Category: Debt

The End of Monetary Policy

28-Sep (MauldinEconomics) — The Organization for Economic Cooperation and Development has a marvelous website full of all sorts of useful information. Let’s start by looking at inflation around the world. This table is rather dense and is offered only to give you a taste of what’s available.

What we find out is that inflation is strikingly, almost shockingly, low. It certainly seems so to those of us who came of age in the ’60s and ’70s and who now, in the fullness of time, are watching aghast as stupendous amounts of various currencies are fabricated out of thin air. Seriously, if I had suggested to you back in 2007 that central bank balance sheets would expand by $7-8 trillion in the next half-decade but that inflation would be averaging less than 2%, you would have laughed in my face.

…Gross domestic product around the developed world ranges anywhere from subdued to anemic to outright recessionary:

The G-20 itself is growing at an almost respectable 3%, but when you look at the developed world’s portion of that statistic, the picture gets much worse. The European Union grew at 0.1% last year and is barely on target to beat that this year. The euro area is flat to down. The United Kingdom and the United States are at 1.7% and 2.2% respectively. Japan is in recession. France is literally at 0% for the year and is likely to enter recession by the end of the year. Italy remains mired in recession. Powerhouse Germany was in recession during the second quarter.

Let’s put those stats in context. We have seen the most massive monetary stimulation of the last 200 years in the developed world, and growth can be best described as faltering. Without the totally serendipitous shale oil revolution in the United States, growth here would be about 1%, or not much ahead of where Europe is today.


PG View: Mauldin’s insights about deflation, anemic growth and rising debt levels are supported by The Geneva Report that also came out this week. In combination, the two reports should illicit a level of concern among investors that should prompt defensive portfolio adjustments that very-well should include gold.

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

Mass default looms as world sinks beneath a sea of debt

29-Sep (Telegraph) — As if the fast degenerating geo-political situation isn’t bad enough, here’s another lorry load of concerns to add to the pile.

The UK and US economies may be on the mend at last, but that’s not the pattern elsewhere. On a global level, growth is being steadily drowned under a rising tide of debt, threatening renewed financial crisis, a continued squeeze to living standards, and eventual mass default.

I exaggerate only a little in depicting this apocalyptic view of the future as the conclusion of the latest “Geneva Report”, an annual assessment informed by a top drawer conference of leading decision makers and economic thinkers of the big challenges facing the global economy.

Aptly titled “Deleveraging? What Deleveraging?”, the report points out that, far from paying down debt since the financial crisis of 2008/9, the world economy as a whole has in fact geared up even further. The raw numbers make explosive reading.

Contrary to widely held assumptions, the world has not yet begun to de-lever. In fact global debt-to-GDP – public and private non financial debt – is still growing, breaking new highs by the month.


Posted in Debt, Economy |

Germany Secures Record Low Funding Cost at Bond Auction

17-Sep (The Wall Street Journal) — Investors paid a hefty price tag for the privilege of buying German government debt on Wednesday, in a fresh sign of how the European Central Bank’s monetary easing policies are upending the region’s bond markets.

The German Finance Agency sold €3.341 billion ($4.33 billion) of a September 2016-dated treasury note at a record low average yield of -0.07%, the Bundesbank said. That effectively means investors have paid to buy the debt for the first time since December 2012. At its previous similar sale in August, Germany sold debt for a 0% yield.

“Negative auction yields even in the two-to-three-year part of the German curve are a good illustration of the current depressed interest rate environment,” said Jan von Gerich, chief strategist at Nordea. The decline in yields is likely to continue as the full range of ECB easing measures emerges over time, he added. Bond yields drop when prices rise.


Posted in Debt |

JGBs fall as yen weakens; 10-yr yld hits 2-month high

10-Sep (Dow Jones) — TOKYO–Japanese government bonds softened for a second day Wednesday as the yen weakened against the dollar.

