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Posts Tagged ‘economic crisis’

U.K., U.S. Top Aaa Ratings Tested by Debt Burdens, Moody’s Says

Posted in Board Of Intellectual Capital, boic, Economy, tagged , , , on December 10, 2009| Leave a Comment »

Here is an interesting article from Bloomberg.

“Dec. 8 (Bloomberg) — Moody’s Investors Service said the top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries” because public finances are worsening in the wake of the global financial crisis.

“The deterioration has been pretty severe,” said Pierre Cailleteau, managing director of sovereign risk at Moody’s, in a Bloomberg Television interview in London. “We expect a pretty strong policy response in the next couple of years in order to keep the debt in the Aaa range. We expect them to bend but not to break.”

The U.S. and U.K. have “resilient” Aaa ratings, as opposed to the “resistant” top ratings of Canada, Germany and France, Moody’s analysts led by Cailleteau said in a report today. None of the top-rated countries is “vulnerable,” or have public finances that are “stretched beyond the point of ‘no return’ to the Aaa category,” New York-based Moody’s said.

The U.S.’s debt burden will climb to 97.5 percent of gross domestic product next year from 87.4 percent, the Organization for Economic Cooperation and Development forecast in June. National debt in the U.S. climbed to $7.17 trillion in November. The U.K.’s public debt will swell to 89.3 percent of the economy in 2010 from 75.3 percent this year, according to the OECD.

“There has been a huge increase in debt-to-gross-domestic- product ratios as a result of the crisis,” said David Keeble, head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “It’s right that there should be a lot of attention and pressure on these numbers.”

‘Resistant’ Countries

All Aaa rated governments are affected by the global financial crisis, with differences in their impact and ability to respond, Moody’s said. “Resistant” countries, which also include New Zealand and Switzerland, started from a more robust position and won’t see debt exceeding levels consistent with their Aaa status, Moody’s said.

Moody’s defines “resilient” countries as “Aaa countries whose public finances are deteriorating considerably and may therefore test the Aaa boundaries, but which display, in our opinion, an adequate reaction capacity to rise to the challenging and rebound.”

The cost of protecting U.S. debt from default was unchanged at 32 basis points, or $32,000 a year to protect $10 million of the nation’s bonds from default for five years, according to CMA DataVision prices. That compares with a peak of 100 basis points in February and 20 basis points in October.”

Read the full article here.

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Dubai is just a harbinger of things to come for sovereign debt

Posted in Board Of Intellectual Capital, boic, tagged , , , , , on November 28, 2009| Leave a Comment »

Here is a good blog article from The Telegraph.

“Watch out. This may be just the beginning. In the scale of things, the debt problems of Dubai are little more than a flea bite. Dubai’s sovereign debts total “just” $80bn, which counts for nothing against the trillions being raised by advanced economies to plug fiscal deficits.

Small wonder, though, that this minor tremor has sent such shock waves around the wider capital markets. The fear is that threatened default in this tiny desert kingdom is just a harginger of things to come for government debt markets as a whole. According to new estimates by Moody’s, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 per cent between 2007 and 2010 to $15.3 trillion. The great bulk of this increase comes not from irrelevant little states like Dubai, but from the big advanced economies – America, Europe, and Japan.

Perversely, they are for the time being beneficiaries of the “flight to safety” that trouble in Dubai has sparked. Government bond yields in the major advanced economies have fallen in response to the crisis in the Gulf. If experience of the banking crisis, when investors removed their money from one bank only to find that the one they had put it into looked just as dodgy, is anything to go by, this effect will not last.”

Read the full article here.

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WHAT’S IN STORE, INFLATION OR DEFAULT?

Posted in Board Of Intellectual Capital, tagged , , , , , , , , , , on September 7, 2009| Leave a Comment »

Here is a story from the Powerline Blog.

“I’ve assumed that the profligate spending and borrowing planned by the Democrats in Congress and the White House will run up a debt that we and our children just can’t pay, so, in the time-honored tradition of banana republics, the Obama administration or its successors will inflate our currency and repay its creditors (China, mostly) in devalued dollars. Thus, I’ve been buying gold. I’ve assumed that an actual default by the United States government is unthinkable.

Jeffrey Rogers Hummel, however, disagrees. He writes: Why Default on U.S. Treasuries Is Likely. HIs thesis is that times have changed, and it isn’t so easy to inflate our way out of debt:

Many predict that…the government will inflate its way out of this future bind, using Federal Reserve monetary expansion to fill the shortfall between outlays and receipts. But I believe, in contrast, that it is far more likely that the United States will be driven to an outright default on Treasury securities, openly reneging on the interest due on its formal debt and probably repudiating part of the principal.

Hummel explains that most money is now created privately by banks and other institutions, not the government, so that “[o]nly in poor countries, such as Zimbabwe, with their primitive financial sectors, does inflation remain lucrative for governments.”

A steep tax increase won’t really work for the Obama administration either. ”

To read the full article, click here.

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The Spend-And-Borrow Economy

Posted in Board Of Intellectual Capital, Economy, tagged , , , on August 28, 2009| Leave a Comment »

Ponzi schemes have a way of ending unhappily.

Here is a article from Forbes.

“In the last few months the world economy has been saved from a near-depression. That feat has been achieved by a range of extraordinary government stimulus measures: In the U.S. and in China, and to a lesser extent in Europe, Japan and other countries, governments have pumped liquidity, slashed policy rates, cut taxes, primed demand and ring-fenced and back-stopped the financial system. All of this has worked, but at a cost. Governments have been spending and borrowing like never before. The question now is: how do they stop?

This is not a simple problem. Restore normality too soon and the risk is that a weak recovery will double dip into a second and deeper recession. Restore it too late and inflation will already be ingrained.

Consider how much has been committed and how much has been spent. In the U.S. alone, when you add up the government’s liquidity support measures, its re-capitalizations of banks, its guarantees of bad assets, its extension of deposit insurance and guarantees of unsecured bank debt, at least $12 trillion has been committed, and a quarter of that has already been spent. Along with the rise in spending there has also been a very large fiscal stimulus, pushing the federal budget deficit to 13% of gross domestic product this year. (Next year, on current plans, the deficit will fall back but still amount to 10% of GDP.)

Not all the measures adopted appear on the budgetary bottom line. As well as monetary easing and fiscal stimulus, the U.S. and other governments have resorted to unconventional measures to ease monetary conditions. In the U.S., Japan and the U.K., real interest rates have been pushed down to zero, and governments have resorted to buying long-dated securities, the goal of which–only partially achieved–was to hold down long-term interest rates.”

Read the full article here.

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Roubini: The risk of a double-dip recession is rising

Posted in boic, Community, Economy, Gerbsman Partners, Market research, tagged , , , , , on August 25, 2009| Leave a Comment »

Here is a good Financial Time article.

“The global economy is starting to bottom out from the worst recession and financial crisis since the Great Depression. In the fourth quarter of 2008 and first quarter of 2009 the rate at which most advanced economies were contracting was similar to the gross domestic product free-fall in the early stage of the Depression. Then, late last year, policymakers who had been behind the curve finally started to use most of the weapons in their arsenal.

That effort worked and the free-fall of economic activity eased. There are three open questions now on the outlook. When will the global recession be over? What will be the shape of the economic recovery? Are there risks of a relapse?”

Read the full article here. (Registration required)

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