Total USA Debt

It is interesting to examine what has happened to debt in the US since the collapse of the Debt Bubble in 2007-08.  

The following chart makes things pretty clear: Households deleveraged sharply, going from owing 95% of GDP in 2008 to 78% today, while the government ramped up its borrowing from 65% to 105%.

Household Debt (left scale) - Government Debt (right scale)

Basically, the government stepped in and assumed household debt by bailing out banks and other major financial institutions (AIG, for example).But total debt just kept on increasing... total debt now stands at 183% of GDP versus 160% in 2008.

In the next post I'll also look at debt comparisons for the financial and corporate sectors.

Negative Rates Uber Alles

 A pretty simple chart to begin with after such a long time away from blogging.  Yet... simplicity is often underestimated to the detriment of us all.

German Government 10 Year Bond Yield

German government debt yields have been coming down for 45 years (thank you Ronnie, Maggie and Deng) and are now in negative territory ("thank you" Lehman, Bear, Countrywide, Iceland, Ireland, etc etc etc).  Yes folks, it has come to this absurdity: a government issues money/debt and then charges YOU interest to lend it back to them for ten years!!  Talk about weird...

Bund Yields For Last 12 months

Apart from macro-economic effects (pensions, anyone?) what is the more immediate meaning of negative interest rates?  For one, it means that people are SCARED.  So scared of depression, deflation and bank failures that they are willing to pay dear old Deutschland a premium over holding hard cash.  Yes, Bunds are now in the same asset category as gold bullion, where you have to pay fees for secure vault space.

Scared, you say?  But Lehman et. al. failed years and years ago.  The Big Short was about... 2008 for chrissake!  Why are people humming Shi**y Days Are Here Again and dragging their savings into a Euro Gotterdammerung, eh?  Well, it's not as if the current crop of European politicians and eurocrats are economic geniuses who inspire confidence.

 Let's look at just one (but very important) EU institution: "The Eurogroup is an informal body where the (finance) ministers of the euro area member states discuss matters relating to their shared responsibilities related to the euro. Its main task is to ensure close coordination of economic policies among the euro area member states. It also aims to promote conditions for stronger economic growth."  Its President is the 50-year old Dutchman Jeroen Dijsselbloem, a graduate in agricultural policy who started his political career straight out of college; i.e. zero private sector experience.

Yup, I'm scared alright... At least Hank Paulson was at Goldman for 32 years in a row before he became Secretary of Treasury, and when push came to shove back in the Lehman fiasco days, he had the gravitas to whip his erstwhile investment bank peers into a very disagreeable agreement within one weekend.  Jeroen... what? Will lecture them on corn?

So, yeah, people in Europe are scared. Scared of cluelessness, incompetence and dogmatism (just listen ONCE to Wolfgang Schauble the German MinFin - don't worry you won't miss anything: he keeps repeating the same stuff over and over again).

However, over at the ECB we have Mario Draghi, a bona fide Goldman alumnus who is trying desperately to create some inflation, something that will drag (pun, get it?) the EU out of its funk and into some semblance of geographically balanced growth (it's all about Germany these days).

Give the man a hand, will ya?  Because I simply hate that Uber Alles nonsense...

Back To The Future

It has been a long while since I last posted.  Lots and lots of water under the bridge...

What is bringing me back?  The immediate reason is my third viewing of rhe movie The Big Short last night.  Old readers will recall my rants against the mortgage backed securities fraud, the poisonous alphabet soup of CDOs, CDO squared, synthetic CDOs, CDS, etc, etc.

But, like I said, that's ancient history in the finance universe.

What gives today in the debt world?  The most glaring, flash in your eyes signal is negative interest rates.  Think about it:  NEGATIVE INTEREST on fiat money savings... Negative returns on pension assets for an aging workforce!!  Good luck with that, I say.

I will stop here for today, but I am back for good now.  Yes, charts and thoughts on a money world gone upside down batty.

Talk soon!

Crunch Time, Addendum

I think it is instructive to provide a chart on what is going on in the Federal budget.  Government spending has been flat for almost five years and the deficit gap is narrowing fast.  Yes, part of the flattening out in spending has come from ultra-low interest rates on debt outstanding, but still...  Can't say that the Obama administration is a spendthrift..

Crunch Time

It is getting close to crunch time for the US and its Himalayan-sized mountain of debt.  Right now no one really believes that the world's most powerful and prosperous nation will default, thereby committing financial suicide, over an internecine legislative tiff. I certainly don't believe it myself. 

Well.. I don't want to believe it.

But I have a very bad feeling this time.  No, I am not predicting a default.  Rather, my unease stems from the sheer size and spread of the debt problem all around the world. I cannot see how this global FUBAR situation will be resolved without wrenching upheaval, given that political and financial leaders clearly do not want to address the problem at its core, never mind the common people.

I have frequently referred to Permagrowth as the root cause of the Debt Crisis, i.e. the single-minded expansion in the consumption of everything, fuelled by  ever more debt. Obviously, exponential growth within a closed system leads to disaster.  

If we do not willingly renounce Permagrowth as our leading economic paradigm what I fear is ahead is an involuntary and abrupt end, one that will result in chaos.

Think of putting a pressure cooker on the stove, with the safety valve closed...