Bonds & Interest Rates

Western Debt in a Glance

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Posted by Chart of the Day

on Friday, 22 June 2012 11:03

For some perspective on the European sovereign debt crisis, today's chart illustrates the forecasted 2012 debt to GDP ratio for each of the PIIGS (red bars) plus a handful of today's major economies (blue bars). While the PIIGS are currently enduring relatively high debt loads, it is noteworthy how some of the relatively safe nations/bond markets (e.g. United State and Germany) are not far behind. These relatively high debt loads are of concern as they could lead to higher taxes sometime in the future and can risk fiscal crises if bond holders sense an increasing risk of default. The current crisis in Europe provides a clear example of the bond market's reaction (i.e. higher bond yields) to increased default fears. This leads to a very interesting case study that is Japan. With a debt to GDP ratio of over 200%, the Japanese 10-year bond yield is a relatively low 0.83%. Why? At the moment, the bond market feels that the Japanese have the ability to repay their debts -- in part due to Japan's perceived ability to raise taxes. To that end, Japanese Prime Minister Yoshiko Noda just won opposition support for the doubling of the nation's sales tax to 10% by 2015. So it's not just the amount of debt but also convincing your banker that you are good for it.


Quote of the Day
"I like players to be married and in debt. That's the way you motivate them." - Ernie Banks


Where's the Dow headed? The answer may surprise you. Find out right now with the exclusive & Barron's recommended charts of Chart of the Day Plus.


Bonds & Interest Rates

20 rules that can save you from the Doomsday Cycle

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Posted by Market Watch

on Wednesday, 20 June 2012 08:30

Yes, they predicted doomsday three years ago. Listen: “Over the last 30 years, we have built a financial system that threatens to topple our global economic order,” wrote Simon Johnson and Peter Boone. “We have let an unsustainable and crazy ‘doomsday cycle’ infiltrate our economic system.”

This doomsday “cycle will not run forever … The destructive power of the down cycle will overwhelm the restorative ability of the government, just like it did in 1929-31.” In 2008 “we came remarkably close to another Great Depression. Next time, we may not be so lucky.”

That was 2009. Since then Johnson, former IMF chief economist, co-wrote last year’s bestseller “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown” and the new “White House Burning.”

Other new books echo the same doomsday warning: Peter Schiff’s “The Real Crash: America’s Coming Bankruptcy” … Paul Krugman’s “End This Depression Now” … James Rickards’s “Currency Wars” … Philip Coogan’s “Paper Promises” … Joseph Stiglitz, “The Price of Inequity” … Ian Bremmer, “Every Nation For Itself,” and other reminders of doomsday.

Folks, the “next time” is here. Our luck is running out. And unfortunately, our leaders in both parties are blinded by an obsession to win an election. Ergo, they will fail to act in time.

....read more HERE or Read All 20 Rules HERE

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Bonds & Interest Rates

HOW DO Empires Die?

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Posted by Martin Armstrong - Armstrong Economics

on Monday, 18 June 2012 18:31

I began writing what I thought would be a report. Toward the final chapters in Adam Smith’s Wealth of Nations, he wrote about Public Debt asking why anyone considered it to be quality since all government defaulted on their debts and never paid them off. I assumed the list wasn’t that long, since everyone knew about the defaults of Spain, France, and England. The more I began to investigate since Smith merely made that statement with no reference to such defaults, the more I was left in a state of devastating shock. When it comes to research, those that know me understand that I leave no stone unturned. I allow the research to carry me along a journey of exploration. I neverPRESUME anything and try to LEARN myself to round out my knowledge.It is almost finished. I am publishing for the first time the Table of Contents. There just seems to be such profound conviction that everyone will flee to gold, gold will save the world, and there is always an alternative for capital to flee. The emails from the Goldbugs just refuse to understand that there is also DEFLATION. Here is the latest:

“You assume two things here, sadly both are wrong. You assume firstly that the US dollar will always be more stable than (for example) the yuan, the Brazilian Real, the Euro. A dangerous and flawed assumption, one perhaps made by a dying Roman empire, and the British Empire too. Nope, always something new out there to step in. Your other assumption, even more flawed, and currently being proven wrong as I type the world over, is that capital will flee to another fiat. Nope, much of it will flee to (or try to flee to) solid physical gold. Because that is what the world has always done. ‘Giant’ money is already there, the US’s strategic enemies are already there, and adding gold reserves every month, rather than soaking up the ever-growing flow of US dollar debts.”

....read much more HERE



Bonds & Interest Rates

This is What Government Debt Forced Rising Rates Looks Like

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Posted by Chart of the Day

on Friday, 15 June 2012 09:54

Ed Note: Ryan Irvine is Michael's Money Talks guest 8:30 am PST this Saturday. 

Saturday, Greeks will head to the polls in a second attempt to form a government -- an election/government that may ultimately determine if Greece remains in the euro zone. While the implications for Greece are dramatic, there is concern that a Greek exit would threaten other euro zone members (e.g. Spain and Italy) and potentially test the ability of European institutions (e.g. the European Central Bank) to prevent contagion. Today's chart helps illustrate the risk of European debt by plotting out the 10-year government bond spread (versus the German Bund) for all the PIIGS (i.e. Portugal, Italy, Ireland, Greece, and Spain) from 2007 to the present. For example, the Greek 10-year government bond yield (light blue line) is currently 27 percentage points greater than that of the relatively stable German Bund. That is a far cry from where it was back in the summer of 2009. Currently, however, many are focused on the third and fourth largest euro zone economies (i.e. Italy and Spain). A run on the financial institutions of these more substantial economies would have global implications. It is noteworthy that the Italian and Spanish 10-year government bond spread has not declined after the ECB offered three-year loans in December and February.

