary Fund — previously known as the troika — was one of the most important conditions attached to Friday’s deal, which officials believe averted a Greek bank run and sovereign bankruptcy.

If the EU and IMF do not approve of the Greek measures as “sufficiently comprehensive to be a valid starting point” for completing the current bailout, eurozone officials have agreed that another Brussels meeting of finance ministers will be needed on Tuesday. Without approval, Greece’s EU bailout will expire on Saturday.


Posted in Debt, European Debt Crisis |

Eurozone agrees 4-month Greek bailout extension

20-Feb (Financial Times) — Greece and its eurozone bailout lenders agreed an eleventh-hour deal to extend the country’s €172bn rescue programme for four months, avoiding bankruptcy for Athens but setting up another potential standoff in June when a €3.5bn debt payment comes due, reports Peter Spiegel in Brussels.

The deal, reached at a make-or-break meeting of eurozone finance ministers Friday night, leaves several important issues undecided – including what reform measures Athens must adopt in order to get €7.2bn in aid that comes with completing the current programme.

The new Greek government is to submit those measures for approval by eurozone authorities on Monday.


PG View: If the list of reforms due Monday fails to satisfy the Germans, the deal is presumably off. Seems more like a 3-day extension than 4-month extension to me.

Posted in Debt, European Debt Crisis |

Worried depositors rush to pull cash out of Greek banks

20-Feb (CNBC) — In the midst of the dramatic showdown in Brussels between the new Greek government and its European creditors, many Greek depositors—spooked by the prospect of a Greek default or, worse, an exit from the euro zone and a possible return to the drachma—have been pulling euros out of the nation’s banks in record amounts over the last few days.

The Bank of Greece and the European Central Bank won’t report official cash outflows for January until the end of the month. But sources in the Greek banking sector have told Greek newspapers that as much as 25 billion euros (US $28.4 billion) have left Greek banks since the end of December. According to the same sources, an estimated 900 million euros flowed out of Greek banks on Tuesday alone, the day after the talks broke up in Brussels, sparking fears that measures will be taken to stem the outflow. On Thursday, by mid-afternoon, deposits had shrunk by about 680 million euros (US $773 million).

“If outflows reach 1 billion euros, capital controls might need to be imposed,” said Thanasis Koukakis, a financial editor for Estia a conservative daily, and To Vima, an influential Sunday newspaper.


Posted in Debt, European Debt Crisis |

REPORT: The ECB is preparing for Grexit

20-Feb (BusinessInsider) — The European Central Bank is making preparations again for a Greek exit from the euro, according to the German news magazine Der Spiegel.

…This comes just a day after another German media source said the ECB wanted capital controls to be brought in to halt any potential capital flight from Greece. The piece suggested the governing council of the central bank favoured the move, but the ECB denied it had even been discussed.


Posted in Debt, European Debt Crisis |

Why Germany Might Not Be Bluffing in Greece

20-Feb (Bloomberg) — As Europe’s high-stakes debt negotiations with Greece reach an impasse, Germany has appeared surprisingly willing to drive the country out of the euro, regardless of the potentially dire repercussions for Italy, Portugal, Spain and the entire currency union. One possible explanation for Germany’s brinkmanship: Its banks have a lot less to lose than they once did.

When the European debt crisis first flared up in 2010, Germany’s finances were closely linked to those of the euro area’s more economically fragile members. Its banks’ claims on Greece, Italy, Portugal and Spain — including money lent to governments and companies — amounted to more than 350 billion euros ($400 billion), about equal to all the capital in the German banking system. If the periphery countries had forced losses on private creditors, which they arguably should have done, Germany would have had to recapitalize its banks or face an immediate meltdown.

The picture is very different now. The European Central Bank, the International Monetary Fund and other taxpayer-backed creditors have pumped hundreds of billions of euros of loans into the periphery countries, making it possible for German banks to extract themselves with minimal damage.


Posted in Debt, European Debt Crisis |

Germany rejects Greek loan request

19-Feb (BBC) — Germany has rejected a Greek request for a six-month extension to its eurozone loan programme, after earlier signs that a compromise was possible.

Greece had sought a six-month assistance package, rather than a renewal of the existing deal that comes with tough austerity conditions.

However, a German finance ministry spokesman said it was “not a substantial proposal for a solution”.

The European Commission had earlier called the Greek request “positive”.


