Five explanations for Greece’s bond yield

"The biggest news in the sovereign debt world this week has come from Greece, which managed to sell some €3 billion in new 5-year bonds at a yield of just 4.95%. This is not what you might expect, given the macroeconomic situation:

Greece’s debt currently stands at about 320 billion euros, or 175 percent of GDP. It is rated nine notches below investment grade at Caa3 by Moody’s. Standard and Poor’s and Fitch rank Greece six notches below investment grade at B-.

So, how does one explain investors’ appetite to buy this debt at such low yields?"

http://blogs.reuters.com/felix-salmon/2014/04/11/five-explanations-for-greeces-bond-yield/

The Anti-Debt-Relief Crowd Is Wrong on Greece

"Yet whether Greece can pay the interest on its loans for now is not the issue. Greece’s problem is that absent relief, the debt will remain huge. By forfeiting commercial profit on its loans, the euro area is helping out, but these cheap loans still add to the public debt. Japan is one of the few other countries to have amassed such high levels of debt in modern times, and its “lost decade” is now in its 23rd year.

Until Greece’s nominal GDP growth, currently sharply negative, rises above the interest rate it pays on its debts, these will go on increasing as a proportion of the economy. This is simple arithmetic: Debt service costs add to the debt, the numerator, faster than GDP, the denominator, rises."

"The optimistic view that low interest rates make debt relief unnecessary follows in the same misguided vein. Greece is spending about 5 percent of GDP to service its debts, forcing it into the same vicious circle as Japan (which spends only 2 percent of GDP on debt service) and Italy (5.4 percent of GDP). This burden makes the task of turning Greece’s budget deficit into a surplus hopeless and undermines future growth. Flat growth and no inflation mean that the 3 percent interest Greece is paying on its debt remains too high to reverse the vicious circle that has bedeviled the commission’s forecasts."

"(Charles Wyplosz is a professor of economics at the Graduate Institute of International and Development Studies in Geneva.)"

http://www.bloomberg.com/news/2013-10-01/the-anti-debt-relief-crowd-is-wrong-on-greece.html

Will debt derail Abenomics?

"It seems to me that one of the automatic, if not always intended, consequences of Abenomics is to force up Japan’s current account surplus, and in fact to force it up substantially. This will have to do at least in part with deciding how to manage the country’s enormous government debt burden, which easily exceeds 200% of the country’s GDP."

"Second, it is not obvious that the world will be able to absorb a significant increase in the Japanese exports, and if Abenomics implicitly forces up the Japanese savings rate relative to investment (which is all that we mean when we say that economic policies force up current account surpluses), these policies can resolve themselves either in the form of high growth and soaring exports, or much lower growth and slowing imports. The former implies that Abenomics will be successful, while the latter that it will fail. It is not obvious, in other words, that Abenomics can succeed in a world of weak demand, and its failure is likely to make Japan’s domestic imbalances worse, not better."

http://blog.mpettis.com/2013/11/will-debt-derail-abenomics/

The History Of Debt

Ciekawa infografika o rodzajach długu (rządowego, prywatnego, przedsiębiorstw) na przestrzeni lat.

http://www.nytimes.com/interactive/2013/11/12/business/dealbook/where-credit-is-due.html

Surprise - US Policy Reduces Trading Volumes AND Liquididty In The US Treasury Market - BRAVO

"The US Federal Reserve Bank has been easing quantitatively (QE) for 4 years now, since 2009.  Over this period, average daily trading volume in the US Treasury market has reduced from 500bln 10yr equivalents per day to 350bln 10yr equivalents.  350bln 10yr equivs may still seem like a big number...but this is a 30% decrease in trading volumes, and that is a reduction not only in volume, but liquidity.  Some readers out there might think"so what?" or "whats the big deal if the US Treasury market is less liquid than it used to be?"  The answer rests in the ultimate lenders of capital, and the structure of the Treasury market which is of great concern to participants of this market.  Investors (yes, a rarely used word these days) prefer to invest in assets that are liquid, especially when that asset is designated as a "risk free" asset.  Liquidity = ability to enter / exit at tight spreads without affecting the market price for the security.  (...)