Taders said that Japanese sovereign debt came under selling pressure after the yen fell to nearly a six-year low against the greenback and U.S. Treasurys fell overnight. Some investors also took profits ahead of the end of the first half of the fiscal year in September, they said.

The benchmark 10-year JGB yield was up 1.5 basis points at 0.540% as of 0600 GMT, after touching 0.545% during afternoon trading, its highest level since July. Lead December JGB futures finished down 0.15 at 145.65.

Market participants also paid attention to a speech by Bank of Japan Deputy Gov. Kikuo Iwata to business leaders in northwestern Japan, after market participants said that the central bank likely bought short-term Japanese government debt at a negative yield Tuesday.

Mr. Iwata said that it was “not a problem” for the bank to buy JGBs at a negative yield, but did not say whether or not the bank actually bought debt at negative yields.

“Even though long-term yields are far from zero, this showed that even if yields fall in the course of the Kuroda BOJ’s quantitative and qualitative easing, that won’t -at least now – result in restrictions on policy,” said Mitsubishi UFJ Morgan Stanley Securities strategist Naomi Muguruma.

Strategists say the BOJ’s stance of allowing purchases of Treasury discount bills at negative rates will likely keep short-term rates pinned down.


PG View: Buying a bond with a negative yield goes against every tenet of investing. This is going to end badly…

Posted in Currency Wars, Debt |

U.S. National Debt: $17,754,467,569,229.71

Posted in Debt |

U.S. National Debt: $17,709,322,691,303.06

Posted in Debt |

Is Portugal Next In Line For Wealth Confiscation?

22-Aug (ZeroHedge) — The pattern should be seared in your memory by now. If you fail to recognize it, you could be struck with a huge financial blow.

It’s a pattern that has played out over and over throughout history: a government gets into financial trouble, then denies there’s a problem, which is followed by a surprise wealth grab.

That’s exactly what happened when bank deposits in Spain and Cyprus were raided. We’ve also seen retirement savings confiscated in some form in Poland, Portugal, and Hungary. Capital controls have been imposed in Cyprus and Iceland.

Of course these aren’t the only examples of blatant government thievery. These examples are just within Europe and just within recent years. They can and will happen anywhere.

These events highlight the need to use international diversification to mitigate your political risk—the risk that comes from governments.

I think they also give us some clues as to what country is next on the chopping block.

When it comes to protecting yourself from confiscations, capital controls, bank holidays, and other desperate measures of an out-of-control government, it’s absolutely essential to take action before it’s too late.


PG View: Having a portion of your wealth outside the banking system in the form of physical gold, held in your own possession, is an extremely effective hedge against such risks.

Posted in Debt, Economy |

Argentina’s Peso Weakening at Fastest Pace Since January

22-Aug (Bloomberg) — First came the default, then a proposed debt swap aimed at circumventing a U.S. court ruling that could normalize Argentina’s relations with foreign investors. Now traders foresee a devaluation for the second time this year.

Argentina’s peso sank 1.3 percent this week to 8.3932 per dollar, the biggest drop since the government devalued the currency 15 percent in the week ended Jan. 24. In the black market, where Argentines go to avoid government limits on purchases of U.S. currency, the peso weakened to a record 13.95 per dollar.

Argentines are demanding more hard currency after the government proposed exchanging overseas debt into notes governed by local law. The plan means it’s less likely President Cristina Fernandez de Kirchner will negotiate a deal with holdout creditors that would lift the court order that has prevented the country from servicing its obligations, according to Bank of America Corp. Prolonging the default would then restrict Argentine borrowers’ access to international markets, putting pressure on policy makers to allow the peso to weaken as dollars become scarce.


PG View: In the accompanying video interview Bloomberg’s Katie Porzecanski noted the central bank sped-up the decline of the Argentine peso this week, but she noted that “by no means is it out of control yet.” The operative word in that statement is ‘yet’.