Posted in Debt, European Debt Crisis |

Greece’s game of chicken is starting to get dangerous

18-Feb (WashingtonPost) — For the second time in a week, talks between Greece and Europe have broken down over the semantics of whether a short-term bailout would be an “extension of the current programme as an intermediate step” or an “extension of the current loan agreement, which could take the form of a four-month intermediate programme.” The first is what Europe wanted, and the second is what Greece would have accepted. Now, it might seem silly that a disagreement over the order of the words “intermediate” and “programme” could force Greece out of the euro—aren’t they just a thesaurus away from a compromise?—but this is a real political problem. Both sides want a deal, but neither wants the other to be able to say they got the better of it. So their rhetoric is hardening, and the game of chicken is still on.


Posted in Debt, European Debt Crisis |

How the European Central Bank could finally pull the trigger on a Grexit

17-Feb (Telegraph) — Greece’s stand-off with its creditors shows little signs of abating.

After the latest, unpromising round of talks between the new Greek government and the euro’s finance ministers, both parties have hardened their negotiating positions in the run up to another showdown, temporarily penciled in for Friday.

But before we get to the end of the week, the prospects of a disorderly exit for Greece could be heightened significantly.

On Wednesday, the European Central Bank will have its say on events. The central bank will be meeting to discuss whether it should continue to provide emergency funds to Greece’s banks.

This Emergency Liquidity Assistance (ELA) is the last remaining link between Greece’s lenders and the eurozone.

ELA is now hanging like the “sword of Damocles” over the country’s banks, according to Lorcan Roche Kelly of Bloomberg.


PG View: The latest headlines suggest Greece will seek a 6-month extension to its loan agreement.

Posted in Debt, European Debt Crisis |

Greece’s Varoufakis holds capital-control cards in his hand

By David Marsh
17-Feb (MarketWatch) — Yanis Varoufakis, the game theorist turned finance minister of Greece, seems outnumbered and outmaneuvered in his 18-against-one fight with other European governments over the country’s future in the euro bloc.

Yet Varoufakis still has some powerful cards to play in the brinkmanship he is enacting over the terms for an extension of Greece’s bailout package from the European Union.

One of them concerns the possible use of capital controls, which could be introduced to protect money seeping abroad if Greek banks face further deposit withdrawals as a result of speculation that the country will leave (or be ejected from) the 19-member euro area.

The possibility of such measures to block flows of capital has risen after the collapse of Monday’s night’s Eurogroup meeting. The new Syriza-led government termed “absurd” and “unacceptable” the euro ministers’ resolve to hold Athens to the terms of its hotly debated €172 billion bailout agreement which the government blames as heaping unacceptable austerity on suffering Greeks.


Posted in Debt, European Debt Crisis |

No bail-out, no deal: After tense Eurogroup and European Council meetings, a compromise looks no nearer

13-Feb (The Economist) — DOING the same thing and expecting different results, Einstein is supposed to have said, is the definition of insanity. In the euro zone it is the ordinary line of business. For despite the twists and turns of the Greek drama over the last few weeks the fundamental contours of the dispute have not changed. The new Greek government, priced out of private markets, needs financial help from its euro-zone partners but insists it will leave behind the bail-outs and “fiscal waterboarding” to which its predecessor succumbed. The euro zone, led but in this case not dominated by Germany, demands that the price of such help is an extension of the current Greek bail-out, which expires at the end of the month, and that beyond that there can be no help without some form of “conditionality” (i.e. telling the Greeks what to do).

Over the last week optimists have sought heroically to discern room for compromise. It has not been easy. During a speech to the Greek parliament on Sunday Alexis Tsipras, the new prime minister, struck a tougher line than ever on austerity and the bail-out; for good measure he raised the possibility of Germany paying war reparations to Greece. Three days later, at a disastrous meeting of the Eurogroup (the finance ministers of countries that use the euro), the 18 non-Hellenic countries lined up one after another to tell Yanis Varoufakis, Mr Tsipras’s finance minister, that Greece had to offer something in return for its demands. (One complained that the sums his country had lent the Greeks exceeded its annual overseas-aid budget.) Mr Varoufakis agreed to a statement that referred vaguely to the possibility of exploring an extension to the bail-out. Thinking their work done, Wolfgang Schäuble, Germany’s finance minister, and others left the meeting, only for Mr Varoufakis to change his position after a phone call to Athens. The two sides, it appeared, could not even agree to disagree.

A day later it was the turn of the heads of European Union governments, meeting in Brussels, to discuss the problem. Mr Tsipras’s audience was no less hostile than Mr Varoufakis’s had been a day earlier, although Angela Merkel and others were keen not to get into the details of bail-outs and reform measures. The Greeks at least agreed to begin technical discussions with European officials on where there may be room for negotiation on structural reforms; thin gruel, indeed, though after the previous night’s imbroglio this development was hailed with hallelujahs in some quarters.


