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West – Developed & Deep in Debt

January 26, 2012 3 comments

The entire Developed world is deeply in debt. Will this debt ever get paid?

Britain - A World Leader In Indebtedness! (Source McKinsey Reports). Alt image URL - http://goo.gl/k6soE

Britain - A World Leader In Indebtedness! (Source McKinsey Reports). Alt image URL - http://goo.gl/k6soE

debt problems of the western world go much beyond the current crisis. For one thing, as the authors point out, public debt levels are likely to rise as populations age and governments try to deliver on the promises (pensions, health care and so on).

As public debt levels rise beyond the “danger threshold”, they will tend to pull growth down. This, in turn, could make household and corporate debt servicing far more difficult and countries that are already saddled with dangerously high levels could find themselves in the middle of a crisis. Thus, even if there is a solution to the current crisis in Europe, the “debt” problems of the western world are far from over.

Tailpiece

What worries us about the spirit of good cheer that has suddenly returned to the markets is that it might lead to temporary appreciation in the euro. This, alas, could bring back the spectre of a crisis in the region and revive fears of a break-up in the currency union. One of the pre-conditions for the survival of the union is an orderly deprecation of the currency towards some sort of “fair value” that we think could lie anywhere between 1.15 and 1.20. This would make the beleaguered countries of the periphery more competitive and reduce their incentives to exit from the union. If the currency starts to appreciate again, things go back to square one and the sustainability of the union is back under a cloud of uncertainty. Financial markets tend to be prescient about these things and it is possible that while other currencies and assets rally against the dollar, the euro could at least stay put. (via Abheek Barua & Shivom Chakravarti: Deconstructing debt).

DEBT THREATS (Debt levels as a % of GDP)
Debt Household Non-financial Government Total
US 95 76 97 268
Japan 82 161 213 456
UK 106 126 89 321
Italy 53 128 129 310
Denmark 152 119 65 336
Netherlands 130 121 76 327
Greece 65 65 143 273
Portugal 106 153 107 366
Source: Bank for International settlements & Eurostat  Table source & courtesy – business-standard.com

Clear message

Estimates vary. Assumptions change.

Regardless, of difference in estimates, or the variation in assumptions, debt levels of the developed world are awesome.

The table on top is based on McKinsey Consulting’s estimates released in 2009.

Some figures were revised after McKinsey estimates were made. Like from Ireland. Or after the QE and QEII, US govt debt has ballooned from roughly US$9 trillion to 15 trillion.

The deficit has ballooned to nearly $48,000 for every man, woman and child in the U.S. This year alone, the U.S. will spend $1.3 trillion more than it takes in.

The debt has expanded at an alarming pace, from $7.5 trillion in 2004 and $5.6 trillion in 2000. At the current rate, Debtclock.org reckons that the debt will top $23 trillion in 2015, though the nonpartisan Congressional Budget Office puts the estimate at $17.6 trillion. (via U.S. Debt Tops $15 Trillion Mark Today – ABC News).

Looking at these two sets figures, two questions come to my mind.

One: How does the West+Developed world plan to repay these debts?

Only two things can happen from here. Either governments are going to default outright. Or they are going inflate away their debts, using compliant central banks to keep interest rates significantly below rising prices for many years. Either way, everyone is going to lose a lot of money. Whether it is through a default or inflation doesn’t make much difference in the medium term. (via France and the death of the sovereign debt market – Matthew Lynn’s London Eye – MarketWatch).

Two: If the whole of the Developed world is so deep in debt, it is obvious that someone else has lent them this money?

Obviously, the Developed World is a net borrower – and someone has lent that money to the Developed world – or underwriting this Debt, based on which this debt is being issued.

Since all the major economies of the world (except Russia and China) are deeply in debt, who is doing the lending? Russia and China are in a position to be creditors, only to a limited extent. But cannot account for major part.

This leaves us with the poor countries of the world.

Are the rich of this world, bleeding the poor?


The U.S. Debt Limit

October 16, 2011 4 comments

Write-off the US at your own risk. They have been there and done that. For instance between 1995-2005, the tech boom pulled out the US from a deep slump.

See these cartoons as calls for action. (Debt Crisis ; Cartoon by By Bob Englehart, in The Hartford Courant  -  3/14/2008 12:00:00 AM; source and courtesy - caglecartoons.com). Click for larger image.

