Posts Tagged ‘Public Debt’
Saturday, August 11th, 2012
The Solution…is the Problem, Part II
When we wrote Part I of this paper in June 2009, the total U.S. public debt was just north of $10 trillion. Since then, that figure has increased by more than 50% to almost $16 trillion, thanks largely to unprecedented levels of government intervention.
Once the exclusive domain of central bankers and policy makers, acronyms such as QE, LTRO, SMP, TWIST, TARP, TALF have found their way into the mainstream. With the aim of providing stimulus to the economy, central planners of all stripes have both increased spending and reduced taxes in most rich countries. But do these fiscal and monetary measures really increase economic activity or do they have other perverse effects?
In today’s overleveraged world, greater deficits and government spending, financed by an expansion of public debt and the monetary base (“the printing press”), are not the answer to our economic woes. In fact, these policies have been proven to have a negative impact on growth.
While it hasn’t received much attention in recent years, a wide body of economic theory suggests that government policies and their size relative to the total economy can have a significant detrimental impact on economic growth. A recent paper from the Stockholm Research Institute of Industrial Economics compiles evidence from numerous empirical studies and finds that, for rich countries, there is overwhelming evidence of a negative relationship between a large government (either through taxes and/or spending as a share of GDP) and economic growth.1 All else being equal, countries where government plays a large role in the economy tend to experience lower GDP growth.
Of course, correlation does not imply causation. While the literature is not definitive on causation, it still provides strong evidence that more taxes and government spending as a share of GDP (except for productive investments such as education) is associated with lower growth.
One exception to these findings is the experience of Scandinavian countries. They have both high taxes and high government spending as a share of GDP but have experienced relatively rapid growth over the past 20 years. However, a significant share of their spending goes to education, which has been found to foster growth. They also counterbalance the large role of the state with very liberal, pro-market reforms and low levels of public debt.2
Debt overhang and economic growth
Even if one believes that temporary Keynesian-type fiscal stimulus, in the form of tax breaks and increased government spending, can spur growth in the short-term, these actions inevitably lead to larger deficits and higher government debt (see July 2010 Markets at a Glance, “Fooled By Stimulus”). As Figures 1 and 2 below show, the U.S. Federal Government deficit and debt levels are already at their highest levels since the end of World War II and the scope of future stimulus appears to be rather limited. According to our projections (which assume there will be no fiscal cliff), the U.S. federal debt will increase significantly as the deficit remains sustained and elevated. For many European countries the situation is even worse.
FIGURE 1: U.S. DEFICIT AS A SHARE OF GDP
FIGURE 2: U.S. DEBT-TO-GDP*
Source: The White House: Office of Management and Budget (OMB) and Sprott Calculations
*For reasons discussed in May 2009 Markets at a Glance The Solution … is the Problem, Part 1, we show total federal debt subject to the debt ceiling.
High levels of debt, or debt overhangs, cause more problems. Recent work by Carmen Reinhart and Kenneth Rogoff (Harvard University) demonstrates that banking crises are strongly associated with large increases in government indebtedness, long periods of unemployment and, ultimately, some form of default. They identify a threshold of 90% debt-to-GDP as the trigger to a debt crisis.3 As shown in Figure 2, the U.S. has already passed that threshold.
The historical evidence shows that countries with large governments and high levels of debt have on average, achieved lower economic growth. Given the already high level of debt and deficits in most developed countries, it is doubtful that increased fiscal stimulus will really help the recovery. It’s clear that debt is the problem and the solution does not lie in piling on even more of it. The current debt situation, coupled with the increasing lack of transparency of politically motivated regulations and interventions, leaves little room for a healthy deleveraging of our economies. Here is what central planners have in mind.
Debt overhang resolution and implications for the future
Througout history, high debt-to-GDP ratios have been resolved through five channels:4
- Economic growth
- Sudden bursts of inflation
- Steady financial repression and inflation
Clearly, number one and two are not working right now and, in some European countries, are actually negatively reinforcing each other. The U.S. is facing its homegrown fiscal cliff and political polarization makes its resolution doubtful. Number three seems politically unacceptable for rich, developed nations, which see default as the realm of developing countries. Sudden bursts of inflation are hard to contain and work only so many times as investors, assuming a normal bond market, demand higher interest rates to compensate for inflation risk. Moreover, with interest rates already, at zero it seems that we are left with number five: steady financial repression and inflation. This terminology was first introduced in the early 1970s by Edward Shaw and Ronald McKinnon, both from Stanford University.5
They define financial repression as:
- Explicit or indirect caps or ceilings on interest rates
- The creation and maintenance of a captive domestic audience (i.e.: forced holdings of government debt by financial institutions and pension funds)
- Direct ownership of financial institutions and/or entry restriction in the financial industry (i.e.: China, India)
We are clearly living through a period of financial repression. The symptoms include:
- Artificially low interest rates in most of the G20 countries and commitments to keep them low for long periods of time combined with inflation, which results in negative real interest rates
- Large expansion of central banks’ balance sheets through the purchase of government bonds
- Basel III liquidity rules which force banks to hold more government debt on their balance sheets6,
- Newly nationalized banks in many countries (UK, Ireland, Spain, etc.), which have drastically increased their holdings of government debt
- and it will bet worse…
Figure 3 below shows that financial repression can be observed within the holdings of U.S. financial institutions and pension funds, which have steadily increased their holdings of U.S. Treasuries since 2009.
FIGURE 3: HOLDINGS OF U.S. TREASURY SECURITIES BY DOMESTIC FINANCIAL INSTITUTIONS
Source: Federal Reserve Flow of Funds
It’s clear that governments are preparing for more. A key component to erasing government debt through inflation is extending the duration (maturity) of one’s outstanding bonds. In a normal bond market, negative real interest rates make it difficult to roll over short-term debt at low borrowing rates (although financial repression and captive financial institutions certainly help to keep rates lower than they normally would be). Due to this tendency for short-term rates to rise with inflation, however, it is in the best interests of highly-indebted countries to issue the majority of their bonds at the long end of the yield curve. As Figure 4 shows, the US Treasury is proactively planning to increase the maturity of its outstanding debt (green line) in order to maximize its benefit from inflation erosion. In other words, they are capitalizing on the current flight to safety to set the stage for further financial repression down the road. The same is true for the U.K., which benefits from one of the longest weighted-average maturity of debt in the developed world. For Eurozone countries to do away with their current debt overhang they will either have to default (the least preferred option for political reasons) or use the good old combination of steady inflation and financial repression (feared by the Germans and the ECB central planners).
