EYE-BALL Guru on – A Global Economic Snapshot …
A Global Economic Snapshot …
8th June 2012.
|The Global GFC is a long way from being over. The fallout is ongoing and the weakness within G7 Leaders and Global Governments to deal with the ongoing regulatory requirements, and to be able to make the hard calls relative to others is having its own cause and effect.
Take the EuroZone as an example – Greece is a basket case and the longer it drags on the markets will continue to speculate on possible outcomes causing more and more ripple effects. If Greece were a Public Listed company, it would have been wound up two years ago. Administrators would have been appointed, and all this would be behind the markets perspective. Yet it remains on the front page – and because it is sovereign debt – whatever happens with Greece will set a precedence for what will follow. The hesitation by World Leaders and their Bankers is a true measure of how important the Greek decision to what will follow.
The Bankers involved have too much input – they have a vested interest – if they were treated as any other Banker to a Public Company placed in liquidation they would have to stand in line as would the shareholders. Alas, because these Bankers also have loans to members of other P.I.G.S. Nations – if these Banks were to fail the flow on effect would render Europe an economic nuclear blast zone – and the US would soon follow as well.
To help with painting the picture of just how ‘bad’ it really is I have put together a series of Tables and Chart packages to help explain the World Financial Position as it is at the moment.
Firstly – take a look at the following image of a table of data extracted from the Trading Economics website.
[Click on the image to enlarge in a new window, or click here to open ‘excel’ spreadsheet to work the data for you own viewing.]
This Table is compact and warrants close inspection. It truly brings to light the Greek problems when the ‘Interest Cost’ as a percentage of GDP calculation is viewed.
It is not hard to understand the G7 Financial Ministers concerns when these raw numbers paint what Greece is dealing with. The 47.85% number is an unrecoverable position. To put it in simple terms – for every Euro of Greek GDP – 48% goes to paying of debt. No Nation can survive what that means. A population of 11 million cannot regain control of a USD 500 billion debt with 10 yr 28% interest yields. This is the cost for the Government to borrow – just imagine what business would have to pay. It is a safe statement to make when one says that no Banks are lending to the private sector in Greece. Loan Sharks and private funding would be about the only way anyone could raise finance.
We all know what that means for Greece in the short and long-term.
The second Table below has an additional column representing the ‘Individual Debt’ each person owes based on the Gross debt divided by the population. In this extraction – Greece ranks only 4th – headed by Japan with a US$90k balance owing, followed by Ireland at US$49k, USA at US$48k and then Greece at US$44k. See Table below for full extraction data.
When this data is viewed – Greece fares better than Japan who is by far the worst debtor by population, and is only marginally better that Ireland and the USA. The question then is why are these other Nations not in the same ‘basket case’ scenario. That is simple – look to the 10yr Interest yield chart for Greece below.
Compared with the stronger economies – or let us say – economies where the worst is still to happen – the 10 yr yields remain at levels that allow Governments to continue to borrow without pressuring their domestic yields.
Now compare some of the other members of the EuroZone P.I.I.G.S. Nations and their 10 yr Bond yield charts – [Portugal, Italy, Ireland, Greece and Spain.]
When you look at Greece’s 10yr Bond yield – 28% – nobody can survive that cost. Spain, Italy and Ireland have current yields under 10% – but so did Greece before Jan 2010.
What pushed up their rates? It was purely the Financial Markets focus – and dare I say – at the time America was under deep scrutiny over its own debt levels and the stagnant economy. The USA needed a diversion – to get the ‘doomsayers’ out of the media speculation and Greece then became the focus for everybody.
America is in just as much trouble when some of the data in the above Tables is reviewed. Greek GDP Debt ratios are at Speculators responding to media reporting of the Greek financial position. Before the EuroZone crisis became the Financial Markets focus – the spotlight was on America and their spiraling debt explosion. Have a look at the comparrison charts below:
Can you see the similarities – these are 25 year charts – since the ’87 crash …
The growth in US debt since George Bush Jnr came into office 2000 shows an increase from 57.3% to 67.2% in 2008 when he exited. In real numbers this is represented as the following numbers:
Since Obama became President in Jan 2008 – his contribution to the debt sees the current level at –
This growth is far worse than Greece’s problems. As measured by the numbers – the US Debt has almost tripled in 12 years – yet GDP growth as a measure has not even doubled. See Chart below:
Debt in America, both public and private is growing twice as fast as GDP – America is spending its own equity.
If interest rates were to rise in the US – their problems will go ballistic and follow Greece. Bernanke and Geithner know this fact. Their low-interest policy, and the Fed Chairman’s continual reminders of the ‘low interest rate policy’ is reassure the markets that America still needs to borrow and that the Fed Interest rate discount rate currently at 0.25% is there to stay. America will be worse than Greece if China bails. The talk of using a basket of currencies to replace the USD dominance in trade terms has been talk for a few years. When it happens it will be another blow to the US economy.