Posted in Debt |

U.S. National Debt: $17,671,687,900,979.84

Posted in Debt |

The Argentina Rescue Mission Has Failed

14-Aug (BusinessInsider) — It seemed like Argentina’s best hope for getting out of default — a group of banks willing to buy over $1.3 billion of sovereign debt from the hedge fund creditors that sued The Republic for a decade and won.

But the deal, it seems has fallen through.

In a statement posted by Reuters, one of the hedge fund creditors, Aurelius Capital, said that the deal being forged by Deutsche Bank, JP Morgan, Citigroup and HSBC and others was simply not good enough to satisfy the group, which has been holding out for a 100 cent on the dollar payment on their investment.


Posted in Debt |

UltraLong Bond Madness – Issuance Of 30 Year+ Maturity Debt Soars 22% In 2014

07-Aug (ZeroHedge) — Yesterday, the Wall Street Journal published an article highlighting the surge in what it calls “ultralong” bonds, defined as having a maturity of more than 30 years. The findings are simply stunning. In what may seem counterintuitive, bond yields at hundred year plus lows in many countries has led major investment firms to rush into ever riskier and longer duration fixed income securities just to earn some income. This has opened the floodgates to governments and corporations looking to lock in low yields on debt they won’t have to pay back for a generation.

Just to name a few, this year we have already seen a 100-year bond sale by Mexico, two separate 50-year bond issuances by Canada, and wait for this one, Spain of all countries is set to try to sell a 50-year bond!


PG View: We have so aggressively borrowed prosperity from the future, that now we have to reach further and further into the future to get any lift at all.

Posted in Debt |

U.S. National Debt: $17,640,751,157,460.11

Posted in Debt |

Watch out for the corporate debt bomb

04-Aug (MarketWatch) — For the past five years, U.S. corporations have been living in a financial paradise. Interest rates have been on the floor. Wages have been flat. Companies have been able to lay off workers and slash costs. Profits have skyrocketed to record levels. And they’ve spent almost nothing on new capital equipment, either.

And what effect has this had?

In 2007, at the peak of the last credit mania, U.S. nonfinancial corporations owed $7.2 trillion according to data compiled by the U.S. Federal Reserve.

Today? After years of this bonanza, those debts have tumbled all the way down to… er… $9.6 trillion.

All that talk you hear about how corporate balance sheets are in great shape is a bunch of hooey.


Posted in Debt |

No deal: Argentina in default as talks fail

31-Jul (CNNMoney) — Argentina has defaulted for the second time in 13 years after officials failed to come to an agreement with the country’s bondholders.

After frantic last minute talks failed to produce a deal late Wednesday, Standard & Poor’s deemed the country to be in default on some of its obligations. The change in credit rating could hike Argentina’s borrowing costs, and put even more pressure on the country’s already-struggling economy.

The crisis stems from a legal battle with a small group of “holdout” creditors that had demanded payment of about $1.5 billion on bonds they bought after the $144 billion default in 2001. That standoff has blocked payments to other creditors.


Posted in Debt |

Argentina’s President Is Spending The Last Few Hours Before Her Country’s Default Among Friends

29-Jul (BusinessInsider) — Bar any last minute heroics from a delegation meeting with negotiators in New York City, Argentina is set to default tomorrow. Ironically, it will default on debt dating back to its last default in 2001.

…Now Argentina has until Wednesday to pay up, according to a New York Judge. A delegation has been sent from the country to try to convince the Court to instate a stay on all payment to bondholders — Argentina’s condition for negotiating — but so far it’s been unsuccessful.


Posted in Debt |

3rd time unlucky: Argentina set for new default

28-Jul (CNBC) — Argentina is on course to default on its debt for the third time in 28 years on Wednesday – an event that could cost U.S. hedge funds millions of dollars and provide investors with yet another worry amid geopolitical turmoil.

The Latin American country has just two days to comply with a U.S. legal ruling to repay $1.3 billion to so-called holdout creditors, who snapped up junk bonds around the time of its massive $82-billion default in 2001 and refused to accept the debt restructurings that followed. At the same time, the country has to find $539 million to pay interest on restructured debt. The Buenos Aires government has warned that it won’t be able to pay.

