With a no longer “patient” Fed set for “liftoff” sometime this year, some observers (including IMF chief Christine Lagarde) are bracing for emerging market turbulence. A new paper from the Center for Global Development attempts to discern which EMs are most vulnerable to an “external shock” (be it geopolitical or financial) and also seeks to determine which countries are more prepared to weather a storm now than they were pre-crisis. According to the study, the relevant factors are 1) current account balance, 2) ratio of external debt to GDP, 3) ratio of short-term external debt to reserves, 4) fiscal balance to GDP, 5) government debt to GDP, 6) inflation versus targeted inflation, and 7) financial “fragility”.
From the study:
The values of the indicator for 2007 and 2014 are presented as well as the country rankings in both years. According to this methodology, the greater the value of the indicator the more resilient a country’s macroeconomic performance to external shocks is assessed to be.
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Greece, as a country, represents 2% of Europe’s GDP. The country lied in its financial to enter the EU. Since that time, it’s been officially bankrupt since 2010.
The country has since gone through a series of “bailouts” and experienced a 25% collapse in GDP (roughly equivalent to what Argentina experienced in its 2001 implosion).
And yet, despite all the bailouts and claims that Greece was “fixed,” the country is set to default on some of its debt this Friday.
How on earth does this farce continue? How can Greece be broke FIVE years after it was first allegedly “fixed”?
The answer is very simple. Greece was never fixed. The Greek bailout was about getting money to German and French banks, many of which would go broke if Greece defaulted on its debts.
This story has been completely ignored in the media. But if you read between the lines, you will begin to understand what really happened during the previous Greek bailouts.
Remember: >> Read More
Why are interest rates so low? The best answer is that the advanced countries are still in a “managed depression”. This malady is deep. It will not end soon.
One can identify three different respects in which interest rates on “safe” securities in the principal high-income monetary areas (the US, the eurozone, Japan and the UK) are exceptionally low. First, the short-term intervention rates of central banks are 0.5 per cent or lower. Second, yields on conventional long-term government bonds are extremely low: the German 30-year bond yields 0.7 per cent, the Japanese close to 1.5 per cent, the UK 2.4 per cent and the US 2.6 per cent. Finally, long-term real interest rates are minimal: UK index-linked 10-year gilts yield minus 0.7 per cent; US equivalents yield more, but still only plus 0.4 per cent.
If you had told people a decade ago that this would be today’s reality, most would have concluded that you were mad. The only way for you to be right would be if demand, output and inflation were to be deeply depressed — and expected to remain so. Indeed, the fact that vigorous programmes of monetary stimulus have produced such meagre increases in output and inflation indicates just how weak economies now are.
Yet today we hear a different explanation for why interest rates are so low: it is the fault of monetary policy — and especially of quantitative easing, the purchase of long-term assets by central banks. Such “money printing” is deemed especially irresponsible. >> Read More
The rally in European sovereign debt has gone into overdrive since the ECB started its QE program yesterday. The impact is evident right across the curve but long-end yields are breathtaking with German 30-years down nearly a quarter of a point this week to 0.748%.
The ECB has said it will buy debt down to a yield of -0.20% and the market is taking that as an invitation. Five-year bobl yields are down to -0.11%.
At some point, real money isn’t going to want to pay the German government for the privilege of holding its debt but it’s not yet. In the meantime, ultra-low rates present the corporate carry trade of a lifetime as companies can issue bonds in euros at rock-bottom rates and covert to US dollars.
There is no reason to think the euro is anywhere near a bottom yet.
The US is once again at its Debt Limit.
Despite all of the talk of cutting the deficit and the like, the political class continues to throw taxpayer money around at a pace that is bankrupting the nation.
To whit: the US is set to hits its debt ceiling AGAIN on March 16 2015.
It’s remarkable that the first we hear of this is exactly one week before the date. You would think that the US hitting its debt limit would actually matter to the mainstream media and financial pundits since we’re already sporting a Debt to GDP ratio of over 100%.
Yep, we’re at the level associated with being bankrupt. Check out the vertical leap in debt issuance since the recession ended in 2009.
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Alongside the Draghi presser, the ECB moments ago the terms and conditions of its Q€, or as the ECB calls it, the “public sector purchase programme (PSPP)” Here are the full details and the Q&A.
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From the ECB:
Implementation aspects of the public sector purchase programme (PSPP)
In the context of the Eurosystem’s expanded asset purchase programme announced on 22 January 2015, which consists of combined monthly purchases of EUR 60 bn in public and private sector securities, purchases under the public sector purchase programme (PSPP) of marketable debt instruments issued by euro area central governments, certain agencies located in the euro area or certain international or supranational institutions (referred to in legal texts as “international organisations and multilateral development banks”) located in the euro area will start on 9 March 2015 (for more information, see also the Q&A on the public sector purchase programme).
