Endgame ahead

Archive for the ‘sovereign debt crisis’ tag

Summarizing the current state of the markets

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Grant Williams did it again at last months ASFA national conference, summing up the recent developments of equities and government bond markets, giving an outlook on what’s to come in next couple months and years… Fun to watch as always, even though it’s really nothing but depressing if you thing about it. 30 minutes well spent:

Written by mo

December 13th, 2013 at 12:07 pm

49 states to go: City of Detroit files for bankruptcy

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On a day when US stocks surge to new highs and Moodys upgrades the US rating outlook from negative to stable… the city of Detroit files for Chapter 9 bankruptcy. Don’t worry, it makes perfect sense in the central planned “new normal” the US economy has become.


Just minutes later

BREAKING: US city of Detroit files for bankruptcy: court papers

Following this bombshell, here are a few highlights from Gov. Snyders press conference, summarizing the epic fail Detroit has become:

  • … difficult to reverse 60 years of decline in which promises were made that did not reflect the reality
  • Detroit citizens wait an average of 58 minutes for the police to respond to their calls
  • Only a third of Detroit’s ambulances were in service in the first quarter of 2013
  • 40% of Detroit’s street lights were not functioning
  • Detroit has large swaths of largely abandoned structures — approximately 78,000
  • Detroit tax rates are at their current legal limits. Even if Detroit was legally able to raise taxes, its residents cannot afford to pay additional taxes.

Written by mo

July 18th, 2013 at 9:50 pm

Greece has been safed… again?

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I’m not going to write a long and witty post on the latest Greek rescue package, since it’s getting kinda boring. I think by now even the EU bureaucrats have lost count how many times exactly Greece has been rescued.

The announcement came in the early morning hours, after weeks of failed talks and was rewardet by a 1 or 2 bps “spike” in the EURUSD, just to fade away within hours. Of course the markets in Europe opened with a another rally, which turned out to be… modest and short lived (a couple hours that is). The US markets didn’t even bother to rally, since by the time they opened, people managed to find their calculators and read the Eurogroup’s “plan”, just to figure out it really doesn’t make much sense. Surprise! Who’d have guessed?

Then again, the whole package isn’t finished anyway, since it still has to be ratified by every nation involved. And (among other things) assumes a “voluntary” haircut of 70% on Greek debt by private investors holding it. All within the next two weeks.

Good luck with that…

Then again, let’s just assume for some reason (magic!) creditors agree to those terms and everything will go as planned. How much exactly will those cuts matter? Thanks to, here’s something nice to look at:

We’re talking about the red part. The official sector debt can’t be cut, since the German Bundesverfassungsgericht (among others) would most likely throw a hissy fit the second anyone would suggest that. For now that is – in a couple years the recent ruling will probably be forgotten since nobody cares about laws and contracts anymore anyway and a official sector “forgiveness” seems inevitable. If the whole EU / Euro conglomerate still exists by then that is…


But in case they really pull it off and flush another 40 billion Euro down the toilet, here’s what the rescue package assumes the Greek economy will do during the next 10 years:

And here’s how their past projections turned out:

Yeah… I’m sure that will work just fine.

UPDATE, less than 24 hours later – fresh from Bloomberg:

Really? REALLY? Well that’s what I call a completely unpredictable turn of events!

Written by mo

November 27th, 2012 at 5:26 pm

Posted in Europe

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Acapulco goes bankrupt

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The Sydney Morning Herald (among others) reports that Acapulco is now facing bankruptcy

The mayor of Acapulco, one of Mexico’s top tourist spots, declared the beach resort in “technical bankruptcy” on Tuesday and called on the federal government to “come to the rescue.”

Mayor Luis Walton, who took office two months ago, said the city government was unable to pay a debt of more than $US170 million.

“We are in a state of technical bankruptcy,” the leftist mayor told a news conference, accusing the previous administration of inflating public wages and signing contracts worth millions that cannot be paid.


Written by mo

November 20th, 2012 at 2:11 pm

Kyle Bass on Europa, tearing apart at the core

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157 well-spent seconds to summarize just what is going in Europe, as he concludes with Milton Friedman’s quote on Europe: “when they hit a bump in the road, it will tear them apart at the core.”

Written by mo

November 17th, 2012 at 12:44 am

Posted in Europe

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Meanwhile in Spain…

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Meanwhile in Spain, people don’t seem to get that Europe is once again saved… Oh those silly Spaniards.

As Spain announces more austerity, the country has erupted in violence. This report, which dives into the heart of the violent protests, reveals a shockingly deep divide between government and people.

“The government is trying to scare the people,” one protester says, following the government’s dubbing of a protest outside the congress as a possible coup d’etat. It ramped up the already tense mood among a people that blame the right wing government for Spain’s economic problems. As protesters refuse to leave and sit down in non-violent protest, the police break off into small groups and chase them down. “The police started to charge indiscriminately toward anyone. We are returning to fascist repression.” Rubber bullets and bricks fly back and forth in street exchanges of a shocking intensity. “We are not animals! We are people!”, one woman pleads with the police. But the police don’t wait long before storming down the streets, shooting rubber bullets at close range into fleeing crowds. The streets may be clear for now, but as the crisis in Spain deepens with no end in sight, popular resistance towards the government and it’s austerity project is only intensifying.