If Argentina fails to repay in full – or strike a deal with those involved – it will enter partial default.


Posted in Debt |

U.S. National Debt: $17,610,253,000,219.65

Posted in Debt |

Greece Seen Needing Third Bailout as Bonds Insufficient

18-Jul (Bloomberg) — Greece’s return to bond markets after a four-year exile hasn’t convinced economists it can avoid a third bailout.

Six out of 10 economists in a Bloomberg News survey said Greece will need to top up the 240 billion euros ($325 billion) of loans received from Europe and the International Monetary Fund since 2010, when it lost access to bond markets. The IMF forecasts Greece will have a 12.6 billion-euro financing gap next year.

“Greece’s ability to generate sufficient funds to cover that is not sufficient,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London, referring to the financing shortfall. “Eventually the European partners will have to come up with something to basically bridge the funding needs that Greece has from now to the time in which it can establish a regular and sizable market access.”


Posted in Debt, European Debt Crisis |

US National Debt: $17,591,980,437,201.71

Posted in Debt |

CBO: Dark skies head for deficits?

15-Jul (Politico) — The federal budget outlook may be brightening for now, but a new government report says there are dark clouds over the horizon.

Less than a week after the White House reported this year’s deficit will be the smallest of the Obama administration, the Congressional Budget Office said that over the long term the budget shortfall will approach unprecedented levels.

In its annual analysis of the government’s long-term fiscal outlook, the nonpartisan agency said Tuesday that it expects the deficit to begin growing again in coming years, and continue growing to levels unseen since the wake of World War II.

“Deficits are projected to rise steadily and, by 2039, to push federal debt held by the public up to a percentage of GDP seen only once before in U.S. history [just after World War II],” the agency said.


PG View: This harsh reality should come as no surprise to anyone. As the debt continues to accumulate over the long-term, so too do the risks. Savvy investors will continue accumulating gold as hedge against these risks.

Posted in Debt, Economy |

Bankers warn over rising US business lending

08-Jul (Financial Times) — US lending to businesses is reaching record levels but banks are privately warning that the activity should not be seen as evidence of an economic recovery.

Much of the corporate lending is going to fund payouts to shareholders, finance acquisitions and fuel the domestic energy boom, bankers say, rather than to support companies’ organic growth.

“Loan growth doesn’t seem to be driven by the underpinning of an economic recovery in terms of new warehouses and [capital expenditure],” said one senior corporate banking executive at a large US bank. “You don’t see the foundation, the real strong demand.”


Posted in Debt |

U.S. National Debt: $17,588,757,555,596.18

Posted in Debt |

U.S. National Debt: $17,524,460,363,250.30

Posted in Debt |

In The First Quarter $250 Billion In Federal Debt Bought Negative $74 Billion In GDP

25-Jun (ZeroHedge) — As everyone knows by now, in Q1 the US economy “grew” (we use the term loosely because the correct term is shrank) by the lowest amount in Q1 since 2009. More to the point, the -2.9% collapse in GDP was the 17th worst quarterly print in US history.

…Which brings us to the topic of marginal utility of debt, extensively covered here in the past. In brief, it describes how much in “economic growth” every dollar in federal debt buys. The bad news: in Q1, US total Federal debt rose by $250 billion, to a record (duh) $17.6 trillion. This debt “bought” a negative $74 billion in GDP, which declined to $17.0 trillion. Said otherwise, this was the first quarter since the end of the recession when debt rose (by a whopping amount), and when GDP declined sequentially in nominal terms.