The market is a discounting function, in that it discounts future expected values in the current price of assets.  This means that ultimately, when the market realizes that the Fed cannot exit its QE position (i'm amazed this hasn't happened yet), the discounting function requires the price of UST debt to drop, yields to rise, and the currency to cheapen.  And here is where the Fed holding a sizable portion of all outstanding UST debt becomes both a problem, solution, and problem again."

http://govttrader.blogspot.com/2013/11/surprise-us-policy-reduces-trading.html

PONZI AUSTERITY: A definition and an example

"Ponzi austerity is the inverse of Ponzi growth. Whereas in standard Ponzi (growth) schemes the lure is the promise of a growing fund, in the case of Ponzi austerity the attraction to bankrupted participants is the promise of reducing their debt, so as to liberate them from insolvency, through a combination of ‘belt tightening’, austerity measures and new loans that provide the bankrupt with necessary funds for repaying maturing debts (e.g. bonds). As it is impossible to escape insolvency in this manner, Ponzi austerity schemes, just like Ponzi growth schemes, necessitate a constant influx of new capital to support the illusion that bankruptcy has been averted. But to attract this capital, the Ponzi austerity’s operators must do their utmost to maintain the façade of genuine debt reduction."

http://yanisvaroufakis.eu/2013/11/08/ponzi-austerity-a-definition-and-an-example/

Hidden debt must still be repaid

"Five or six years ago, a few skeptics first started pointing out that the credit dynamics underlying Chinese growth was creating an unsustainable increase in debt. This, they warned, would ultimately undermine the banking system and cause growth to collapse if it were not addressed in time.(...)

I agree that China is in a very different position than the US, but this isn’t necessarily a good thing. The main relevant difference is that because all the banks are perceived to be guaranteed by the central government, and Chinese households have a limited number of ways to save outside the banking system, it is unlikely that China will experience a system-wide bank run as long as the credibility of the guarantee survives, and runs on individual banks can be resolved by regulatory fiat (banks that receive deposits will be forced to lend to banks that lose deposits). We are not likely to see a Lehman-style crisis."

http://blog.mpettis.com/2013/10/hidden-debt-must-still-be-repayed/

Sovereign precariousness

"Bond spreads, along with their close cousin credit default swaps, are a beautifully linear measure of sovereign default risk. They go up in a straight and steady line: the higher the number, the riskier the country is perceived to be. And so they’re normally the first and last place that people look when they’re interested in the chances of any given country defaulting.

But of course the world isn’t quite as simple as that, and — as we have learned the hard way — it’s the unexpected defaults which are the most damaging. (...)

What we did was to take a country’s primary deficit — the amount it needs to borrow every year to finance its operations — and add on its total annual debt service. We then took that number and divided it into the country’s total foreign reserves, to get an idea for the length of time that sovereign reserves would be able to fund not only operations, but also all of the country’s debt service requirements.

The results are quite startling.(...) Japan would have only about 14 days."

http://blogs.reuters.com/felix-salmon/2013/11/02/chart-of-the-day-sovereign-precariousness-edition/

Pochwała limitów zadłużenia

"Pożyczanie staje się pokusą nie do odparcia przy założeniu, że wynikające z niego obciążenie uda się przesunąć na grupy społeczne inne niż te, które korzystają obecnie z niskiego opodatkowania bądź wyższych wydatków publicznych. Taką grupą są na przykład ludzie bezdzietni, którzy korzystając z zadłużenia publicznego, przenoszą jednocześnie na potomków innych rodzin tę część obsługi długu, która stanie się wymagalna, gdy ich samych nie będzie już na świecie. "

