US Debt To GDP Now Over 100%

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It was only a matter of time, but the US debt/GDP has now surpassed 100%. Courtesy of ZeroHedge.

There is nothing quite like a $70 billion debt auction settlement at the last day of a month to bring total US debt to a record $15.692 trillion, which happens to be just $600 billion shy of the $16.394 trillion debt ceiling. (and no, contrary to simple economic textbook lesson, this does not mean that the private sector just got another $70 billion in debt capacity courtesy of taxpayers, as explained here). And now that we know what Q1 GDP was at the end of Q1, or namely $15.462 trillion, it is simply math to divine that today alone total US/debt to GDP rose by 50 bps to a mindboggling 101.5%.


Gonzalo Lira Believes Spain Will Exit The Euro


Gonzalo Lira has written on his blog that he believes Spain will exit the euro. The Spanish PM Rajoy saw how unpopular the previous government became as a result of how badly they handled the economy and with so many debt auctions coming up this year after the recent one went so badly, politically Rajoy will look to exit the euro this year. He also makes the point that Germany will not want to have to pay for a Spanish bailout.

Unemployment to rise to possibly 30%.

Spain’s GDP in 2011 was €1.05 trillion (US$1.33 trillion). In 2012, as previously mentioned, the general consensus is that it will shrink by between 1.5% and perhaps as much as 2.5%; a figure of –1.75% seems reasonable. Unemployment in Spain is 24%. Youth unemployment (under 24 years old) is a shocking 53%. Both figures will rise during 2012 as the economy continues to contract. An unemployment of 30% by year’s end is within the realm of the possible.

Debt to rise.

Total government debt is projected to be 79.8% of GDP in 2012—that is, €800 billion. Much more troublingly, the debt last year was “only” €680 billion—but that was still 21% higher than in 2010. So at this rate—assuming the status quo remains unchanged, and without factoring in the contraction of GDP—in 2013 the projected Spanish government debt could well rise to 90% of GDP. Private debt is an additional 75% of GDP—and let’s not even start talking about the delinquency rates—while the banks have a capital shortfall estimated at a mere €78 billion.

Huge mountain to climb for Spain in bond auctions this year.

Last week, April 4, Spain’s Treasury held a bond auction—and fuck-all was it nasty: Of the expected €2.5 to €3.6 billion, Spain barely managed to get bids for €2.6 billion—and the yield on the 10-year spiked to 5.85%, before settling at a still-way-high 5.75%.

Worldwide markets all got down on this auction—

—but here’s the thing: Spain has a lot more of these auctions coming up—on average one every two weeks.

They have to raise €186 billion in 2012.  And of the first of these, they had a quasi-failed auction. One hundred eighty-six billion euros—in less than a year. They’re not going to raise that kind of money—simple as that. The April 4 auction was not an outlier—it’s what’s in the post for all of the next 17 auctions.

Germany has no interest in saving Spain.

And the Germans—being the passive-aggressive dicks that they are (my maternal grandmother is German-Danish—so I know whereof I speak)—will not allow the ECB to open the money spigot to Spain. Just like they did with Greece, Germany will dither, while all the while blocking money to Spain until it’s too late.

Germany is thinking—in its passive-aggressive way—that it can string Spain along (just like it did Greece), and then save Spain at the last minute (just like Greece was sort-of saved).

But there’s one difference: Spain is bigger—much bigger—than Greece. You can’t pull an all-nighter and save Spain like they did Greece. You want to save Spain, you best be starting now.

Of course, they’re not.

Luís de Guindos is the technocrat running the budget, but is unlike the other technocrats, Draghi, Monti and Papademos, he is more Spanish focused and with Rajoy, they are more inclined to focus on saving Spain than being good european lapdogs.

The new Spanish government of Mariano Rajoy, who took office this past December, has entrusted the running of the country’s finances to a so-called “technocrat”, Luís de Guindos.

But de Guindos is not a europhile-technocrat-insider à la Mario Monti or Mario Draghi or Lucas Papademos or Cristine Lagarde: De Guindos is a private sector nationalist. He is Spanish—not European.

Coupled to that the fact that, ever since Franco’s time, Spain has never been fully accepted as “European” by the rest of the continent.

Now, de Guindos isn’t stupid. Rajoy isn’t stupid. An unemployment of 24%—and rising—coupled with a shrinking GDP is a recipe for political turmoil. That’s polite-speak for “political shit-storm in the making”.

There have been massive demonstrations in all the major cities in Spain—and there will be more, without question.

Rajoy realizes he is only in power because the electorate were so unhappy with previous government.

He’s under no illusions that the Partido Popular didn’t so much win in 2011: Rather, the Rodríguez Zapatero’s PSOE lost, because of popular discontent with the economy.

Rajoy will exit the euro under these circumstances and blame the euro and the Spanish people will support such a move.