Posted in Debt, European Debt Crisis |

Greek finance minister says euro will collapse if Greece exits

08-Feb (Reuters) – If Greece is forced out of the euro zone, other countries will inevitably follow and the currency bloc will collapse, Greek Finance Minister Yanis Varoufakis said on Sunday, in comments which drew a rebuke from Italy.

Greece’s new leftist government is trying to re-negotiate its debt repayments and has begun to roll back austerity policies agreed with its international creditors.

In an interview with Italian state television network RAI, Varoufakis said Greece’s debt problems must be solved as part of a rejection of austerity policies for the euro zone as a whole. He called for a massive “new deal” investment program funded by the European Investment Bank.

“The euro is fragile, it’s like building a castle of cards, if you take out the Greek card the others will collapse.” Varoufakis said according to an Italian transcript of the interview released by RAI ahead of broadcast.


Posted in all posts, Debt, European Debt Crisis |

Greek markets plunge after defiant PM Tsipras speech

09-Feb (Reuters) – Greek financial markets sank further on Monday after Prime Minister Alexis Tsipras made a speech showing little intention of sticking to the terms of the international bailout keeping Greece afloat.

Other European markets also felt some limited selling pressure due to concerns about Greece, which had its credit rating cut by Standard & Poor’s on Friday.

An index of Greek banking stocks fell almost 10 percent close to record lows, pushing the Athens bourse’s main index nearly to the lowest levels since the country’s 2012 debt restructuring. Government bond yields rose by up to 3.7 percentage points, with three year yields nearing 22 percent.

Having returned home empty-handed from a week-long European tour in search for allies, Tsipras laid out a list of measures to reverse the austerity imposed by the European Union and the International Monetary Fund and vowed not to extend the current bailout deal.


Posted in Debt, European Debt Crisis |

Does Anyone Remember 2007? The Global Debt Bubble In 3 Ominous Charts

05-Feb (ZeroHedge) — 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, as McKinsey explains in their latest report, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. They pinpoint three areas of emerging risk: the rise of government debt, which in some countries has reached such high levels that new ways will be needed to reduce it; the continued rise in household debt; and the quadrupling of China’s debt, fueled by real estate and shadow banking, in just seven years… that pose new risks to financial stability and may undermine global economic growth.

As Bloomberg’s Simon Kennedy notes, since 2007, the IOUs of governments, companies, households and financial firms in 47 countries has grown by $57 trillion to $199 trillion, a rise equivalent to 17 percentage points of gross domestic product.

Since 2007, government debt has grown by $25 trillion. It will continue to rise in many countries, given current economic fundamentals. Some of this debt, incurred with the encouragement of world leaders to finance bailouts and stimulus programs, stems from the crisis. Debt also rose as a result of the recession and the weak recovery. For six of the most highly indebted countries, starting the process of deleveraging would require implausibly large increases in real-GDP growth or extremely deep fiscal adjustments. To reduce government debt, countries may need to consider new approaches, such as more extensive asset sales, one-time taxes on wealth, and more efficient debt-restructuring programs.

…As Kennedy concludes,

the new data make a mockery of the hope that the turmoil and subsequent global recession would put the globe on a more sustainable path.


PG View: Go take a look at the charts. They’ll make you start hyperventilating, because any rational person would recognize that such debt levels are unsustainable. My phone should be ringing off the hook…

Posted in Debt |

Greece Sticks to Anti-Austerity Demands Following ECB Loan Cut

05-Feb (Bloomberg) — Greece held fast to demands to roll back austerity as the European Central Bank turned up the heat before Finance Minister Yanis Varoufakis met one of his main antagonists, German counterpart Wolfgang Schaeuble.

The encounter at 12:30 p.m. in Berlin came hours after Greece lost a critical funding artery when the ECB restricted loans to its financial system. That raised pressure on the 10-day-old government to yield to German-led austerity demands to stay in the euro zone. Shares of Greek banks plummeted.

The government “remains unwavering in the goals of its social salvation program, approved by the vote of the Greek people,” according to a Finance Ministry statement issued overnight. It’s aim is “coming up with a European policy that will definitively put an end to the now self-perpetuating crisis of the Greek social economy.”


Posted in Central Banks, Debt, European Debt Crisis |

ECB Shuts Off Direct Funds to Greece

04-Feb (Bloomberg) — The European Central Bank heaped pressure on Greece’s new government by restricting access to its direct liquidity lines, citing concerns about the country’s commitment to existing bailout pledges.