Posted in Debt, Economy |

US National Debt: $17,535,731,914,061.53

Posted in Debt |

National Debt: $17,569,041,604,920.91

Posted in Debt |

Debt is No Salvation

by Peter Schiff
13-Jun (24hGold) — Thus far 2014 has been a fertile year for really stupid economic ideas. But of all the half-baked doozies that have come down the pike (the perils of “lowflation,” Thomas Piketty’s claims about capitalism creating poverty, and President Obama’s “pay as you earn” solution to student debt), an idea hatched last week by CNBC’s reliably ridiculous Steve Liesman may in fact take the cake. In diagnosing the causes of the continued malaise in the U.S. economy he explained, “the problem is that consumers are not taking on enough debt.” And that “historically the U.S. economy has been built on consumer credit.” His conclusion: Consumers must be encouraged to borrow more money and spend it. Given that Liesman is CNBC’s senior economic reporter, I would hate to see the ideas the junior people come up with.

Before I get into the historical amnesia needed to make such a statement, we first have to confront the question of causation. Just as most economists believe that falling prices cause recession, rather than the other way around, Liesman believes that economic growth is created when people tap into society’s savings in order to buy consumer goods that they could not otherwise afford. But consumption does not create growth. Increasing productive output allows for greater consumption. Something needs to be produced before it can be consumed.

But even allowing for this misunderstanding, consumer credit does little to increase consumption. All it accomplishes is to pull forward future consumption into the present (while generating a fee for the banker). This is like giving yourself a blood transfusion from your left arm to your right. Nothing is accomplished, except the possibility of spilling blood on the floor. But it’s not even that benign.


PG View: Schiff is spot-on in his assessment that excess consumer debt is a bane, rather than answer for our moribund economy. As households continue to de-lever, it becomes obvious that we’ve done nothing but borrow prosperity from the future, and payback sometimes can be…well, a bad thing.

On the other side, we’ve seen our very own central bank slash rates to 0% in an effort to disincentivizing saving. They want you to spend your hard-earned money. They want you to borrow and spend. What they are doing is insidious, so don’t give in. Save your money; and save some of it in gold.

Posted in Debt |

National Debt: $17,548,899,562,327.27

Posted in Debt |

National Debt: $17,544,581,789,209.83

Posted in Debt |

Elliott’s Paul Singer On How It All Will End: “Badly, We Guess”

29-Apr (ZeroHedge) — Some less than pleasant observations from the billionaire founder of Elliott Management, Paul Singer, extracted from his periodic letter to clients.


The budget deficit for the latest fiscal year (which ended on September 30) was reported to be around $700 billion. However, this figure would be many times higher if the government’s unfunded entitlement programs were included. Even before taking into account liabilities stemming from the Affordable Care Act (ACA), which cannot even be calculated yet because so many of its assumptions are either erroneous or outright fabrications, and because many of its provisions keep getting delayed by the Administration for purposes of political advantage, the present value of the future obligations of the federal government is currently around $92 trillion. These obligations have been growing by over 10% per year since 2000, during which time nominal GDP has risen just 3.8% per year. At this rate, the federal government will owe an estimated $200 trillion on the entitlement programs by 2021 (again, excluding the effects of ACA) and $300 trillion by 2025.

These numbers are not fantasies. At present, there is no acknowledgement by a large portion of the American political establishment that this insolvency even exists. Nor have the leaders of this establishment made any concrete progress toward restoring solvency by taking up serious proposals to rein in unpayable promises. Quite the contrary: Politicians and policymakers continually tell people that such entitlement obligations will be met – a claim they must know cannot possibly be true.

…High inflation (or hyperinflation) is one way that devious or clueless policymakers attempt to deal with unpayable promises. It is devious, because without formally imposing a tax, it takes money from savers and investors and pays it to borrowers and voters. It is clueless, because the cycle of government handouts and demands for more benefits is like a game of “chase the tail” – because it dissipates the real value of promised benefits, it brings the ultimate prize no closer while destroying the value of money and dissolving societal cohesion in the process.


PG View: The government wants inflation. It needs inflation. And while the ongoing deleveraging of household balance sheets is keeping that desired inflation in check for now, the government will eventually get its wish. Buy gold now, in anticipation of them achieving their goal; particularly if you envision yourself being reliant on those entitlements at some point in the future.

Posted in Debt, Economy |