If there are another couple of failed auctions of Spanish bonds, and the message from the Troika is clearly that they won’t turn on the printing presses to save Spain—or worse, if the Troika telegraphs the message that Spain is going to have to get down on bended knee and beg and plead, while simultaneously squeezing its population ’til they scream—then rather than continue to cut services and social spending and appeasing the Troika, Mariano Rajoy will exit the euro.

“Don’t blame it on me! Blame it on the euro!” will be Rajoy’s slogan—and his people will believe him. In fact they will get fully behind him, regardless of the short-term (12-18 month) pain.

Once Spain go back to the peseta, it will be easier to devalue the currency.

For Rajoy and de Guindos, it will be simpler to exit the eurozone, go back to the peseta, and devalue by 20% to 30% right off.

It is always easier for a politician to cut expenditures via devaluation than via nominal spending cuts. Since the Eurocrats won’t allow a 20-30% devaluation of the euro, and since Spain cannot really cut any more or find any more money in the bond markets, then the only thing left for it to do is devalue a currency that it controls:

The New Peseta: Coming to Spain before the end of the year.


Further Reading:



UK Recovery Slower Now Than The Recovery After Great Depression


Looking at the chart below will tell you the the UK’s recovery since 2008 has been much slower than even the recovery after the Great Depression.

So what went wrong. Well according to economist (and external member of the Bank of England’s Monetary Policy Committee) Adam Posen when looking at the US recovery compared to the UK

Cumulatively, the UK government tightened fiscal policy by 3% more than the US government did – taking local governments and automatic stabilizers into account – and this had a material impact on consumption. This was particularly the case because a large chunk of the fiscal consolidation in 2010 and in 2011 took the form of a VAT increase, which has a high multiplier for households. The fact that British real incomes were hit harder than American households’ incomes by energy price increases could be ascribed in large part to the past depreciation of Sterling, which also hit real incomes directly. All combined, these factors significantly dampened consumption growth in the UK, with knock on effects on investment and stockbuilding.

Source: The Economist


Germanys Debt/GDP Now At 140%

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Quite a staggering amount, but ZeroHedge have calculated Germany’s debt/GDP at 139.8% when you factor in all its commitments. Eurostat deliberately leaves out certain information to help paint a brighter picture but the following breadown was uncovered by ZeroHedges digging.



German Gross Domestic Product (GDP):                                   $3.2 trillion

Official German Sovereign Debt:                                               $2.618 trillion

Percentage of Liabilities at the European Union:                                27%

Percentage of Liabilities at the ECB                                                       18.94%

Germany’s Percentage of the ECB Debt ($4 trillion)                          $757.6 billion

German annual cost for the EU budget                                                 $46.36 billion

German Guarantees for the Stabilization Funds                                $280.6 billion

German Guarantees for the Macro Financial Assistance Fund      $211.14 billion

German Target-2 Liabilities                                                                   $656 billion

German Guarantee for the EIB Debt                                                    $157.29 billion

Sovereign Guarantee for KFW                                                               $588 billion

Total German Sovereign Debt & Guarantees                                     $5.315 trillion

Official debt to GDP Ratio                                                             81.8%

Actual German Debt to GDP Ratio                                            139.8%


Already Dutch Can’t Meet Fiscal Compact Rules – Embarassing

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Under the new Fiscal Compact rules the every euro zone country is signing up to, even the Dutch won’t be able to meet the target next year. According to the CPB Bureau for Economic Analysis who are usually spot on, apart from not reaching the budget deficit, the debt/GDP will also be well over the 60% limit by 2015. Oh how embarassing 😉 Cheeky bastards were lecturing the Greeks recently.

The CPB, accustomed to delivering inarguable verdicts on fiscal and budgetary policy, said the Netherlands was in flagrant breach of the new eurozone rulebook and fiscal pact it has been highly instrumental in drafting.

“The government has the intention of living up to the rules, but it’s embarrassed that it can’t meet the targets now,” says Coen Teulings, director of the CPB.

On current policy, a mild recession would leave the country nursing a budget deficit of 4.5% of gross domestic product next year, 2 points higher than previously projected and 50% above the eurozone ceiling of 3%, – risking the wrath of Brussels and the imposition of automatic penalties the Dutch had been keen to devise for others.

What’s more, without a new round of austerity, the Dutch would still be above the eurozone deficit limit by 2015. National debt levels are also running in the wrong direction, from 65.4% of GDP last year to 75.8% in 2015, well above the 60% eurozone threshold.

So now the government find themselves in a bit of a jam on this one. Its the last thing it needs right now. Any austerity to try and meet the fiscal compact rules could push it over the edge.

The government’s in a fix,” says Paul Nieuwenburg, a political scientist at Leiden University. “It’s a problem of image. Having such a big mouth on Greece and seizing the moral high ground, they are now morally obliged to stick by the rules. Things have become very complicated. That’s why Rutte has withdrawn into splendid isolation and they won’t talk to the media.”

