Advertisements

3 Eurozone Countries With Debt-to-Income Ratio Over 300%

Comments Off on 3 Eurozone Countries With Debt-to-Income Ratio Over 300%

Forget the usual Debt-to-GDP ratio that is thrown about when discussing a countries ability to pay. A more realistic ratio is between its debt and its income since debt is paid from a governments income. When you consider this comparison, then 3 countries in the eurozone have  a ratio greater than 300%. Worse still is the US with a debt-to-income of 304% in 2012.

Ireland, Greece and Portugal are labouring under debt-to-income ratios of more than 300%, according to figures that expose the indebtedness of eurozone governments in relation to their government revenues.

The measure, intended to show governments’ abilities to pay debts, shows Ireland’s total debt in 2012 was €192bn (£163.1bn), or 340% of the government’s income. Ireland came a narrow second in the table to fellow bail-out recipient Greece, which has amassed an even worse debt-to-revenue total of 351%. Portugal – which has also received aid from the troika of the International Monetary Fund, the European commission and the European Central Bank – came third with a debt-to-revenue ratio of 302%, while Britain was sixth last year on the list of 27 European Union member states, with a debt-to-revenue ratio of 212%, according to calculations based on European commission figures.

 Debt figures are usually calculated as a ratio of a country’s national income and expressed as a proportion of GDP. But national income figures reflect activity across the whole economy, in both the public and private sectors. governments must pay debts from tax receipts and other government income, not the income for the economy as a whole. Some analysts argue a government’s debt-to-revenue ratio provides a clearer picture of its ability to fund annual debt payments once interest rates are taken into account.

The US is in even worse shape than Greece. Its $16tn (£10tn) debt is the equivalent of 105% of GDP, but more than 560% of government revenues. Washington’s debt payments are cheap after a plunge in the interest it pays on government bonds, but with revenues of only 14% of GDP compared with about 40% across much of the EU, its ability to pay is weakened.

Ireland, which is often commended for its recovery from the banking crash, has seen a sharp rise in its debt-to-revenue ratio in the last four years. In 2009 the ratio was 187%. A year later it had jumped to 262% before reaching 340% in 2012. However, the country appears to be in better shape when debt-to-GDP figures are used. It ranks fourth, with a 117.6% ratio, after Greece, Italy and Portugal.

Greece’s performance, by contrast, has improved. It has pushed through a huge clampdown on government spending and has seen its ratio fall from 402% in 2011 to 351% in 2012.

Some of Europe‘s strongest economies have jumped up the league table of indebted EU nations when the debt-to-revenue measure is used. Germany has a ratio of 181%, Malta’s is 178%, while France has a ratio of 174%, all higher than countries that are often cited as troubled and at risk of default such as Slovenia (120%) and Hungary (168%).

The healthiest economies according to the debt-to-revenue measure are the Nordic nations, where Sweden enjoys a 75% ratio, Denmark a 82% ratio and Finland a 99% ratio in 2012.

In the aftermath of the 2009 banking crash, the US investment bank Morgan Stanley argued that debt-to-government-revenue ratios should be included in any discussion of a possible sovereign debt default.

Analyst Arnaud Marès, who has since left the firm, said in August 2010: “Whatever the size of a government’s liabilities, what matters ultimately is how they compare to the resources available to service them. One benefit of sovereignty is that governments can unilaterally increase their income by raising taxes, but they will only ever be able to acquire in this way a fraction of GDP.

“Debt/GDP therefore provides a flattering image of government finances. A better approach is to scale debt against actual government revenues. An even better approach would be to scale debt against the maximum level of revenues that governments can realistically obtain from using their tax-raising power to the full.

This is a function of the people’s tolerance for taxation and government interference. Seen from this angle, the US federal debt no longer compares quite so favourably with that of European governments.”

In 2010, US debt to revenue was 365%.

Source: The Guardian

Advertisements

Euro Doomsday Preppers

Comments Off on Euro Doomsday Preppers

Report from RT of preparations of eurozone citizens for impending monetary collapse.