“The Governing Council of the ECB today decided to lift the waiver affecting marketable debt instruments issued or fully guaranteed by the Hellenic Republic,” the Frankfurt-based central bank said in an e-mailed statement. “The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the program review and is in line with existing Eurosystem rules.”

The decision will force Greek lenders, who since 2010 had been able to access funds from the ECB against junk-rated collateral, to apply for funding from their national central bank at less-advantageous rates. The decision comes hours after Greek Finance Minister Yanis Varoufakis met ECB President Mario Draghi in Frankfurt to gain support for his government’s push to renegotiate the terms of its international bailout.


PG View: That warm fuzzy “we can work it out” attitude seen on Tuesday sure didn’t last long. The euro tanked and gold firmed into the close.

Posted in Central Banks, Debt, European Debt Crisis |

This is freaking nuts: Nestle is getting paid to borrow money

04-Feb (WashingtonPost) — Once upon a time, you actually had to pay lenders to borrow money. It was an archaic ritual called “interest”—here’s the Wikipedia page if you don’t believe me—but it’s over now.

In fact, it’s the opposite of how things work today, at least in Europe’s brave, new, deflationary world. France, Finland, Belgium, Denmark, the Netherlands, and Germany are all getting paid by investors—that is, bond yields are negative—to borrow for up to four, and sometimes six, years. Switzerland is even getting paid to borrow for ten years. That’s never happened anywhere before. But it’s not just governments that people are paying for the privilege of lending to. It’s companies, too. Or at least one of them: Nestlé. Its €500 million debt that comes due in October 2016 became the first corporate bond of a year or longer to have a negative yield, after it got as low as -0.0081 percent on Tuesday. (Its borrowing costs later rose to a, relatively-speaking, punitive -0.002 percent).

That brings us to the obvious question: Why would you ever pay Nestlé, or anyone else for that matter, to borrow money from you? Well, because there’s not enough inflation and not enough bonds. This makes more sense if you look at what currency Nestlé is borrowing in: the euro. Prices are falling 0.6 percent in the eurozone right now, so a euro will be worth more tomorrow than today. And that means it can make sense to lend money for nothing or even negative amounts. That’s because the euros you’ll get paid back with will be worth more than the euros you’re paying with right now. So you can lose money but still make money, as long as its value is going up.


Posted in Debt, Deflation |

Greece seeks ECB funds, Germany rejects austerity roll-back

04-Feb (Reuters) – Greece’s new leftist government appealed to the European Central Bank on Wednesday to keep its banks afloat as it seeks to negotiate debt relief with its euro zone partners, but Germany rejected any roll-back of agreed austerity policies.

Finance Minister Yanis Varoufakis said after meeting ECB President Mario Draghi in Frankfurt he believed Athens could count on central bank support during the short period it would take to conclude talks with international lenders.

Banking sources told Reuters that two Greek banks have begun to tap emergency liquidity assistance from the Bank of Greece after an outflow of deposits accelerated after the victory of the hard left Syriza party in a general election on Jan. 25.

The Greek government wants that funding to continue because if the ECB were to halt it, Greek banks could collapse, forcing the country out of the euro zone.

Promising to end five years of austerity, Prime Minister Alexis Tsipras and Varoufakis are meeting senior officials across Europe to seek support for a new debt agreement.


Posted in Debt, European Debt Crisis |

German Yield Below Japan for First Time Bodes Ill for Europe

03-Feb (Bloomberg) — For the first time on record, Germany’s 10-year yields are below Japan’s, an ominous signal for European Central Bank President Mario Draghi as he seeks to revive the euro area’s economy.

Tumbling yields on German debt, the euro area’s benchmark sovereign securities, are inviting comparisons with Japan, a nation wracked by decades of zero nominal economic growth and falling consumer prices. Germany’s inflation rate turned negative in January for the first time in more than five years, while the ECB is preparing to pump more cash into the region’s economy via a quantitative-easing program to fend off the risk of deflation.

“It doesn’t provide much in the way of reassurance in terms of the market’s take on the ECB’s ability to reflate the economy via its imminent foray into QE,” said Richard McGuire, head of European rates strategy at Rabobank International in London. “Japanification of Europe is quite a familiar theme. The market is of the view that the disinflationary forces currently gripping Europe are by no means transitory.”


PG View: German 10-year yield 0.31%. Japan 10-year yield 0.36%. Who would have ever thought…

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