See these cartoons as calls for action. (Debt Crisis ; Cartoon by By Bob Englehart, in The Hartford Courant - 3/14/2008 12:00:00 AM; source and courtesy - caglecartoons.com). Click for larger image.

The Senate has signed off. The president’s borrowing power has been floated up to $10 trillion, which beats the AmEx black card. The president’s limit when he came into office in 2001 was $6 trillion. So it’s been hiked an average of $500 billion per year during his eight years of office.

Five Countries with the Highest External Debt, 2006

1. United States $10.0 trillion
2. United Kingdom, $8.3 trillion
3. Germany, $3.9 trillion
4. France, $3.5 trillion
5. Italy, $2.0 trillion
Source: CIA, The World Factbook, as of 9/20/07.

Five Countries with the Highest Current Account Deficits, 2006

1. United States, -$862.3 billion
2. Spain, -$98.6 billion
3. United Kingdom, -$57.7 billion
4. Australia, -$41.6 billion
5. France, -$38.0 billion
Source: CIA, The World Factbook, as of 9/20/07.

(via John Tepper Marlin: The U.S. 10-Trillion-Dollar Debt Limit).

Latest count

Now, an update on this status.

US Government debt has crossed US$14 trillion. That is equal to US GDP. It means that the US govt. alone owes as much money as what the entire USA earns each year (GDP). Corporate debt (150% of GDP) and individual household debt (150% of GDP) is on top of this. Since, finally household pay of all the debts, the US citizen is about 400% of income in debt.

Britain is about 500% in debt. The difference between exports and imports is current account deficit. All these countries are also running a huge current deficit.

What to do

In the medium term, control over oil may give the West the means to sustain the life-style that makes them ‘world-leaders’. No wonder the West is willing to kill millions in Iraq, Afghanistan, Libya. But all this killing is also an expensive affair. This killing of millions in Iraq, Afghanistan, Pakistan, Libya is costing US$ trillions.

After that …

Boozed British journalism cant see straight

September 12, 2010 Leave a comment
Why compare Japan with Latam and Zimbabwe? Why not with USA, China and Germany which is more like in Japanese class! (Cartoonist - Clay Bennett,  from Clay Bennett's Editorial Cartoons; courtesy - cartoonistgroup.com.). Click for larger image.

Why compare Japan with Lat-Am and Zimbabwe? Why not with USA, China and Germany which is more like in Japanese class! (Cartoonist - Clay Bennett, from Clay Bennett's Editorial Cartoons; courtesy - cartoonistgroup.com.). Click for larger image.

An Indian problem

Now one of the problems of India, having English as an important language, is the amount of swill, garbage and propaganda that we are subjected to.

In spite of being less than anybody, British media can be pretty biased.

One example was a post by Ian Campbell on Japan’s economic problems. He says,

Japan has … has the worst debt to GDP ratio among major economies … But the interest yield on Japanese government bonds is … not much more than 1 per cent, so the debt is not yet so problematic – and might not seem an obstacle to still more spending. … In just five years, even assuming the economy grows, debt might climb to 230 per cent of GDP …  the hideously large debt would finally drive the fiscal deficit far higher and become intolerable.

Japan’s only route then would be drastic fiscal reform or, more probably, huge resort to the printing press, as Latin America did in the old days and Zimbabwe in more recent times. (via Nokia’s billion-dollar man).

British media needs to talk less about other economies - and look at problems in their own backyard. (Cartoon By Brian Adcock, The Scotland - 1/20/2008 12.00.00 AM Cartoon courtesy - politicalcartoons.com; ©Copyright 2008  Brian Adcock - All Rights Reserved.). Click for larger image

British media needs to talk less about other economies - and look at problems in their own backyard. (Cartoon By Brian Adcock, The Scotland - 1/20/2008 12.00.00 AM Cartoon courtesy - politicalcartoons.com; ©Copyright 2008 Brian Adcock - All Rights Reserved.). Click for larger image

Sad Brits …

Campbell, a British journalist, compares Japan with Latin American and African Governments who have printed a lot of money.

But surely he knows that Western Governments – under the leadership of Ben Bernanke printed much more than Africa and Lat-Am could and did! Why is Campbell not talking of British, European and American printing presses?

Is there a racial smell and smear somewhere? Did I hear him say ‘These irresponsible Blacks, Latinas, Browns, Yellows …’

Japan’s problems

Now Japan’s problems are minor – because they have solid, well run, high tech companies, whose products are in demand all over the world.