Germany Nervous About It’s Gold Reserves

Comments Off on Germany Nervous About It’s Gold Reserves

It’s like a high stakes game of poker right now. The situation with Greece is making everyone nervous and its Germany’s turn this week as more questions are asked about how secure its gold reserves are while being held outside its borders. This time its the turn of the German Federal Audit Office to ask the questions as originally reported by Bild.

The German Federal Audit Office has criticised the Bundesbank’s lax auditing and inventory controls regarding Germany’s sizeable gold reserves – 3,396.3 tonnes of gold or some 73.7% of Germany’s national foreign exchange reserves.

There is increasing nervousness amongst the German public, German politicians and indeed the Bundesbank itself regarding the gigantic risk on the balance sheet of Germany’s central bank and this is leading some in Germany to voice concerns about the location and exact amount of Germany’s gold reserves.

The importance of its gold reserves are crucial in case the eurozone was to collapse. A new germany currency could be backed by these reserves.

The eurozone’s central bank system is massively imbalanced after the ECB’s balance sheet surged to a record 3.02 trillion euros ($3.96 trillion) last week, 31% bigger than the German economy, after a second tranche of three-year loans.

The concern is that were the eurozone to collapse, Bundesbank’s losses could be half a trillion euros – more than one-and-a-half times the size of the Germany’s annual budget.

In that scenario, Germany’s national patrimony of gold bullion reserves would be needed to support the currency – whether that be a new euro or a return to the Deutsche mark.

The German lawmakers are following in the footsteps of US Presidential candidate Ron Paul who has long called for an audit of the US’ gold reserves.

It is believed that some 60% of Germany’s gold is stored outside of Germany and much of it in the Federal Reserve Bank of New York.

Germany and other central banks may follow in Hugo Chavez’s footsteps and repatriate their gold to Germany so as to have direct possession of and ownership of their gold reserves in order to be better prepared for a systemic or monetary crisis.

Jim Rickards has outlined possible plans by the Federal Reserve to commandeer Germany’s and all foreign depositors of sovereign gold at the New York Federal Reserve in the event of a dollar and monetary crisis leading to intensified “currency wars” and the ‘nuclear option’ of a drastic upward revision of the price of gold and a return to a quasi gold standard is contemplated by embattled central banks to prevent debt deflation.

Source: ZeroHedge

Eurozone Financial System Seizing Up

3 Comments

Money is to the economy what blood is to the human body. So long as both are circulating smoothly, they’re doing fine. But when liquidity starts to choke in the veins of the economy, as is happening now, it points to a coming seizure.

In The Telegraph :

The European Central Bank admitted it had held meetings about providing emergency funding to the region’s struggling banks, however City figures said a “collateral crunch” was looming.

“If anyone thinks things are getting better then they simply don’t understand how severe the problems are. I think a major bank could fail within weeks,” said one London-based executive at a major global bank.

The early warning signs of such a liquidity seizure are already showing up in the troubles that European banks face in raising short-term liquidity. French, Italian and Spanish banks have run out of collateral (typically US Treasures) that they put up to finance short-term loans, and have been forced to pledge their gold reserves in order to secure dollar funding, reports The Telegraph.

The fear is the European authorities do not have the financial firepower to deal with the banks’ problems. Analysts at BarCap say that even if the European rescue funds were able to raise €1 trillion of funding this would only meet the needs of the Italian and Spanish government and banks.

The European banking sector’s problems are being exacerbated by a wave of asset sales as lenders look to dramatically shrink their balance sheets. UBS estimates eurozone banks could sell off between €3.7 trillion and €4.5 trillion of assets in the next three years.

The Economist discusses how the bank bond market is freezing up.

David Lyon of Barclays Capital, an investment bank, reckons that just €17 billion ($24 billion) in unsecured European bank bonds have been sold since the end of June, compared with €120 billion in the same period a year earlier. “In the context of the requirement, this is a paltry amount of funding,” he says.