Notes: Where's the Dow headed? The answer may surprise you. Find out right now with the exclusive & Barron's recommended charts of Chart of the Day Plus. To subscribe to the free ChartoftheDay service go HERE or click on the Chart Below:



Bonds & Interest Rates

Learning from the Best: Inflation Lessons from Argentina

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Posted by Bill Bonner - The Daily Reckoning

on Wednesday, 13 June 2012 08:21

Spain was down again before we noticed it was up. Yesterday morning, stocks all over the world were rising on hopes of a solution to the euro problem. By afternoon, the rally was over. The Dow ended the day down 142 points.

But that’s the way the euro rescues go. The effects are more and more short-lived. Pretty soon, investors will realize they don’t work at all…and then there won’t be any up-surge, A new rescue plan will be announced. Investors will realize it is just another scammy fix. And stocks will go down.

When that happens the game will be over.

We might not be far from that point now.

Meanwhile, the US is worried too. About Europe, which is on the verge of total breakdown? Maybe. About China, which is growing at its slowest pace in 13 years? Maybe.

About the US itself…where the ‘recovery’ went missing? Almost certainly.

Here at our Daily Reckoning headquarters, we remain sans soucis. Which is another way of saying, we’re enjoying the show. What will the fixers do next, we wonder? Every fix makes things worse. But they keep at it.

For the benefit of Dear Readers with skin in the game, we leave our “Crash Alert” flag up for a few more days. This market could go to hell in a hurry. If you’ve got skin in the game, get it out.

And, for the benefit of everyone, we cast our weary eyes down to the pampas. Is there any policy so foolish the Argentines have not had a go at it? Is there any financial disaster so catastrophic the gauchos haven’t repeated it at least two or three times? Is there any trick so dishonest or so transparently fraudulent that the politicians south of the Rio de la Plata don’t make a regular habit of it?

Our Bonner Family Office chief investment strategist, Rob Marstrand, who makes his home in Buenos Aires, is visiting us in the US this week. He tells us that it is said to be a crime in Argentina to mention the “parallel” market in dollars. On the official market, the peso still trades at about 4.4 to the dollar. On the unofficial exchanges, that is, on the parallel market, the “blue” peso trades at less than 5.1 to the greenback.

But it’s apparently illegal to mention it.

So is it supposedly illegal to publish the real inflation rate. The Argentine feds have their rate; it’s a crime to contradict them.

The government is also trying to get Argentines to stop using the dollar as a protection against peso inflation. The president says she is converting her own dollar deposits to pesos, to set an example.

“I guarantee you she is not converting her accounts in Switzerland,” says Rob.

But the typical Argentine wasn’t born yesterday. He’s been around the block a few times. He knows that when the government gets in financial trouble, it can’t be trusted. He knows that it will seize whatever money it can get its hands on — especially if it is foreign currency. So, if he’s saved dollars, he’s hiding them…or getting them out of the country. Here’s the Reuters report:

BUENOS AIRES, June 8 (Reuters) — Argentine banks have seen a third of their US dollar deposits withdrawn since November as savers chase greenbacks in response to stiffening foreign exchange restrictions, local banking sources said on Friday.

Depositors withdrew a total of about $100 million per day over the last month in a safe-haven bid fueled by uncertainty over policies that might be adopted as pressure grows to keep US currency in the country.

The chase for dollars is motivated by fear that the government may further toughen its clamp down on access to the US currency as high inflation and lack of faith in government policy erode the local peso.

From May 11 until Friday, data compiled by Reuters from private banks showed $1.9 billion in US currency had been withdrawn, or about 15 percent of all greenbacks deposited in the country.

Feisty populist leader Fernandez was re-elected in October vowing to “deepen the model” of the interventionist policies associated with her predecessor, Nestor Kirchner, who is also her late husband.

She wants Argentines to end their love affair with the greenback and start saving in pesos despite inflation clocked by private economists at about 25 percent per year.

Fernandez set an example on Wednesday by vowing to swap her only dollar-denominated savings account for a fixed-term deposit in pesos.

But savers in crisis-prone Argentina are notoriously jittery.

Why would they be jittery? Because their dollar deposits were seized and forcibly converted to pesos 10 years ago? Because the peso was devalued by 66% in the last crisis?

Or because the Argentine peso of 50 years ago has been devalued by approximately 42 trillion percent. We don’t know how such a thing is mathematically possible…but that’s the report we’ve read.

Defaults, devaluations, hyperinflations — the Argentines have seen it all.

Americans have a lot to learn.

And another thought…

The British writer AA Gill once noted that…

“Europe is an allegory for the ages of man. You are born Italian, relentlessly infantile and mother-obsessed. In childhood, you are English: chronically shy, tongue-tied clicky and only happy kicking balls or pulling the legs off things. Teenagers are French: pretentiously philosophical, embarrassingly vain, ridiculously romantic yet simultaneously insecure. During Middle-Age, we become either Irish and fun loving, or Swiss and serious. Old age is German: ponderous, pompous and pedantic. And finally, we regress into being Belgian, with no idea of who we are at all.”

Bill Bonner
for The Daily Reckoning


Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010. 

Special Report: Wait until you see what could happen in America next… An unbelievable phenomenon is set to sweep the nation... The railroad, steel, and technology age - this phenomenon triggered them all. And now it’s taking shape again! Watch this special, time-sensitive presentation now for full details on how it could affect your job… your lifestyle… and your wallet. Here’s How…

Read more: Learning from the Best: Inflation Lessons from Argentina http://dailyreckoning.com/learning-from-the-best-inflation-lessons-from-argentina/#ixzz1xgGs861q


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