Jihan Hafiz

Written by mo

October 1st, 2012 at 3:06 pm

US downgraded to AA-

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Following yesterdays QE3 / QE∞ the United States has just been downgraded again, this time from AA to AA- thanks to Egan-Jones:

Up, up, and away – the FED’s QE3 will stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality. Issuing additional currency and depressing interest rates via the purchasing of MBS does little to raise the real GDP of the US, but does reduce the value of the dollar (because of the increase in money supply), and in turn increase the cost of commodities (see the recent rise in the prices of energy, gold, and other commodities). The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers thereby reducing consumer purchasing power. Hence, in our opinion QE3 will be detrimental to credit quality for the US.Some market observers contend that a country issuing debt in its own currency can never default since it can simply print additional currency. However, per Reinhart & Rogoff’s ” This Time Is Different: Eight Centuries of Financial Folly ” , p.111, 70 out of 320 defaults since 1800 have been on domestic (i.e., local currency) public debt. Note, US funding costs are likely to slowly rise as the global economy recovers or the FED scales back its Treas. purchases (75% recently).

From 2006 to present, the US’s debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%. In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%. We are therefore downgrading the US country rating from “AA” to “AA-“.

Ratings History:
Egan-Jones rating history for United States (Govt of).
9.14.12  AA to AA (-)
4.15.12  AA+ to AA (Negative outlook)
7.16.11  AAA to AA+

And since Egan-Jones hit-ratio (meaning the ratio at which S&P and Moody’s follow their rating) of well above 90%, expect the major rating agencies to downgrade as well within the next week or so.

Oh, and about that inflation…

Written by mo

September 14th, 2012 at 10:09 pm

US GDP-to-debt crosses 100%

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Well isn’t that just swell? For the first time in 70 years the US debt/GDP today crossed above 100%. Almost exactly one year after the US downgrade at the beginning of August 2011. Happy Anniversary, I guess!

According to the latest data available from the Bureau of Economic Analysis (GDP at 6-30-12), U.S. Treasury (Public Debt at 8-2-12), and U.S. Census Bureau (Population at 8-4-12):
Public Debt $15.921 trillion
GDP $15.596 trillion
Population 314.090 million
Annualized Interest Expense $501.157 billion
Effective Interest Rate 3.39%

And the outlook at the current rate of progression? (Thanks to ZH)


  • Total US debt: $22.2 trillion (an increase of over $6 trillion from today)
  • Total debt per US taxpayer: $180,000
  • Debt to GDP: 130% (30% higher than today)
  • Food stamp recipients: 50 million
  • M2: $14.3 trillion (an increase of over $4 trillion from today)


  • Total US Unfunded liabilities of $147 trillion (or $1.2 million per taxpayer)
  • $950 trillion in currency and credit derivatives, margined courtesy of TBTF banks’ cash deposits.

Written by mo

August 5th, 2012 at 10:46 pm

Overdose: The Next Financial Crisis

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Journeyman pictures recently put up the 45 minute long documentary Overdose: The Next Financial Crisis. It’s currently 2 years old (first published in July 2010) but now you can watch if for free on YouTube. So, two years later – can you spot how many of the predictions came true?

With the US raising their debt ceiling, are we in a global bail-out bubble that will eventually burst? This doc offers a fresh insight into the greatest economic crisis of our age: the one still awaiting us.

The financial storm that has rocked the world began brewing in the US when congress pushed the idea of home ownership for all, propping up those who couldn’t make the down payments. When it all went wrong the government promised the biggest financial stimulus packages in history and gargantuan bailouts. But what crazed logic is that: propping up debt with more debt? “They’re giving alcohol to a drunk: it just sets him up for a bigger hangover.”

July 2010

Written by mo

July 3rd, 2012 at 9:53 am

Spain gets a bailout

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Who’d have thought – looks like Spain will get a bailout for their banks as well:

The Eurogroup supports the efforts of the Spanish authorities to resolutely address the restructuring of its financial sector and it welcomes their intention to seek financial assistance from euro area Member States to this effect.

The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request.

The financial assistance would be provided by the EFSF/ESM for recapitalisation of financial institutions. The loan will be scaled to provide an effective backstop covering for all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and the international auditors. The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to EUR 100 billion in total.

Following the formal request, an assessment should be provided by the Commission, in liaison with the ECB, EBA and the IMF, as well as a proposal for the necessary policy conditionality for the financial sector that shall accompany the assistance.

The Eurogroup considers that the Fund for Orderly Bank Restructuring (F.R.O.B.), acting as agent of the Spanish government, could receive the funds and channel them to the financial institutions concerned. The  Spanish government will retain the full responsibility of the financial assistance and will sign the MoU.

The Eurogroup notes that Spain has already implemented significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks. The restructuring plans in line with EU state-aid rules and horizontal structural reforms of the domestic financial sector.

We invite the IMF to support the implementation and monitoring of the financial assistance with regular reporting.

What’s that? Only 100 billion Euro? Hardly worth mentioning then…

Of course it’s just for the banks, not for the government. After all, as everyone knows, it’s only the banks that are broke, not the country itself. Rest assured, your bonds are totally safe and not just a bunch of paper, worth hardly more than any other empty promise. But why safe the banks then? Why of course so they can continue buying those government bonds, as nobody else in their right mind would buy them…

Update, June 11th 2012: Guess what? Looks like the bailout already starts to fall apart

Nothing like figuring out your hare-brained bailout attempt was a failure from the beginning. Ok: Here are the problems with this band aid:

  1. Unfunded
  2. Temporary, and eventually will be replaced by the ESM. Markets can, luckily, still discount.
  3. Negative pledge issue still exists as Finland made all too clear. Countries will demand extra security interest while under EFSF regime and until ESM priming comes in play.

Finally, all of this, is just semantics.

Well, that didn’t take too long.

Written by mo

June 9th, 2012 at 8:06 pm

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