"Innym przykładem jest tzw. mutualizacja, czyli wspólna odpowiedzialność za długi poszczególnych państw – na przykład realizowana obecnie w ramach Unii Europejskiej. Poszczególne kraje zadłużają się, przekraczając granicę rozsądku, wiedząc, że przed bankructwem uchronią je procedury ratunkowe finansowane przez inne państwa członkowskie. Ratunek przyjmuje ostatecznie formę pożyczek międzyrządowych, by utrzymać iluzję samodzielnego spłacania pożyczek zaciągniętych przez każde z państw. Ale gdy tylko kredyty powędrują na odpowiednie rachunki, mutualizacja pokazuje prawdziwe oblicze w postaci umorzenia długu. "

http://www.project-syndicate.pl/artykul/pochwaa-limitow-zaduzenia,338.html

To End the Eurozone Crisis, Bury the Debt Forever

"What are the Options Today?

The debt problem cannot be avoided or hoped away. When debt is unsustainable it will not be sustained. The only question is how and when the crisis comes. Here are the five options that can address the debt quagmire."

"Option 1: Long-term debt reduction through budget surpluses"

"Option 2: Sales of public assets"

"Option 3: Classic debt restructuring"

"Option 4: Debt forgiveness"

"Option 5: Debt monetisation"

"At the end of the day, except for Option 1, which is the classic virtuous approach, and Option 2, the disposable of public assets, none of the other options is appealing.

But if Options 1 and 2 are impossible, one has to choose among bad options.

Option 3 is clearly the least desirable because it would shake the markets and possibly take down large segments of the banking system. Option 4 is not just politically explosive; it could trigger a debt crisis among the countries currently perceived as healthy. This leaves us with Option 5."

http://www.nakedcapitalism.com/2013/08/to-end-the-eurozone-crisis-bury-the-debt-forever.html

Japan; from quagmire to Abenomics to collapse! Part I, II, III

"The second thing the reader needs to know about economics is that debt can have a positive or a negative effect on wealth creation, depending on what kind of deb. If the debt is made with the intent of making a subsequent sale, id est. a business loan, it will help increase capital accumulation. However, if the debt is taken on to fund current consumption it will decumulate the capital stock and make society poorer. (...)

Japan misallocated large amounts of capital in the 1980s. Instead of dealing with it head-on, they tried to paper over the problems with fiscal expansion, lowering interest rates to laughable levels and expanding the central bank balance sheet. This story should be familiar to all Americans and Europeans by now as the western economies did the exact same thing in the 2000s.

All it did for Japan was to lift public debt to levels that eat away all tax revenue."

Part I http://www.bawerk.net/#post16
Part II http://www.bawerk.net/#post17
Part III http://www.bawerk.net/#post18

The Real Story of the Cyprus Debt Crisis

"Why do the debt crisis in Cyprus and the subsequent "bail-in" confiscation of bank depositors' money matter? They matter for two reasons:

1. The banking/debt crisis in Cyprus shares many characteristics with other banking/debt crises.
2. The official Eurozone resolution of the crisis--the "bail-in" confiscation of 60% of bank depositors' cash in an involuntary exchange for shares in the bank (which are unlikely to have any future value)--may provide a template for future official resolutions of other banking/debt crises.

In other words, since the banking/debt crisis in Cyprus is hardly unique, we can anticipate the resolution (confiscation of deposits) may be applied elsewhere."

http://charleshughsmith.blogspot.com/2013/06/the-real-story-of-cyprus-debt-crisis.html (part 1)

http://charleshughsmith.blogspot.com/2013/06/the-real-story-of-cyprus-debt-crisis_17.html (part 2)

[WSJ] IMF Admits Mistakes on Greece Bailout

"The International Monetary Fund has admitted to major missteps over the past three years in its handling of the bailout of Greece, the first spark in a debt crisis that spread across Europe.

In an internal document marked "strictly confidential," the IMF said it badly underestimated the damage that its prescriptions of austerity would do to Greece's economy, which has been mired in recession for the last six years.

But the fund also stressed that the response to the crisis, coordinated with the European Union, bought time to limit the fallout for the rest of the 17-nation euro area.