In its implementation of the PSPP, the Eurosystem intends to conduct purchases in a gradual and broad-based manner, aiming to achieve market neutrality in order to avoid interfering with the market price formation mechanism. >> Read More
28 February 2015 - 9:41 am
Greek Prime Minister Alexis Tsipras denied on Friday that his country would have to seek a third international bailout when a four month extension to its current programme expires.
Mr Tsipras also said the government had requested a reduction in the country’s debt, even though EU/IMF creditors insist Greece must meet its obligations in full. “Some have bet on a third bailout, on the possibility of a third bailout in June. I’m very sorry but once again we will disappoint them,” he said in a televised speech to his Cabinet. “Let them forget a third bailout. The Greek people put an end to bailouts with their vote,” said Mr Tsipras, a radical leftist who won election a month ago on promises to scrap austerity and reform policies dictated by Greece’s foreign creditors.
Greece has already received two bailouts totalling 240 billion euros but fellow euro zone member Ireland said last week that it would have to negotiate a third programme.
Athens was forced to climb down on many campaign promises to secure a deal a week ago from the Eurogroup of euro zone finance ministers extending the bailout Mr Tsipras had pledged to ditch. >> Read More
24 February 2015 - 10:45 am
If anyone has stopped to ask just why global central banks are in such a rush to create inflation (but only controlled inflation, not runaway hyperinflation… of course when they fail with the “controlled” part the money paradrop is only a matter of time) over the past 5 years, and have printed over $12 trillion in credit-money since Lehman, the bulk of which has ended up in the stock market, and which for the first time ever are about to monetize all global sovereign debt issuance in 2015, the answer is simple, and can be seen on the chart below.
It also shows the biggest problem facing the world today, namely that at least 9 countries have debt/GDP above 300%, and that a whopping 39% countries have debt-to-GDP of over 100%!
>> Read More
22 February 2015 - 7:58 am
Leaders of embattled mainstream European left parties met in Madrid on Saturday seeking to regain lost ground as they tried to strike a balance between “suicidal austerity” and financial “responsibility” at a time when debt-racked Greece is trying to renegotiate a bailout deal.
The heads of socialist and social democratic parties, threatened by extreme-right parties on the one hand and radical leftists like Syriza in Greece and Podemos in Spain on the other, tried to strike a tone of compromise particularly with relation to the economy in a bid to make gains in polls.
“We cannot afford to have public deficits and they have to be reduced because we are responsible for our future generations,” French Prime Minister Manuel Valls said on the sidelines of the meeting.
“We need to reduce sovereign debt but we cannot reduce the public debt without growth and employment,” said European Parliament President Martin Schulz, a German social democrat. >> Read More
14 February 2015 - 8:18 am
Fitch Ratings has downgraded Austria’s Long-term foreign and local currency Issuer Default Ratings (IDR) to ‘AA+’ from ‘AAA’. The Outlooks are Stable. The issue ratings on Austria’s unsecured foreign and local currency bonds have been downgraded to ‘AA+’ from ‘AAA’. Fitch has affirmed the Short-term foreign currency IDR at ‘F1+’ and Country Ceiling at ‘AAA’.
KEY RATING DRIVERS
The downgrade of Austria’s foreign and local currency IDRs reflects the following key rating drivers and their relative weights:
General government debt in Austria will reach a higher peak than previously thought and remain elevated for longer. This will significantly reduce the shock-absorbing capacity of the sovereign. The general government debt ratio (GGGD) is expected to peak around 89% of GDP in 2015, higher than all sovereigns in the ‘AAA’ category besides the US and in line with the UK (AA+/Stable). Fitch previously stated 80%-90% to be the upper limit of GGGD compatible with retaining a ‘AAA’ rating, provided the ratio is then placed on a firm downward path and other fundamentals are of the highest credit quality. Within a short space of time the debt dynamics of Austria have deteriorated significantly. Only 18 months ago, Fitch expected Austria’s debt ratio to peak around 75% of GDP in 2013/2014 and then decline to around 70% by 2017. At the time the Austrian government expected debt to peak at 74% before falling back to 67%. Recent upward revisions to the debt ratio mostly reflect the impact of bank restructuring on public finances. Since the 2008-09 crisis, the progress with the restructuring of medium-sized banks that fell into serious distress has been slow. >> Read More