FIGURE 4: U.S. TREASURY WEIGHTED AVERAGE MATURITY OF MARKETABLE DEBT
Source: U.S. Treasury Office of Debt Management, Fiscal Year 2012 Q1 Report
On both sides of the Atlantic, the largest contributors to the current crisis are excessive debt and spending. We are now at a point where additional government stimulus measures will have negligible, if not detrimental effects on the economy and long-term growth. Debt has to be reduced, not increased by more deficits. Central planners have demonstrated that they don’t have the discipline to implement the Keynesian model of surplus in good times in order to finance deficits in bad times. We have now reached the limit of indebtedness and need to muddle through a painful but necessary deleveraging.
The politically favoured option of financial repression and negative real interest rates has important implications. Negative real interest rates are basically a thinly disguised tax on savers and a subsidy to profligate borrowers. By definition, taxes distort incentives and, as discussed earlier, discourage savings. Also, financial institutions, which are traditionally supposed to funnel savings towards productive investments, are restrained from doing so because a large share of their balance sheets is encumbered by government securities. The same is true for pension funds, which instead of holding corporate paper or shares, now hold an ever growing share of public debt. Pensioners, who are also savers, get hurt in the process.
The current misconception that our economic salvation lies with more stimulus is both treacherous and self-defeating. As long as we continue down this path, the “solution” will continue to be the problem. There is no miracle cure to our current woes and recent proposals by central planners risk worsening the economic outlook for decades to come.
1 Bergh, A., Henrekson, M. (2011): “Government Size and Growth: A Survey and Interpretation of the Evidence”, Research Institute of Industrial Economics, IFN Working Paper No. 858, April 2011.
2 Bergh, A., Karlsson, M., (2010): “Government Size and Growth: Accounting for Economic Freedom and Globalization”, Public Choice 142 (1–2): 195–213.
3 Reinhart, C., Rogoff, K. (2010): “From Financial Crash to Debt Crisis”, National Bureau of Economic Research, NBER Working Paper #15795, March 2010. Reinhart, C., Rogoff, K. (2011): “A Decade of Debt”, National Bureau of Economic Research, NBER Working Paper #16827, February 2011. Reinhart, C., (2012): “A Series of Unfortunate Events: Common Sequencing Patterns in Financial Crises”, National Bureau of Economic Research ,NBER Working Paper #17941, March 2012.
4 Reinhart, C., Sbrancia, B. (2011): “The Liquidation of Government Debt”, Bank of International Settlements – Monetary and Economic Department, BIS Working Paper #363, November 2011. Reinhart, C., Reinhart, V., Rogoff, K. (2012): “Debt Overhangs: Past and Present”, National Bureau of Economic Research ,NBER Working Paper #18015, April 2012.
5 McKinnon, R., (1973): “Money and Capital in Economic Development”, Washington DC: Brookings Institute. Shaw, E., (1973): “Financial Deepening in Economic Development”, New York: Oxford University Press.
6 Bordeleau, E., Graham, C., (2010): “The Impact of Liquidity on Bank Profitability”, Bank of Canada Working Paper, WP#2010-38, December 2010.
Tags: Central Planners, Detrimental Impact, Economic Theory, Economic Woes, Empirical Studies, Eric Sprott, GDP Growth, Government Intervention, government spending, India, Industrial Economics, Investment Outlook, Monetary Base, Monetary Measures, Negative Relationship, Overwhelming Evidence, Perverse Effects, Productive Investments, Public Debt, Rich Countries, Sprott, Unprecedented Levels
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Monday, July 30th, 2012
by John Hussman, Hussman Funds
The enthusiasm of investors about central-bank interventions has reached a pitch that is already well-reflected in market prices, and a level of confidence that with little doubt, investors will ultimately regret. In the face of this enthusiasm, one almost wonders why nations across the world and throughout recorded history have ever had to deal with economic recessions or fluctuations in the financial markets. The current, widely-embraced message is that there is no such thing as an economic problem, and no such thing as risk. Bernanke, Draghi and other central bankers have finally figured it out, and now, as a result, economic recessions and market downturns never have to happen again. They just won’t allow it, printing more money will solve everything, and that’s all that any of us need to understand. And if it doesn’t solve everything, they can just keep doing more until it works, because there is no consequence to doing so, and all historical evidence to the contrary can finally, thankfully, be ignored. How could anyone ever have believed, at any point in history, that economics was any more complicated than that?
Unfortunately, the full force of economic history suggests a different narrative. Up to a certain point, which seems to be about 100-120% debt-to-GDP, countries can pull themselves from the brink of sovereign crisis through a combination of austerity (spending reductions), restructuring (putting insolvent financial institutions into receivership and altering the terms of unworkable private and public debt), and monetization (relief of government debt through the permanent creation of currency). Austerity generally reduces economic growth (and corporate profits) in a way that delivers less debt reduction benefit than expected, restructuring is often stimulative to growth because good new capital no longer has to subsidize old misallocations, but is politically contentious, and monetization of bad debt produces clear but often quite delayed inflationary pressures. None of these choices is simple.
Moreover, once countries have created massive deficits and debt burdens beyond about 120% of GDP – typically not to accumulate of productive assets and investments that service that debt, but instead to fund consumption, bail out insolvency, and compensate labor without output – austerity produces further economic depression, restructuring becomes disorderly and produces further economic depression, and attempts at monetization tend to be hyperinflationary.
Europe is fast approaching the point at which every solution will be disruptive, and remains urgently in need of debt restructuring, particularly across its banking system. It is a pleasant but time-consuming fantasy to believe that governments that are already approaching their own insolvency thresholds can effectively bail out a banking system that has already surpassed them. To expect the ECB to simply print money to solve the sovereign debt problems of Spain, Italy and other members is also dangerous. This hope prevents these nations from taking receivership of insolvent institutions now, and allows them to continue to operate in a way that threatens much more disorderly outcomes later. The reality is that Europe is not a unified economic and political entity with a single national character and obligations that are mutualized among its members. It is instead a geographic region where the economic, political and cultural differences remain very distinct. While each country is willing to cooperate in setting common rules and practices that are to their own benefit, they are unlikely to cooperate when it comes to decisions that require the stronger economies to interminably subsidize the insolvent ones through direct fiscal transfers or permanent money creation that has the same effect.