The IMF said that it bent its own rules to make Greece's burgeoning debt seem sustainable and that, in retrospect, the country failed on three of the four IMF criteria to qualify for assistance."

"The paper added that the targets and the underlying macroeconomic projections weren't revised to reflect what was actually happening in Greece for 18 months, until December 2011.
The IMF had originally projected Greece would lose 5.5% of its economic output between 2009 and 2012. The country has lost 17% in real gross domestic output instead. The plan predicted a 15% unemployment rate in 2012. It was 25%.

Slowing the pace of austerity would have helped Greece's economy, but wasn't politically possible, the fund said."

http://online.wsj.com/article/SB10001424127887324299104578527202781667088.html

Niebezpieczne związki: deflacja i dług publiczny

"Wg GUS PKB urósł w I kwartale o 0,5% rok do roku. Urósł o tyle realnie. Nominalnie wynosi teraz 1602 mld PLN. Na koniec 2012 PKB wynosił 1595 mld PLN. Czyli w pierwszym kwartale roczny PKB nominalnie wzrósł o 7 mld PLN. Zaledwie o 7 mld. To oznacza, że znów będzie nam rosła relacja długu publicznego do PKB. Ta relacja to równoległy wyścig zadłużenia i PKB nominalnego właśnie. W czwartym kwartale 2012 PKB urosło nominalnie tylko o 9 mld PLN, a dług urósł wtedy o niecałe 5 mld PLN, więc wszystko było okej. Teraz wszystko wskazuje na to, że dług znów rośnie znacznie szybciej niż nominalne PKB."

"Oficjalnych danych o długu publicznym na koniec I kwartału jeszcze nie ma, ale są już dane o zadłużeniu Skarbu Państwa, a to jakieś 95%-96% całego długu publicznego. Dług Skarbu Państwa urósł w pierwszym kwartale o 31,9 mld PLN."

http://rafalhirsch.blogspot.com/2013/05/niebezpieczne-zwiazki-deflacja-i-dug.html

The debt crisis - Can it be inflated away?

"Regular readers will know the mantra "inflate, stagnate, default" that this writer has perceived to be the three likely outcomes of the debt crisis. Now Marco Valli, the euro zone economist of Unicredit, the Italian bank, has produced a very interesting 27-page note on the issue. To give the game away, the title is "Inflating away the debt overhang? Not an option". Mr Valli argues that a central bank trying to achieve this aim would face three challenges:

1. to create inflation in the current context of large economic slack and private/public sector deleveraging

2 to do so in a way that faster inflation leads to negative real interest rates, thus generating a transfer from investors to the government 

and 3 to deliver negative real rates that are sufficiently large and/or last sufficiently long to allow for a significant reduction of the debt/GDP ratio.

Mr Valli argues that 'it is virtually impossible to satisfy these three conditions in a low-growth, high-public-deficit environment'. Of course, in a strong growth, low deficit (better still, a primary surplus) environment, there would be no need for a central bank to take the risk of attempting to inflate the debt away."

http://www.economist.com/blogs/buttonwood/2013/05/debt-crisis

Why Japan Is Bad For The World

"Japan continues to be the world’s biggest financial story. The consensus seems to be that the country’s extraordinary economic measures are good for both itself and the world. I’ve detailed previously how Japan’s efforts are likely to have terrible domestic economic consequences, whether they succeed or not. Today, I’m going to explore the latter idea: that Yen depreciation will benefit other countries as they’ll depreciate their own currencies, which will make their economies more competitive too. This idea, put forward by some serious financial commentators, is laughable as it ignores both history and any sense of simple logic. The implications are worth exploring though as competitive currency devaluations have already begun and are likely accelerate from here."