Now, governments are leaning on banks to keep buying their bonds. As a result even the strongest banks from peripheral euro-area countries such as Spain or Italy (where yields on an auction of three-year government bonds surged to an unsustainable 7.9% on November 29th) are finding it hard to borrow from investors.

Yet the bond-buyers’ strike afflicting banks is more worrying than the sovereign one. No banks are regarded as havens in the way that British and German government bonds provide a refuge for investors. Even strong banks in “core” euro-area countries are being frozen out of markets.

A second vital source of funding is borrowing through short-term interbank markets or tapping money markets. Both of these are also drying up. American money-market funds, which were a big source of dollars for the European banking system, have reduced loans by more than 40% over the past six months.

Banks are reluctant to lend to one another except for the shortest possible time, usually overnight. “Every night for the past few months [chief financial officers of big banks] have been getting reports saying they are short of a few billion,” says one banker. “They take the phones and start calling all the other banks to ask if they can borrow €100m here and some there.”

For now, this is keeping the system ticking over, partly because a bank lending money overnight knows it may have to ask for the favour to be returned next week. Euro-area central banks are also leaning heavily on their biggest banks to keep supporting the smallest with interbank loans.

Banks are responding by desperately hoarding the cash they have, selling assets and slowing new lending.

The longer banks are unable to raise funding, the greater the chance that one may fail. As one banker ominously puts it: “you are getting further along the train tracks towards the buffers.”

 

France, Germany to press euro zone treaty change

13 Comments

France, Germany to press euro zone treaty change.

Debt Crisis Has Spread to The Core

2 Comments

Juergen Stark has warned today while speaking in Ireland that the sovereign debt crisis has spread to core of the eurozone. From RTE website he went on to say.

 “These are very challenging times… The sovereign debt crisis has re-intensified and is now spreading over to other countries including so-called core countries. This is a new phenomenon,” Mr Stark said in a speech to Ireland’s Institute of International and European Affairs in Dublin.

“The sovereign debt crisis is not only concentrated in Europe, most advanced economies are facing serious problems with their public debt.”

More on the subject can be found at ZeroHedge.

Naturally this is not news to anyone, and certainly not to European banks, which have seen their deposits with the ECB (or a safe haven for any cash within the European interbank system) rise at the fastest rate in years, if not ever, since the last MRO. It has taken just 11 days to go from €73 billion on November 8, post the most recent LT liquidity operation, to €237 billion. We expect the total to surpass the two years high of €300 billion in under 5 days.

 

Jim Rogers Says 100% Chance of Crash

8 Comments

Jim Rogers as reported in investmentweek.co.uk has said

he is 100% sure the world will face another financial crash prompted by the eurozone debt crisis, adding this time it will be worse than 2008’s collapse.

The interview was given to CNBC and Jim went on to say:

the upcoming crisis could be worse than the Lehman Brothers collapse three years ago due to astronomically higher debt levels in economies.“In 2002 it was bad, in 2008 it was worse and 2012 or 2013 is going to be worse still – be careful,” he warned.

“The world has been spending staggering amounts of money it does not have for a few decades now, and it is all coming home to roost.

“We are certainly going to have more crises coming out of Europe and America; the world is in trouble.” said Rogers.

He said borrowing more cash to fix the problem was no longer a solution for indebted nations.

“Last time, America quadrupled its debt. The system is much more extended now, and America cannot quadruple its debt again. Greece cannot double its debt again. The next time around is going to be much worse,” he said.

Rogers told CNBC he believed the only solution to the global financial crisis was to allow “everyone to go bankrupt”.

“Get everyone in a room and decide you will go bankrupt. You will survive and we are going to ring-fence you. We will make sure your cheques clear. Everyone’s deposits are going to be ok, the system is going to survive,” he said.

However, he warned letting Greece leave the euro would be a disastrous decision because the country would go back to its “same old ways”.

“They would start printing money, no one would lend them money and inflation would go through the roof. The Greek economy would get worse and worse. That is not good for Greece and it is not good for the world.

“It would be better off if we can hold the euro together and reorganise. People are bankrupt and when people are bankrupt you might as well face reality.”

%d bloggers like this: