With all the talk of Greek debt unsustainability (and now, thanks to Jack Lew and the IMF, forgiveness), one would think that Greece – whose debt/GDP is set to rise to 238% according to Citi – is the only country in Europe which has debt problems. It’s not, and as the latest data from Eurostat confirms, as of Q1 2015, European debt rose to €9.4 trillion from €9.3 trillion, which is a new record high debt/GDP of 92.9%, up from 92.0% the previous quarter.
It wasn’t just the Euroarea of 19 EUR member nations that saw their debt increase: the broader European Union of 28 countries also saw its debt rise, and by a far more noticeable €300 billion, from €12.1 trillion to €12.4 trillion. >> Read More
There has been so much attention on Greece in recent weeks, but the truth is that Greece represents only a very tiny fraction of an unprecedented global debt bomb which threatens to explode at any moment. As you are about to see, there are 24 nations that are currently facing a full-blown debt crisis, and there are 14 more that are rapidly heading toward one. Right now, the debt to GDP ratio for the entire planet is up to an all-time record high of 286 percent, and globally there is approximately 200 TRILLION dollars of debt on the books. That breaks down to about $28,000 of debt for every man, woman and child on the entire planet. And since close to half of the population of the world lives on less than 10 dollars a day, there is no way that all of this debt can ever be repaid. The only “solution” under our current system is to kick the can down the road for as long as we can until this colossal debt pyramid finally collapses in upon itself.
As we are seeing in Greece, you can eventually accumulate so much debt that there is literally no way out. The other European nations are attempting to find a way to give Greece athird bailout, but that is like paying one credit card with another credit card because virtually everyone in Europe is absolutely drowning in debt.
Even if some “permanent solution” could be crafted for Greece, that would only solve a very small fraction of the overall problem that we are facing. The nations of the world have never been in this much debt before, and it gets worse with each passing day.
According to a new report from the Jubilee Debt Campaign, there are currently 24 countries in the world that are facing a full-blown debt crisis…
- Costa Rica
- Dominican Republic
- El Salvador
- The Gambia
- Marshall Islands
- Sri Lanka
- St Vincent and the Grenadines
>> Read More
Long after Greece has left the Eurozone and Germany is using the Deutsche Mark as its currency, the people of the two nations, antagonized to a level unseen since World War II, will be accusing each other of benefiting more from the brief but tumultuous period of the common currency.
In reality, nobody had put a gun to Greece’s head and told it to lever up, enriching local oligarchs and corrupt politicians, taking advantage of credit that was artificially cheap only due to the common currency and an implicit monetary, if not fiscal, union.
Germany, whose exports account for nearly 50% of GDP, on the other hand experienced an unprecedented exporting golden age, made possible only due to an artificial currency, the Euro, that was by definition created to be weaker than the Deutsche Mark and benefitted from any bout of weakness in Europe’s periphery, such as the past 5 years.
The truth is, when things were good nobody second-guessed any decisions for a second, and since the rising economic tide lifted all boats, nobody cared.
And then the tide rolled out, displaced by trillions in bad loans and gargantuan mountains of sovereign and financial debt, which ultimately would lead to the first, then second, then third and then an all-out cascade of sovereign defaults. >> Read More
The Greeks Voted this Sunday for an end to Austerity. And thereby reneged on the Debt they owe to others. Greek with a per capita income of Eur 21000 is not a comparison point for India.But certain similarities exist-National Debt for both nations exceeds the GDP. This is heavy sword above our shoulders, and will become threateningly huge if the current dispensation in Delhi continues to pursue pipe dreams like Rs 100,000 Cr worth of Solar Power and Bullet Trains. Even building Smart Cities is nothing short of a disaster.
Way back in 1984, that is 3 decades ago, Rajiv Gandhi realised Capital Intensive projects create no jobs but squeeze out all the capital from the financial system. The mad men hired from Columbia by the current government just do not see that. In the name of development, they are pursuing an agenda of debt with no returns.
India has been blessed with strong Central Bank Governors. And Governor Rajan too is fighting a lone battle. He intends to raise the FII limits on GOI debt after consulting SEBI. Currently, RBI has all sorts of restrictions on foreign investments:
- They can’t buy more than $25 billion worth of government bonds
- And that too only with 3 year residual maturity (so no short term paper)
- And then also, when holdings reach 90% of the limit, there are auctions in which they have to bid to buy allocations for the remaining
- They’ve paid as much as 0.8% for such limits (which means their effective yield comes down correspondingly)
- And then they have $5bn as a special limit for certain kinds of investors (sovereign wealth funds etc)
- All these limits are in dollars, but converted to rupees at a rate that is historical. Currently they use about Rs. 50 to a dollar so the limits are Rs. 125,000 cr. (if they used the 63 value that the rupee is at currently, the limit would be more than 150,000 cr.)
Foreigners own just 3% of the total debt issued by the government and they have maxed their limits. The latter part is good, fewer FII buyers of Debt mean lesser chances of a Greek situation three years down. In the short run, this money will only protect the Rupee and India from inflation. In the long term we need to earn the USDs, Solar Power and Bullet Trains will earn nothing.
The big story in the world is the bond bubble.
For over 30 years, sovereign nations, particularly in the West have been buying votes by offering social payments in the form of welfare, Medicare, social security, and the like.
The ridiculousness of this should not be lost on anyone. Politicians, in order to be elected, promise to allocate taxpayer funds on social programs that will benefit said taxpayers down the road (we’re simply talking about social spending, not infrastructure or other costs.
The concept that taxpayers might simply just keep the money to begin with never enters the equation. And because everyone believes that they are somehow spending someone else’smoney, they play along.