With regard to last week’s ebullience over the possibility of ECB buying of sovereign debt, my concern continues to be the danger of assuming that a solvency problem can simply be addressed as a liquidity problem. If the European Central Bank buys Spanish or Italian debt in volume, there is very little likelihood that it will ever be able to disgorge this debt. This is because: any eventual ECB sales of debt holdings – or failure to roll those holdings over – will have to be offset by private demand in the same amount, when Spanish and Italian debt/GDP ratios are unlikely to be smaller; the European banking system is already largely insolvent, and; the European continent is already in recession, which means that the volume of distressed sovereign debt is likely to expand even beyond the reasonable capacity of the ECB to absorb it. So major ECB purchases would effectively amount to money-printing, and Germany, Finland and other countries in opposition are fully aware of that. Reversible liquidity operations may be monetary policy, but non-reversible money-printing is quite simply fiscal policy.
For a review of some of the issues the ECB faces, see Why the ECB Won’t (and Shouldn’t) Just Print. In evaluating the repeated assurances that emerge out of Europe, keep in mind that details matter. For example, the phrase “Germany is prepared to do everything that is necessary to defend the Euro” has repeatedly meant “everything that is politically necessary” and “everything that is legally required.” It has also been demonstrated again and again that Germany (among other stronger European countries) has no intention of allowing a blank check for direct EFSF or ECB bailouts without a change in the EU law that imposes a surrender of fiscal sovereignty and centralized fiscal control of Euro member countries. Following Thursday’s assurances by ECB head Mario Draghi to protect the Euro (just after Germany’s Angela Merkel left on a hiking trip), it took until Saturday for the German finance minister to step into the void with the predictable, “No, these speculations are unfounded.” It was widely reported that Germany again tossed out the “everything that is necessary” bone on Sunday, but one had to read the French dispatch to find that this accord referred to nothing but an agreement between Germany and Italy to do everything necessary to quickly implement June’s plan for a plan to establish a centralized banking regulator: l’Allemagne et l’Italie sont d’accord pour “que les conclusions du conseil européen des 28 et 29 juin soient mises en oeuvre aussi rapidement que possible.”
In the U.S., quantitative easing has had the effect of helping oversold financial markets recover or slightly surpass the peak that the S&P 500 Index achieved over the preceding 6-month period, but there is much less evidence that it will do much for the financial markets when prices are already elevated and risk-premiums already deeply depressed (see What if the Fed Throws a QE3 and Nobody Comes?). The upper Bollinger band of the S&P 500 on both weekly and monthly resolutions is at about 1430. That level represents our best estimate for the market’s upside potential in the event that the Federal Reserve initiates a third program of quantitative easing. Given that our economic measures continue to indicate that the U.S. has entered a new recession, it is not clear that another round of QE will even achieve that effect.
In the event that another round of QE has a greater or more durable effect, we’ve introduced enough additional constraints on our staggered-strike hedges that we wouldn’t expect the decay in option premium that we experienced during QE2. The market reestablished an “overvalued, overbought, overbullish” syndrome last week, so another round of QE is unlikely to move us to a significantly constructive investment stance as long as that syndrome is in place. Still, we don’t expect to move our strike prices higher in the event of further improvement in market internals, so the “tight” character of our present hedge will moderate in the event the market advances from here. Suffice it to say that I’m not worried that another round of QE will create difficulties for our approach, though it should also be clear that such an event wouldn’t automatically prompt us to shift to a bullish investment stance.
What worries me most
Investors sometimes ask what I worry about most from the perspective of our investment strategy. Do I worry that the Fed will initiate another round of QE and distort the markets to such an extent and duration that our approach will not capture new realities? Do I worry that government interventions have created a world where old economic rules and relationships no longer apply? Do I worry about the quality of government statistics or the potential for misreporting or seasonal adjustment distortions in the data we use? The answer is that all of these issues can exert a short-run influence on the course of our investment approach, but none of them alter the relationship between valuations and long-term returns, and I don’t expect any of them to significantly reduce the effectiveness of our strategy over the complete market cycle.
As I noted as the market approached its highs a few months ago, what I worry about most is that conservative investors will become impatient with maintaining a defensive position in a dangerous and elevated market – not because investment prospects have materially improved, but simply because short-lived runs of speculative relief seem too enticing to miss. Volatile but ultimately directionless periods of elevated valuations, as we saw in 2000-early 2001, 2007-early 2008, and which we’ve observed since April 2010, tend to exhaust defensive investors and encourage complacency toward market risk at the worst possible time.
Certainly, for our shareholders in Strategic Growth Fund, I’ve compounded this impatience, because our “miss” in 2009-early 2010 – which I would not expect to be repeated in future cycles even under identical conditions – blends in with our defensiveness since early-2010, which aside from a few differences related to option positions, I would expect to be repeated in future cycles under identical conditions. The result is one long period of defensiveness, which understandably leaves those unfamiliar with that 2009-early 2010 period with the assumption that our approach will never be constructive.
I view these weekly comments as something of a conversation with shareholders, so I do my best to address questions that come up more than once or twice in a short period of time. In Strategic Growth Fund, understanding performance in recent years is one of those questions, so I ask the indulgence of shareholders who have walked through this discussion before, and I hope that the comments are useful even for those that have. Thanks.
Let’s first address the period since early 2010. Given the policy of central banks in recent years to provide what amount to free put options to investors, there are certainly ways we could have saved a few percent in actual put option premium (incorporated in our present methods as added criteria related to trend-following measures). But the fact is that the S&P 500 Index was within 5% of its April 2010 peak only a few weeks ago, and there remains a strong risk that the market will move significantly below that level in the months ahead. From a historical standpoint, the conditions we’ve seen since early-2010 have warranted a generally defensive position, and the negatives have accelerated significantly in recent months. We would expect to adopt a similarly defensive position again in future cycles under the same conditions. The only way to get around that would to be to take actions that would have produced significant losses if they were taken regularly on a historical basis.
Unfortunately, the warranted and repeatable defensiveness we’ve adopted since 2010 blends in with a non-recurring intervention during 2009-early 2010 (which I discussed regularly during that period) to ensure that our hedging approach was robust to Depression-era data.