This exponential growth in US debt is 1990 Japan policy all over again. When the 50 States of America and their debts are added to the Federal Debt – along with local municipalities – DEBT becomes the only thing that matters. It is the dirtiest word all over the globe.
Who are the sellers of DEBT – Bankers, not the Central Bankers – they are supposed to regulate and monitor the Banks – but for 40 odd years now everybody at the Fed Reserve, including the icon of Fed Chairman’s Al Greenspan – were all asleep at the wheel. History has started to rewrite their contributions.
They were all watching and focused on the wrong numbers. Allowing the markets to self regulate was a mistake. The ‘greed’ factor and its equation as relates to ‘bonus payments’ verses profit contributions and the temptation to do ‘dodgy’ deals all became too inviting for many.
One could write reams of pages here – but what is the point – it is all retrospective – you can’t change where the world is in a financial context – the fact is that the World sits at the edge of an abyss – let Greece go over, a number of other EuroZone Members will follow, and that will weaken the EuroZone beyond repair. Greece will have to exit – unless it ceases to be a Nation and becomes a part of some other sovereign territory. It is a WAR outcome by other means.
If the EuroZone does breaks up – anarchy will prevail across all of Europe and we will have a pre-cursor to what started WWII – an inequality and disenchantment about what the future holds. This question just keeps getting harder and harder.
The Debt Growth charts presented below paint confirmation pictures …
If one was to use this data as an investment recommendation – Mexico and Russia would be two Nations that do offer creditable numbers to entice off-shore investment. Mexico and Russia you say – with the ‘drug cartel wars’ and the ‘Putin corruption’ issue – who in their right mind would blindly invest in these Nations. But the numbers don’t lie – Russia have a stunning economic future based on their natural resources, low wage base, and massive reserves.
In fact – 20 years after the ‘Wall’ came down – the reversal between the USA and Russia is complete. Who would have thought!!
Now let is look to Australia for a moment – Gillard and her ‘orgasmic’ believe that she is all things to all men – and the people of Australia has a nasty habit of only hearing what she wants to hear. She is in the ‘oven’ being slow cooked and she is unaware the over is even turned on.
When the ‘love to hate you’ gangly, and ‘too short to even be a midget’ Johnny Howard swung of Costello’s 9.7% Debt to GDP ratio – nobody knew what it really meant. Along came the GFC and all of a sudden everybody wants to see the Debt to GDP ratios.
Who the fuck cares – investors that who – these idiot portfolio managers with some ‘gizmo’ program would up based on economic data to shift money around the world based on stereo type investment analysis. When Governments spends in a downturn economy – the GDP growth is DEPT repainted as economic activity. It’s bullshit – yet the world uses these numbers on a blind take and have no ides how to edit out the ‘bullshit’.
In 10 years time – with DEBT continuing to explode – GDP will be all Government spending. Private sector will be dead as it is in Greece. Now I’m no smarter than some of the smarties out there managing Trillion $ portfolios. These guys have to be invested – they can’t stay short 100% forever and the weight of money shift does impact on currency and the global investment trade.
As each Quarterly report comes out – what they made over there is offset by what they lost over here. It’s a zero sum game – someone wins – then someone has to lose. And right in the middle are the Banks taking their slice from either side …
Capitalism is a broken business model – has been for decades. I don’t have an alternative – but the first thing that should be done is to shoot all the speculators.
Capital Gains Tax rates should be raised all over the world on investments held for less than a year to 90%. Make investors look long-term so that the money stays put – so that stability returns, so that moderate growth can be experienced – so that business owners can plan over a business forecast where currency and interest rates blow them out of the water. This is a no-brainer solution – when you can borrow at 0% in Japan, .25% in the USA, 1% in the UK and the Eurozone – and take those funds offshore to try and speculate to a fortune – what does it mean for domestic growth? It’s the wrong message and only encourages ‘greed’ and the ‘quickie’ trade.
Australia are on the backend of this as a result of the ‘cash and carry’ trade – high interest rates relative to trading partners, appreciating currency on the back of the ‘commodities boom’ – and a fuckwit RBA operating under an inflationary targeting mandate where higher interest rates are used to control inflationary pressures. $100’s billions of A$’s have been paid offshore in the carry on of this practice – and Gillard and her band if idiots thing a high A$ value means they run a good Government. They are criminally negligent.
But then so are most of the Governments of the WORLD over the past 40 years – all having allowed DEBT to be the conduit to prosperity … it’s all been an illusion.
Link to previous GDP story Titled:
The EYE-BALL Guru …
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