When you believe that you are spending someone else’s money, it’s very easy to write a blank check, which is precisely what Western nations have been doing for years, promising everyone a safe and secure retirement without ever bothering to see where the money would come from. >> Read More
Fitch Ratings has affirmed Russia’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BBB-’ with a Negative Outlook. The senior foreign currency and local currency unsecured debt ratings have been affirmed at ‘BBB-’. The Country Ceiling has been affirmed at ‘BBB-’ and the Short-term rating at ‘F3′.
KEY RATING DRIVERS
Russia’s ‘BBB-’ ratings balance a strong sovereign balance sheet and low sovereign financing needs against structural weaknesses (commodity dependence and governance risks), high growth volatility and geopolitical tensions.
Fitch forecasts Russia’s economy will contract in 2015 by 3.5% after being hit by multiple shocks in 2014: a fall in oil prices, depreciation of the rouble and the imposition of sanctions by the US and EU in response to the conflict in Ukraine. Having contracted by 2.2% in 1Q15, the economy will contract further in 2Q15. Fitch expects real GDP to grow by 1% in 2016. Russia has recovered some competitiveness, but the medium-term growth outlook is the weakest of major emerging markets, at 1%-2%.
The Central Bank of Russia’s (CBR) policy response and a recovery in oil prices have stabilised the rouble and begun to lead to falling inflation. The CBR has cut rates by a cumulative 550bps since December 2014′s emergency rate hike, and expects inflation to reach single digits in early 2016. Inflation was 15.4% year on year in May but decelerated to 0.4% month on month in April and May.
>> Read More
The finance ministry may consider setting the limit for foreign institutional investment in gilt (government debt) in rupees instead of dollars.
A rupee ceiling will not only ensure higher foreign investments in government paper but also boost the Indian currency, which has been steadily depreciating over the past few weeks.
The news sent bonds and the rupee rallying on Friday.
Analysts feel such a step could effectively increase debt limits by $5.8 billion.
India’s current debt limit of $25 billion for government bonds is fully utilised. The country has also set aside another $5 billion for long-term foreign investors such as sovereign wealth funds, pension, insurance funds and central banks. >> Read More
A report from the Hellenic Parliament that says Greece should not pay the Troika
A truth committee was set up to look at whether the debts imposed on Greece were valid and their findings have been released today
“All the evidence we present in this report shows that Greece not only does not have the ability to pay this debt, but also should not pay this debt first and foremost because the debt emerging from the Troika‘s arrangements is a direct infringement on the fundamental human rights of the residents of Greece. Hence, we came to the conclusion that Greece should not pay this debt because it is illegal, illegitimate, and odious.”
“Having concluded a preliminary investigation, the Committee considers that Greece has been and still is the victim of an attack premeditated and organized by the International Monetary Fund, the European Central Bank, and the European Commission. This violent, illegal, and immoral mission aimed exclusively at shifting private debt onto the public sector.”
Athens, June 17, 2015
Hellenic Parliament’s Debt Truth Committee Preliminary Findings – Executive Summary of the report
>> Read More
With Tsipras’ delegation in Brussels desperate to work out a last minute deal and preserve Greek pension cut “red lines”, not to mention Greece in the Eurozone, it is the IMF which has become the biggest hurdle to getting a deal done because while even the European Commission is ready defer €400 million of cuts in small pensions if Greece reduced military spending by same amount, the IMF promptly scuttled this suggestion according to FAZ.
So as we enter Sunday and what may well be the last possibility to get deal done before the “accidental” Grexit scenario is put in play, we thought our Greek readers would be interested to learn that while Lagarde’s “apolitical” IMF is digging in tooth and nail against giving Greece even the smallest amount of breathing room, the equivalent of half an our of a typical daily Fed POMO notional amount, yesterday the same Lagarde said that the IMF “could lend to Ukraine even if Ukraine determines it cannot service its debt.“
This is the same Ukraine whose bonds last week tumbled by 9% after the country’s American finance minister Natalie Jaresko said Ukraine will default on its debt unless creditors (among which both Russia and the US taxpayer via the IMF in addition to various hedge and mutual funds all used to getting a last minute bailout on their terrible investments) acquiesce to their demands for more aid (i.e., more debt).
Lagarde’s statement also indicates that the Hermes and tanning bad connoisseur does not know the difference between a loan and an equity investment, which is what “lending” to an insolvent Ukraine would be equivalent to. >> Read More
Governments that face lower risks of a sovereign debt crisis are needlessly damaging their economies if they impose harsh austerity programmes simply to pay back creditors more quickly, the International Monetary Fund has warned.
In a new staff discussion note published on Tuesday, the IMF has said that countries with fiscal breathing room should let the ratio between debt and gross domestic product decline via higher economic growth. This means avoiding the imposition of distortive taxes or cutting productive spending in order to obtain a budget surplus.
“It does not follow that once the debt is accumulated, it should be paid down to restore growth,” the IMF said. “On the contrary, where countries retain ample fiscal space, the cure would seem to be worse than the disease — the taxation needed to pay down the debt will be more harmful to growth than living with the debt.”
The study comes as politicians in high income countries debate how to reduce the high levels of government debt which have accumulated as a result of the financial crisis. Public debts in advanced economies have risen, on average, from 53 per cent of national output at the end of 2007 to almost 80 per cent at the end of 2012. Governments are having to deal with these debt overhangs, with some planning to run budget surpluses to prevent the debt from rising further.
The British government, for example, is targeting a budget surplus for the end of this parliament which would be partly used to pay back the national debt.
>> Read More