Recall that this intervention was not driven by any problem with the performance of our investment approach. Indeed, by the beginning of 2009, a dollar invested in Strategic Growth Fund at its inception in 2000 had grown to about four times the value of the same investment in the S&P 500 Index. The Fund was ahead of the S&P 500 at every standard and non-standard investment horizon, with dramatically smaller losses. For example, from the 2007 stock market peak, the S&P 500 Index had suffered a peak-to-trough loss of 55.25%, while the deepest loss experienced by Strategic Growth Fund was 21.45%. To put that difference in perspective, note that simply moving from a 55.25% loss to a 21.45% loss requires an offsetting recovery of 75.53%. It takes extraordinary good fortune to recover from deep drawdowns, which is why we make such an effort to avoid them.
Still, as the credit crisis worsened in 2009, it became clear that both the economy and the financial markets were behaving in ways that were “out of sample” from the standpoint of the post-war data on which our existing return/risk estimates were based. That kind of situation demands stress-testing; a concept that too few investors take seriously until it’s too late. I took our existing approach to Depression-era data and found that though it performed reasonably well over the full period from a return perspective, it also allowed a number of very deep interim losses before recovering. Even though our approach had performed well, a Depression-like outcome could not be ruled out (and to some degree still can’t), so I insisted that our methods should be robust to “holdout” data from both the Depression era and the post-war period. I discussed that challenge repeatedly in the weekly comments and annual reports as our “two data sets” problem. We reached a satisfactory solution in 2010 through the introduction of ensemble methods in our hedging approach. But by that point, we had also missed a significant market rebound.
The result has been my elevation to the title of Permabear, Doomsayer, and other lovely aliases. It’s kind of tragic that I both lessened my reputation and missed returns for shareholders – though I expect only temporarily – because of what I viewed (and continue to view) as fiduciary duty. At least shareholders can be sure that I’ll never knowingly lead them down a rabbit hole. While we have – apart from the most recent cycle – been successful in strongly outperforming the market over complete cycles (bull-peak to bull-peak, bear-trough to bear-trough) with substantially smaller drawdowns, it’s important to recognize that we do have a much greater tolerance for tracking differences versus the S&P 500 over the course of the market cycle than some investors can accept. Our investment approach is simply not appropriate for those investors. Significant tracking differences will occur again and again over time, because they are inherent in our approach, particularly in the richly-valued portion of a given market cycle.
Meanwhile, I’m confident that that our stress-testing miss during the most recent cycle (which works out to a cumulative lag of just under 13% over the peak-to-peak market cycle from 2007-2012) is something we can more than offset in future cycles. Also, given our willingness to remove the majority of our hedges in early 2003 at valuations that were in no way compelling from a historical standpoint, it should be clear that we don’t require Armageddon to adopt a constructive or even aggressive investment stance.
So what do I worry about? I worry that investors forget how devastating a deep investment loss can be on a portfolio. I worry that the constant hope for central bank action has given investors a false sense of security that recessions and deep market downturns can be made obsolete. I worry that the depth of the recessions and downturns – when they occur – will be much deeper precisely because of the speculation, moral hazard, and misallocation of resources that monetary authorities have encouraged. I worry that both a global recession and severe market downturn are closer at hand than investors assume, partly despite, and partly because, they have so fully embraced the illusory salvation of monetary intervention.
Our measures of prospective stock market return/risk deteriorated slightly last week, from the most negative 0.8% of market history, to the most negative 0.6%. These are minor distinctions, of course, but it is important to emphasize how rare and negative present conditions are from a historical standpoint. I recognize that many analysts consider stocks to be cheap on the basis of “forward operating earnings,” but I continue to believe that the 50-70% elevation in profit margins relative to historical norms is an artifact of extreme deficit spending and depressed savings rates, and that as a U.S. recession unfolds, profit margins and forward earnings estimates will collapse. This is currently seen as heresy (as was my assertion just before the tech-collapse that technology earnings would turn out to be cyclical), but that’s how earnings and profit margins work.
Looking out anywhere from 2 weeks to 18 months, our measures remain very defensive, with the worst horizon being about 7 months out. Additional firming in market action from here would modestly improve our near-term measures of prospective return (which are more dependent on trend-following factors), but would generate little improvement beyond a horizon of several weeks. Meanwhile, our estimate of prospective 10-year S&P 500 total returns (nominal) is now only 4.7%. This figure may seem appealing relative to a 1.5% yield on 10-year Treasury bonds, but as I’ve noted before, you don’t “lock in” a long-term return on an investment; you ride it out over time. My expectation is that this ride will be extremely uncomfortable for passive buy-and-hold investors over the coming decade, and that there will be numerous opportunities to accept both stock and bond market risk at substantially higher prospective returns.
Strategic Growth and Strategic International remain tightly hedged, Strategic Dividend Value remains hedged at about half of the value of its holdings – its most defensive stance, and Strategic Total Return continues to carry a duration of about one year, with about 10% of assets in precious metals shares and a few percent of assets in utility shares and foreign currencies.
Tags: Austerity, Bad Debt, Brink, Corporate Profits, Debt Reduction, Draghi, Economic Growth, Economic History, Economic Problem, Economic Recessions, Evidence To The Contrary, Financial Institutions, Financial Markets, Fluctuations, Full Force, Government Debt, Hussman, Hussman Funds, John Hussman, Public Debt, Receivership
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Friday, June 8th, 2012
by Tatjana Michel, Director, Currency Analysis, Schwab Center for Financial Research
- A Greek exit from the eurozone has gone from “unthinkable” to a distinct possibility. Years of steep economic decline and unsustainable public debt have increased the odds that the country will once again default on its debt and possibly return to the drachma.
- A Greek default/exit would present risks to the European banking system, could cause a severe downturn in the Greek economy and might trigger contagion that spreads to countries like Spain, Ireland and Portugal.
- The European Central Bank and other institutions theoretically have tools to lower contagion risk, but may lack the time and political will to use them.
- Ultimately, the exit of one country from the euro could lead to the exits of other countries and a breakup of the euro as it’s currently known.
- We suggest investors limit exposure to European bond markets and the euro, both of which are likely to experience more downside.
The May 6 elections in Greece ousted the party that had negotiated and agreed to the bailout package offered by the European Central Bank (ECB), International Monetary Fund (IMF) and European Commission (EC). This group, often referred to as the “troika,” provided bailout funding to the Greek government so that it could cover its debt payments in exchange for a promise that the country would bring its budget deficit and debt down by reducing spending and raising taxes. Greek voters have effectively rejected the agreement because of the negative impact that spending cuts have on their economy, which is already in deep recession. No party won a majority in parliament in the May elections and a coalition could not be formed. Therefore, new elections are scheduled on June 17.
If the new government insists on renegotiating the terms of the current bailout plan, new talks with the troika will have to take place shortly after the election. If there is no agreement, the troika could decide to deny Greece its next chunk of bail-out money, which would likely lead to a default on Greece’s sovereign bonds.
Greece needs to form a new government and reach an agreement with the troika before it runs out of money in July 2012. If they reach an agreement, Greece is likely to stay in the eurozone but would need to stick to the new austerity plan to continue receiving aid.
Greek opinion polls show elections are wide open
According to recent poll results, the June 17 elections are wide open and could very well lead to a government that meets Europe’s terms for keeping Greece in the euro. However, it could also put in power a coalition government that’s firmly against austerity—positioning Greece for an exit from the euro.
Scenario 1: Coalition around New Democracy keeps Greece in
Although traditionally powerful Greek political parties like the Pan-Hellenic Socialist Movement (PASOK) and New Democracy (ND) have seen their influence wane in recent years, ND has been catching up with the anti-austerity Coalition of the Radical Left (SYRIZA) party since May 6. Should ND be able to get the upper hand in the June 17 elections, it would increase the likelihood of an agreement with the troika.
Source: Greek Ministry of Interior
*PASOK (Pan-Hellenic Socialist Movement), ND (New Democracy), DISY (Democratic Alliance), KKE (Communist Party of Greece), LAOS (Popular Orthodox Rally), SYRIZA (Coalition of the Radical Left), DIMAR (Democratic Left), ANEL (Independent Greeks), XA (Popular Union). ** Projected estimate of vote tally, after disregarding all blank votes and absentees, and after adjusting for the “likely votes” of “undecided voters.
Scenario 2: Coalition around SYRIZA precipitates Greece’s exit
SYRIZA, on the other hand, has denounced the current austerity plan. Party leader Alexis Tsipras believes Greece can stay in the euro and continue receiving money while cutting austerity measures—something Germany and other creditors probably aren’t going to like. If SYRIZA gains control, it would likely make the negotiations with the troika difficult and increase the risk of a Greek default and exit.
Tags: Bailout Package, Bailout Plan, Budget Deficit, Contagion, Currency Analysis, Currency Crisis, Debt Payments, Distinct Possibility, Drachma, Economic Decline, Elections In Greece, ETF, ETFs, European Banking System, European Bond Markets, Eurozone, Greek Economy, Greek Government, International Monetary Fund, International Monetary Fund Imf, Public Debt, Troika
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Thursday, December 22nd, 2011
It is finally here. No, I do not mean the ECB’s botched effort at rescuing the financial sector and promoting the carry trade. I am, of course, talking about Christmas. The season to be jolly and perform obscure acts like singing on your neighbours doorstep despite never usually speaking to them.
“Christmas waves a magic wand over this world, and behold, everything is softer and more beautiful”
Norman Vincent Peale
Here at Tick By Tick, we take Christmas very seriously. As a result, we feel obliged to provide you, the loyal reader, with a present of our own. (Drumroll please). I would like to present Tick By Tick’s 12 Economic Facts of Christmas
- In the last 12 months, the Federal Reserve has increased Money Supplied to the Economy (M2) by 9.9%.
- Despite the Insolvency of Europe. If you had shorted EURUSD at this very day last year, you would have only made a 0.7% profit.
- The Greek Stock Index (ASE) has outperformed Citigroup by 10.36% if held for the last 5 years. If you discount the reverse stock split, Citigroup is now trading at $2.60 vs. $55.70 in 2007.
- Consumer Goods producer Procter & Gamble can now borrow money over a 5 year period for less than every Eurozone member with the exceptions of Germany and Finland.
- Linkedin, Pandora and Groupon are all loss leading companies. Yet, if you had bought their stock at IPO, you would have made +171%, 8.9% and 50% in the first days trading.
- China’s stock market is now trading at the same level as it was during Q3 of 2000. During this period, Chinese GDP has almost tripled.
- The sum of all US debt both Public and Private equates to $56tn with underfunded future liabilities of $1 037 000 per capita. The official US public debt figure reached 100% of GDP just yesterday.
- “Legendary” Hedge Fund Manager John Paulson, about whom a variety of books have been written, has lost over 50% of his funds value in this past year.
- In a Bloomberg poll held during December 2011, eleven Sell Side Analysts predicted, on average, that the S&P 500 would grow by 11% to 1379. Of these, the most bullish was Goldman Sachs who openly predicted a 17% rally. The index of the 500 largest American companies is currently down 1.49% YTD.
- Being long S&P Volatility has been a successful strategy for 4 of the last 5 years.
- In the last month, Bloomberg have published 25 179 articles with the words Europe and Concern included in the prose.
12. Santa has to visit 832 Homes per Second to deliver all of his gifts.
Before I leave you for Turkey and a range of other customary foods, I would like to openly thank Grant Williams for encouraging me to start Tick By Tick and write independently. Without his words of wisdom, criticism and encouragement, the prose that you are reading would be nothing more than synapses firing in the grey matter that is my brain. I would also like to thank you, the reader, for showing faith in my work and both sharing and critiquing my ideas. 2012 is going to be a very important year and I look forward to making it that little bit more interesting for all of you.
Tags: Carry Trade, Citigroup, Consumer Goods, Doorstep, Drumroll, ECB, Economic Facts, Financial Sector, Hedge Fund Manager, Insolvency, John Paulson, Leading Companies, Linkedin, Loyal Reader, Magic Wand, Norman Vincent Peale, Procter Amp Gamble, Public Debt, Reverse Stock Split, Stock Index
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Friday, December 16th, 2011
Here, without further comment is Mark Carney’s speech to the Empire Club/Canadian Club of Toronto, from earlier this week, which The Globe and Mail’s Jeffrey Simpson called ”so intelligent in its analysis and perceptive in its recommendations that it stands as the best speech by any public figure in Ottawa in a very, very long time.”
from Bank of Canada Governor, Mark Carney’s speech:
These are trying times.
In our largest trading partner, households are undergoing a long process of balance-sheet repair. Partly as a consequence, American demand for Canadian exports is $30 billion lower than normal.
In Europe, a renewed crisis is underway. An increasing number of countries are being forced to pay unsustainable rates on their borrowings. With a vicious deleveraging process taking hold in its banking sector, the euro area is sinking into recession. Given ties of trade, finance and confidence, the rest of the world is beginning to feel the effects.
Most fundamentally, current events mark a rupture. Advanced economies have steadily increased leverage for decades. That era is now decisively over. The direction may be clear, but the magnitude and abruptness of the process are not. It could be long and orderly or it could be sharp and chaotic. How we manage it will do much to determine our relative prosperity.
This is my subject today: how Canada can grow in this environment of global deleveraging.
How We Got Here: The Debt Super Cycle
First, it is important to get a sense of the scale of the challenge.
Accumulating the mountain of debt now weighing on advanced economies has been the work of a generation. Across G-7 countries, total non-financial debt has doubled since 1980 to 300 per cent of GDP. Global public debt to global GDP is almost at 80 per cent, equivalent to levels that have historically been associated with widespread sovereign defaults.1
The debt super cycle has manifested itself in different ways in different countries. In Japan and Italy, for example, increases in government borrowing have led the way. In the United States and United Kingdom, increases in household debt have been more significant, at least until recently. For the most part, increases in non-financial corporate debt have been modest to negative over the past thirty years.
In general, the more that households and governments drive leverage, the less the productive capacity of the economy expands, and, the less sustainable the overall debt burden ultimately is.
Another general lesson is that excessive private debts usually end up in the public sector one way or another. Private defaults often mean public rescues of banking sectors; recessions fed by deleveraging usually prompt expansionary fiscal policies. This means that the public debt of most advanced economies can be expected to rise above the 90 per cent threshold historically associated with slower economic growth.2
The cases of Europe and the United States are instructive.
Today, American aggregate non-financial debt is at levels similar to those last seen in the midst of the Great Depression. At 250 per cent of GDP, that debt burden is equivalent to almost US$120,000 for every American (Chart 1).3
Several factors drove a massive increase in American household leverage. Demographics have played a role, with the shape of the debt cycle tracking the progression of baby boomers through the workforce.
The stagnation of middle-class real wages (itself the product of technology and globalisation) meant households had to borrow if they wanted to maintain consumption growth.4
Financial innovation made it easier to do so. And the ready supply of foreign capital from the global savings glut made it cheaper.
Most importantly, complacency among individuals and institutions, fed by a long period of macroeconomic stability and rising asset prices, made this remorseless borrowing seem sensible.
From an aggregate perspective, the euro area’s debt metrics do not look as daunting. Its aggregate public debt burden is lower than that of the United States and Japan. The euro area’s current account with the rest of the world is roughly balanced, as it has been for some time. But these aggregate measures mask large internal imbalances. As so often with debt, distribution matters (Chart 2).
Europe’s problems are partly a product of the initial success of the single currency. After its launch, cross-border lending exploded. Easy money fed booms, which flattered government fiscal positions and supported bank balance sheets.
Over time, competitiveness eroded. Euro-wide price stability masked large differences in national inflation rates. Unit labour costs in peripheral countries shot up relative to the core economies, particularly Germany. The resulting deterioration in competitiveness has made the continuation of past trends unsustainable (Chart 3). Growth models across Europe must radically change.
Use full screen for the easy read:
Tags: Balance Sheet, Bank Of Canada, Bank Of Canada Governor, Banking Sector, Borrowings, Canadian Exports, Countr, Empire Club, Financial Debt, Global Gdp, Globe And Mail, Globe Mail, Jeffrey Simpson, Mark Carney, Number Of Countries, Public Debt, Recession, Relative Prosperity, Speech Introduction, Trade Finance, Trying Times
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Thursday, December 8th, 2011
It is no surprise that there is both an implicit and explicit link between financial entity risk and that of their local sovereign overlord. The multitude of transmission channels is large and the causalities, not merely correlations, run both ways, providing for both virtuous (2009 perhaps) and vicious (2010-Present) circles. Goldman Sachs, in its 2012 investment grade credit outlook takes on the topic of the feedback loop which is engulfing financials and sovereigns currently – noting that despite the ‘optical’ cheapness of financial spreads to non-financials (and equities) that it is unlikely to compress significantly without a ‘solution’ to the sovereign crisis being well behind us. The key takeaway is that pre-crisis sovereign credit premia were, in hindsight, uneconomically tight (unrealistic) and expectations of a return to those levels is incorrect as they see the current repricing of sovereign risk as a paradigm shift as opposed to temporary repricing due to market stress. “Sovereign spreads will likely emerge from the crisis both more elevated and more dispersed”, meaning floors on bank spreads will be elevated and deleveraging pressures to be maintained raising the real risk, outside of spam-and-guns Euro-zone crashes, of a potential credit crunch. This is already evident in European loan spreads, which as we have discussed many times is the primary source of funds (as opposed to public debt markets as in the US).
Goldman Sachs: The Feedback Loop Between Sovereigns And Financials
The spread differential between financials and non-financials is at all-time highs. Even so, we do not expect this relative spread premium to compress until the risk from the European sovereign crisis is safely behind us. Financials remain disproportionately exposed to the interaction of downside macro risk and the enormous pressure under which European sovereigns and banks are laboring. Exhibit 15 shows that US and European bank spreads have been highly correlated with European sovereign spreads in 2011—a trend we expect to persist in the next few months. It is therefore hard for us to see how financial spreads can outperform as the crisis worsens (which in our view is still the most likely scenario from here).
It now seems clear that European policy efforts will not try to stabilize sovereign credit spreads at pre-crisis sovereign spread levels. In hindsight, the credit premium built into sovereign spreads were unrealistic. Looking forward, the ECB (backed by the Germans) has publicly resisted the notion that it either can or should push back against the market’s recent repricing of this risk. Instead, policy makers want to see peripheral sovereigns make the adjustments to domestic demand necessary to accommodate this sharp increase in sovereign borrowing costs.
There will be even greater pressure on sovereign spreads in the near term since the core countries and ECB clearly need to keep the external pressure elevated to assure the continued adaption of austerity measures. The “benefits” of austerity will not likely be visible for at least a year (on the contrary, the front-loaded portions of these austerity measures will most likely prove counter-productive). And demands for austerity are more likely to grow as it becomes evident that the repricing of sovereign risk has a large permanent component, reflecting a paradigm shift in the pricing of sovereign risk as opposed to a temporary repricing of market stress. Sovereign spreads will likely emerge from the crisis both more elevated and more dispersed.
For banks, this means credit spreads are almost surely going to embed a persistent premium for sovereign risk. This logic implies there is much less upside room for spread tightening in periphery banks than a simple naïve benchmarking to pre-crisis levels would suggest.
We also expect deleveraging pressures on banks to remain high. The magnitude of announced deleveraging plans of European banks already totals hundreds of billions. We expect the deleveraging trend to continue in 2012. This raises the risk of a potential credit crunch that would further weaken growth, which in return negatively impact banking activity, impair bank assets, and thus amplify the banking crisis.
To be clear, we think losses to senior bond holders of pillar banks in Europe are highly unlikely. Banks have significantly increased their liquidity positions, and we think the ECB can probably do enough to trim the tail risk of a Lehman-style shock. Nonetheless, the number of distressed banks that are now on the ECB “life-support” has increased as the sovereign crisis intensifies. The health of these banks is likely to deteriorate over time, making the final cost more expensive the longer the ECB has to provide this support.
This suggests the Senior-Sub decompression trade is warranted (as we have been saying for a while – pre-downgrades) and picking the carry on financials-non-financials seems like nothing but a beta play to us. Up-in-quality via Main ex-Financials may be lower carry but stands to benefit both ways and XOver looks set to suffer more if deleveraging forces a credit crunch.
Tags: All Time Highs, Correlations, Credit Crunch, Credit Outlook, Debt Markets, Euro Zone, European Sovereigns, Explicit Link, Feedback Loop, Financial Entity, Financial Spreads, Goldman Sachs, Hindsight, Public Debt, Repricing, Source Of Funds, Sovereign Risk, Spr, Takeaway, Transmission Channels
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Friday, November 11th, 2011
by Nouriel Roubini, via Project Syndicate
November 11, 2011, NEW YORK – The eurozone crisis seems to be reaching its climax, with Greece on the verge of default and an inglorious exit from the monetary union, and now Italy on the verge of losing market access. But the eurozone’s problems are much deeper. They are structural, and they severely affect at least four other economies: Ireland, Portugal, Cyprus, and Spain.
For the last decade, the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) were the eurozone’s consumers of first and last resort, spending more than their income and running ever-larger current-account deficits. Meanwhile, the eurozone core (Germany, the Netherlands, Austria, and France) comprised the producers of first and last resort, spending below their incomes and running ever-larger current-account surpluses.
These external imbalances were also driven by the euro’s strength since 2002, and by the divergence in real exchange rates and competitiveness within the eurozone. Unit labor costs fell in Germany and other parts of the core (as wage growth lagged that of productivity), leading to a real depreciation and rising current-account surpluses, while the reverse occurred in the PIIGS (and Cyprus), leading to real appreciation and widening current-account deficits. In Ireland and Spain, private savings collapsed, and a housing bubble fueled excessive consumption, while in Greece, Portugal, Cyprus, and Italy, it was excessive fiscal deficits that exacerbated external imbalances.
The resulting build-up of private and public debt in over-spending countries became unmanageable when housing bubbles burst (Ireland and Spain) and current-account deficits, fiscal gaps, or both became unsustainable throughout the eurozone’s periphery. Moreover, the peripheral countries’ large current-account deficits, fueled as they were by excessive consumption, were accompanied by economic stagnation and loss of competitiveness.
So, now what?
Read the Complete Article
Copyright © Project Syndicate
Tags: Account Deficits, Competitiveness, Current Account, Divergence, Economic Stagnation, Excessive Consumption, Fiscal Deficits, Housing Bubble, Ireland Italy, Italy Greece, Last Decade, Last Resort, Market Access, Monetary Union, Periphery, Private Savings, Project Syndicate, Public Debt, Roubini, Surpluses
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Thursday, April 14th, 2011
by Mark Mobius, Vice-chairman, Franklin Templeton Investments
Mexico has a wonderful combination of a dynamic economy with an active cultural scene. Just like other markets around the world, Mexico’s stock market suffered a crash at the end of 2008 and the beginning of 2009, moving from the 2007 high of almost 32,473 points to an October 2008 low of 16,979 points, an enormous decline. Since then it has climbed steadily, more than doubling to reach 38,600 points again at the beginning of this year.
The Mexican economy has mirrored the stock market. After a disastrous 6% contraction of the economy in 2009, Mexico grew by more than 5% last year and is expected to grow by 4% in 2011. Mexico took its medicine early in the crisis with fiscal reform in 2009 which included a value-added tax and cuts in government spending. The public deficit is now only 2.5% of the GDP and is expected to decrease to 2% in 2011. Public debt as a percent of GDP is 40%, which is considered reasonable when compared to other nations around the world. More importantly, foreign reserves are building up and have risen from the mid-2009 level of US$80 billion to over US$120 billion today.
As with other parts of the world, inflation is a worry but is currently about 4%, down from the 2008 high of 6.5%. Interest rates are also down. Nevertheless, unemployment is up to over 5%, a significant rise from the 2006 lows of 3.5%. As a result of its close economic ties to the U.S. economy and with most of its exports destined for that market, Mexico’s exports nosedived when the subprime crisis hit the U.S. economy. Since then, the country has seen rapid growth and recovery, and there are some concerns when the Mexican peso started strengthening against the US dollar. The strengthening of the peso makes food imports cheaper and helps to put some constraint on inflation. However, the processed food association has warned that rising commodity prices will force the producers to raise prices. The Secretary of the Economy commented that the strong domestic agricultural harvest in 2010 would be an ameliorating factor. The government clearly wanted to ensure that the prices of tortilla, Mexicans’ staple food, do not rise and has been hedging corn prices.
One of the bigger challenges for Mexico has been the increasingly negative headlines focused on its drug wars. Almost daily, we hear news coverage about the violence connected to the illegal drug trade and problems along the border between Mexico and the U.S. It is a very unfortunate situation that law enforcement officials on both sides of the border are working aggressively to address. While the negative publicity has not been good for tourism, one of Mexico’s most important industries which has seen visitors from the U.S. decline, it has not resulted in a wholesale abandonment of Mexico as a tourist destination. The beauty of Mexico, the culture and the beaches continue to draw visitors to Cancun, Los Cabos, Puerto Vallarta, Mexico City and other destinations bringing over US$12 billion in expenditures each year to Mexico. I’m confident that Mexico will conquer its drug violence problem and emerge stronger going forward.
 Source: BOLSA Index, in Mexican peso, as of Mar 11, 2011
 Source: IMF, WEO Update, as of January 2011.
 Source: EIU, as of Dec 2010.
 Source: EIU, as of Dec 2010.
 Source: IMF, as of Dec 2010.
 Source: IMF, WEO, as of October 2010.
 Source: Factset, as of Jan 31, 2011.
Tags: Commodity Prices, Constraint, Contraction, Dynamic Economy, Economic Ties, Fiscal Reform, Food Association, Food Imports, Franklin Templeton Investments, Mark Mobius, Mexican Economy, Mexican Peso, Processed Food, Public Debt, Public Deficit, Rapid Growth, Stock Market, Subprime Crisis, Vice Chairman, World Mexico
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Wednesday, March 23rd, 2011
As The World Turns
by Scott Brown, Ph.D., Chief Economist, Raymond James
March 21 – March 25, 2011
Japan’s earthquake/tsunami/nuclear tragedy and heightened tensions in the Middle East and North Africa have led to some concerns about the global economy, and in turn, the strength of the U.S. recovery. A weaker Japanese economy and supply-chain disruptions are detrimental to U.S. growth, but moderately and only short-term in nature. Developments in the Middle East and North Africa are more uncertain, but are likely to keep oil prices relatively elevated. None of this is expected to jeopardize the U.S. recovery, but it could keep growth from being as strong as was hoped for just a month ago.
Assessments of the damage from Japan’s earthquake and tsunami will become clearer over time, although the situation at damaged nuclear reactors is more uncertain. The disaster is a major setback for Japan’s economy, but natural disasters are typically followed by a period of rebuilding, which is positive for growth. More immediately, trade and supply-chain disruption will ripple around the world, although the impact on aggregate global growth is likely to be small. Before the quake, Japan was viewed to have a relatively high degree of excess capacity. In the weeks ahead, we can expect to see other parts of Japan making up a large part of the output lost in the damaged region.
Problems with the nuclear reactors may compound Japan’s recovery. Rolling blackouts, for example, could lead to supply-chain problems more broadly. It may also shift sentiment about nuclear power in other countries, adding somewhat to the price of oil over the long term (due to a relative increase in demand).
Is there a danger that Japan will dump its holdings of U.S. Treasuries to fund reconstruction? Not likely. Japan has a huge ratio of public debt to GDP, but also a very high private savings rate. The country should have no problem funding its rebuilding efforts. In the short-term, repatriation fears are a significant issue for the currency and fixed income markets. We normally see some capital coming back to Japan at the end of every quarter, and especially at the fiscal year-end (which is March), as a kind of “window-dressing” for corporate profits. Japanese firms will typically sell Treasury bills, repatriate the capital, then buy Treasury bills again at the start of the next quarter. The recent disaster means that this repatriation will likely be both larger and earlier than usual. The result is a short-term boost in the yen. A rally in the yen would not be helpful for Japanese exports. On Friday, G7 finance ministers and central bankers agreed to a coordinated intervention to halt the yen’s rise. Still, while any large-scale selling of U.S. notes and bonds is unlikely, there may be less Japanese demand at future U.S. Treasury auctions. The first big test will come next week, with the monthly auction of 2-, 5-, and 7-year Treasury notes.
Meanwhile, back in the Middle East and North Africa, tensions continued to simmer last week. As Col. Muammar el-Qaddafi appeared to gain the upper hand, the U.N. Security Council approved the creation of a no-fly zone in Libya. The Wall Street Journal reported that Egypt’s military was shipping arms to the opposition in Libya. With a pending threat of airstrikes by the western countries, Qaddafi reportedly called for a cease-fire. Protests continued in Yemen and Bahrain, as both countries declared states of emergency. Oil prices fell following Japan’s earthquake and tsunami, largely on expectations of weaker demand in the short-term (although longer-term oil contracts also declined). However, oil prices rebounded as attention turned back to the Middle East (up on the UN Security Council decision and down a bit on news of a possible cease-fire).
The U.S. economic outlook depends critically on the price of oil. If the recent surge in oil prices sticks, estimates of real GDP growth for this year would be shaved lower by 0.5% or more. A little over a month ago, the consensus view was that real GDP would grow 3.5% to 4.0% this year (4Q11-over-4Q10) – good, but not enough to generate substantial improvement in the job market. Now we’re talking about GDP growth in the 2.5% to 3.5% range – perfectly acceptable if the economy were at full employment, but it’s not. If oil prices continue to rise, the outlook for U.S. growth would be dampened further, but it would likely take a much larger increase in the price of oil ($135 or more) to cause a recession. If oil prices were to fall back to the $80-$90 range, the growth outlook would improve dramatically.
Last week, the Fed acknowledged that high prices of oil and other commodities will put upward pressure on consumer price inflation in the near term. However, the Fed expects the impact to be transitory. The key will be what happens to the underlying trends in inflation and inflation expectations. Some increase in core inflation (relative to last year) is welcome, but it doesn’t look like the trend will get out of hand.
Copyright © Raymond James
Tags: Chief Economist, Commodities, Currency, Disruptions, Excess Capacity, Global Economy, Global Growth, Japanese Economy, Natural Disasters, North Africa, Nuclear Reactors, Nuclear Tragedy, oil, Oil Prices, Price Of Oil, Private Savings, Public Debt, Raymond James, Relative Increase, Repatriation, Ripple, Rolling Blackouts, Treasuries
Posted in Commodities, Energy & Natural Resources, Markets, Oil and Gas, Outlook | Comments Off
Monday, January 17th, 2011
The United States’ total public debt outstanding was approximately $13.562 trillion at the end of the government’s fiscal year on 30 September 2010. As of 4 January 2011, the United States’ total public debt outstanding has surpassed 14 trillion dollars and is continuing to grow rapidly.
The chart below, courtesy of Politcal Calculations, shows U.S. individuals and institutions, when including the Social Security, U.S. Civil Service and Military trust funds own 62.2% of the U.S. national debt, while foreign nations own the remaining 37.8%.
The big surprise of the chart is that China, contrary to popular opinion, only owns 7.5% of the U.S. debt.
“All Other Foreign Nations” are all those except China (for which Hong Kong has been included), Japan, United Kingdom, Brazil and “Oil Exporters”.
“Oil exporters” include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria.
Tags: 4 January, Bahrain, Big Picture, Brazil, Civil Service, Contrary To Popular Opinion, Fiscal Year, Hat Tip, Libya, National Debt, Oil Exporters, Oman, Public Debt, Qatar, Saudi Arabia, Social Security, Surprise Surprise, Trillion, Trust Funds, United Arab Emirates, United Emirates
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