Off their peaks, these Japanese firms still have  mean clout in business world. Japanese interest rates being so low will not change Governmental economics by much. So, why compare Japan with Latin America or Zimbabwe?

Of course, you cannot compare Japan to Spain – where prostitution is a national industry.  Or Ireland, or Greece, which have lived on handouts for the last 100 years.

Maybe you should look at British debt my dear sir!

Wishful thinking?

Is it wishful thinking Mr.Campbell? Balanced your judgment is not. Or is it just plain malarkey? Methinks, it is ‘White’ noise!

Ian Campbell, who has “recently returned to the UK, where he is writing a book on rural Mexico.” could utilize his time much better writing about rural Britain, which depends on huge subsidies from a nation groaning under 500% Gross-National-Debt (GND-that is Govt.+Corporate+household).

Now British GND (no hindi puns intended) is a much-more-hideous. Than Japanese at 500%. We both know that British exports  are going nowhere!

Is it not time to focus on Britain itself? Japan will do very well, without your attention. (Cartoonist Jeff Danziger; courtesy - cartoonistgroup.com.).

Cartoon Text - "Austerity? But late squire ... she has been dead these fifty years." 2ndlook says - Is it not time to focus on Britain itself? Japan will do very well, without British attention. (Cartoonist Jeff Danziger; courtesy - cartoonistgroup.com.).

Let us look at British economy

First the biggest sector of British corporate sector is about digging, extracting and selling natural resources.

A historical legacy – with little value-addition. Royal Dutch Shell, BP, North Sea Oil, XStrata, Anglo American, Rio Tinto Group,  BHP Billiton, BG Group, National Grid, Scottish and Southern Energy, Centrica. That is 10 of the top 30 British companies. These companies mostly have their assets abroad – and if push comes to shove, you know these companies will go where their bread is buttered.

The second leg on which British industry stands today is cracked leg of banking and insurance – HSBC, HBOS, RBS, Lloyd’s TSB, Barclays, Standard Chartered, Aviva and Prudential. The British part of the business of these 8 financial firms is in mess. The international business is subsidizing the British business. How long do you think this will last?

The third wobbly leg is pharmaceuticals made up of two companies. Glaxo-Smithkline-and Astra Zeneca. Both are in doldrums due to competition from generic Indian companies – and may look good to beery British journalists boozed in a pub. Now these are the three legs of British economy. We know that three legged stools are always prone to topple over.

That was lesson No.1 for you Campbell.

Is this how British journalism lifts its spirits? (By Paresh Nath, The Khaleej Times, UAE - 5/19/2010 12.00.00 AM)

Is this how British journalism lifts its spirits? (By Paresh Nath, The Khaleej Times, UAE - 5/19/2010 12.00.00 AM)

Lallu has a few things to say here

Lesson No.2 is what our colourful former Railway Minister said, “इस हमाम में सब नंगे हैं” (meaning “everyone in this bathhouse is naked”).

No offense to colour black, but then black pots must not call yellow kettles names.

It is plain bad journalism!

Public debt imperils world economy

December 6, 2009 Leave a comment

Surprised at this 'perfect storm' - Don't be!

The Organisation for Economic Co-operation and Development (OECD) has warned that the world’s 30 leading industrialized economies will see their indebtedness grow to 100% of output in 2010, a near doubling from the percentage 20 years ago. (via Public debt imperils world economy – International News – livemint.com).

Till the fat lady sings

The debt spiral is not ended yet.

Like the Dubai crash shows, the world economy is not yet out of the woods. Struggling firms, in the face of a weak consumer and industrial markets, may just keel over. A domino effect may set off yet another round of closures, bankruptcies, mergers, and defaults.

More importantly, are Western Governments. With public debt (read that as Government debt) exceeding 100% of GDP for every Western Government – Ireland at more than 1000%, Britain at nearly 200%, US at more than 100%, they are the vulnerable soft-spot of the global economy.

I want more

The shopping bill for Western welfare state is not going away – except up. Welfare bills are getting more ambitious – and the domestic lobbies want more ambitious schemes. High cost economies are being protected by barriers and stockades.

Run … hide … but you can’t turn your back

The political constructs of the West have hit a wall – and there is no way but down! Since the West is busy hiding elephants in the room, the need for a different political ideology remains unaddressed.

An ideology like भारत-तंत्र Bharat-tantra.

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