In order to meet its pledge of complying with the 3% deficit next year, it now needs to save a further €9bn in a year. That’s a very tall order. Teulings calculates that for every €3 in deficit reduction, you need to generate €5, meaning €15bn euros worth of spending cuts and tax increases are needed by next year.

“That’s so outrageous and it’s not really required by the economics,” he said. “Structurally we have to get spending down and revenue up to sustainable levels. Doing that too hastily means tax increases which are bad for the economy. Raising taxes in the middle of a recession is a bad thing. Structural reforms like raising the retirement age are preferable.”

A depressed housing market, with prices falling 8% since 2008 and likely to fall further, reduced consumption, shrinking pension funds and spending cuts which have seen disposable income curbed by 2% this year all underpin Holland’s budgetary dilemmas.

In a euro sceptic country, the sentiment is further shifting away from europe.

If the Netherlands has traditionally been a europhile country, that has changed sharply since it voted down the European constitution in 2005. Wilders’ strength on the right is currently mirrored on the hard left by the Socialist party which is riding high in the polls and is fiercely hostile to the EU. Between the two of them – Wilders’ Freedom party and the socialists – the anti-European stream musters 55% in the opinion polls.

Wilders sought to exploit the crisis by demanding a referendum on a return to the guilder, but this was dismissed by the political mainstream. An opinion poll showed 56% of the Dutch were against a referendum, but 39% were in favour. A sizeable minority, around one third, of supporters of the two governing parties wanted a vote. And while 61% were against bringing back the guilder, two thirds believed there should have been a referendum in the 1990s on joining the euro – 54% would have voted against.


The euro crisis could yet bring down another eurozone government – even in a country as prosperous and successful as the Netherlands.

And whats the solution to failing to meet the fiscal compact, yeah you guessed it AUSTERITY!!!!!!!!

Source: The Guardian

Fiscal Compact Treaty – What It Means For Ireland (Stephen Donnelly)

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Stephen Donnelly (Independent TD) was on Vincent Brownes show on TV3 on Wed 01 Feb 2012 and summed up what the new EU “fiscal compact” Treaty would mean to Ireland.

To put in context he states that austerity has only ever worked once by England(in industrial revolution) in the last 200 years.

Hear is what we are talking about. To pay down €100 billion in 20 years(i.e. get GDP to level required in treaty). You got to pay down €5 billion a year. Thats what the treaty says.

We’re also paying about €8 billion in interest on the €200 billion that we owe. So you add the two together, our interest payment and our capital payment on the debt is €13 billion per year.

Thats more than the total amount of income tax we take. So hears what we would have to believe:

That a government, not just this government, any government  in the world can turn around and say,


YOU have no income tax,

YOU are not allowed to raise income tax to invest in your economy because that goes to paying back the debt,

YOU are not allowed to raise Corporation Tax above 12.5%, 1/3 of what it is in other european countries because then all the FDI(Foreign Direct Investment) will leave,

We are being asked to believe that the most indebted country on earth, without the ability to raise income tax, without the ability to raise Corporation tax, in the middle of a massive Global recession, can achieve levels of growth that no country on earth has ever achieved. Once we believe that we’re ok.

UK Economic Disaster Is Ignored by Press

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While the focus over the last week has been on the downgrade of France and subsequently other european countries, the UK continues to slip under the radar. The 20% fall in GDP between 2007 and 2010 was $562bn which is over two and half times the entire eurozone. Funny how now of this gets any media attention. In a post a few days ago was a chart overviewing UK’s debt.

Some of the headline stories coming out of Britian are starkling.

Almost one million Britons have taken out an emergency ‘payday’ loan to help pay their rent or mortgage in the last year, according to Shelter, the housing charity.


Around six million households would be unable to survive for more than five days if they stopped being paid, such are the low levels of savings among Britons, new research shows.

According to rough calculations on The Automatic Earth blog:

If we put the average household size at 2.5 people, that means that, out of 60 million living in Britain, 2.5 million are on the verge of losing their homes, and 15 million, or 25% of the population, risk having to cut on their basic needs, food and heating, if they hit even the slightest speedbump.

John Ross, Visiting Professor at Antai College of Economics and Management at Jiao Tong University in Shanghai writes a real stunner on his blog Key Trends in Globalisation:

The magnitude of the blow suffered by the UK economy since the beginning of the financial crisis is very considerably minimized by not presenting it in terms of a common international yardstick. Gauged by decline in GDP, using a common international purchasing measure, dollars, no other economy in the world has shrunk even remotely as much as the UK.

Only Iceland faired worse, but at least they are over their troubles.

Expressed in percentage terms the situation is no better. Of all economies for which World Bank data is available only Iceland, with a decline in dollar GDP of 38.4%, suffered a worst percentage fall than the UK – even bail out economy Ireland, with a fall of 18.4%, outperformed the UK economy.

Already its tried, austerity and QE which haven’t worked. The figures keep getting worse and the presstitutes keep ignoring the story.

Source: The Automatic Earth

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