http://asiaconf.com/2013/05/17/why-japan-is-bad-for-the-world/

Google trends, finanse behawioralne, rynki, informacja,

"W przypadku najbliższych problemów w czerwcu w USA z przekroczeniem limitu długu , znowu będziemy mieli do czynienia paradoksalnie z pozytywną informacją dla rynków. Znowu USA będzie musiało oficjalnie zaprzestać emisji obligacji i przeczekać na odłożonych wcześniej zaskórniakach nawet do września BEZ podaży obligacji. Nie wiem czy ktoś sobie z tego zdaje sprawę ale to oznacza nie turbo a HIPER TURBO w działaniach FED."

http://stojeipatrze.blogspot.com/2013/05/fed-tworzy-nowa-banke-i-przegrzewa-rynek.html

[Trystero] Krytyka badań Reinhart i Rogoffa pokazuje największą zaletę nauki

Polecam opis kontrowersji związanych z dość głośną pracą na temat długu publicznego Reinharta i Rogoffa, również dlatego, że była ona jedną z pierwszych wiadomości przesłanych przez ShareEconomics.pl (link do pracy:http://www.nber.org/papers/w18015).

"Anglojęzyczne media biznesowe i anglojęzyczna blogosfera ekonomiczna od wtorku żyją krytyką bardzo znanych badań makroekonomicznych Reinhart i Rogoffa (dalej: R&R), Growth in a Time of Debt z 2010 roku, w których autorzy argumentowali, że wysoki dług publiczny (jako odsetek PKB) i niski wzrost gospodarczy są ze sobą powiązane a związek ten jest szczególnie widoczny po przekroczeniu przez dług granicy 90% PKB.

Badania te wykorzystywano w wielu dyskusjach ekonomicznych i politycznych jako argument na rzecz przeprowadzenia cięć budżetowych w celu obniżenia poziomu długupublicznego. Warto przy tym zaznaczyć, że w dyskusjach politycznych z reguły wyciągano kompletnie nieuprawniony wniosek z badań R&R sugerując, że wysoki dług publiczny JEST PRZYCZYNĄ niskiego wzrostu gospodarczego. Badania R&R nie zawierały takiej hipotezy choć sami autorzy badań w tekstach publicystycznych takiego argumentu używali.

We wtorek opublikowano badania Herndona, Asha i Polina (dalej: HAP), które podważyły wyniki badań R&R. Konkretnie autorzy krytycznych badań pokazali, że po wyeliminowani błędów z badań R&R postulowana przez nich średnia zmiana PKB dla państw z długiem publicznym powyżej 90% PKB w badanej przez nich grupie państw i okresie wynosi nie -0,1% lecz 2,2%.

R&R popełnili zdaniem HAP trzy podstawowe błędy: (...)"

http://www.trystero.pl/archives/12870

Global economic policy now firmly in the hands of money cranks

"The lesson from the events of 2007-2008 should have been clear: Boosting GDP with loose money – as the Greenspan Fed did repeatedly between 1987 and 2005 and most damagingly between 2001 and 2005 when in order to shorten a minor recession it inflated a massive housing bubble – can only lead to short term booms followed by severe busts. A policy of artificially cheapened credit cannot but cause mispricing of risk, misallocation of capital and a deeply dislocated financial infrastructure, all of which will ultimately conspire to bring the fake boom to a screeching halt. The ‘good times’ of the cheap money expansion, largely characterized by windfall profits for the financial industry and the faux prosperity of propped-up financial assets and real estate (largely to be enjoyed by the ‘1 percent’), necessarily end in an almighty hangover. (...)

In America, QE2 was already targeted at boosting the prices of government debt and thereby lowering interest rates and encouraging more lending – which naturally means more borrowing and more debt, the opposite of deleveraging and rebalancing. And QE3 – which is an open-ended $85-billion-a-month price-fixing exercise for selected mortgage- and government- securities – is even targeted officially at lowering the unemployment rate, meaning Fed officials seriously claim that they can create (profitable and lasting?) jobs by cleverly manipulating asset prices. (...) 

Rising real wealth is always and everywhere the result of the accumulation of productive capital, which means real resources saved through the non-consumption of real income, and its employment by entrepreneurs in competitive markets under the guidance of uninhibited price formation. This process requires apolitical, hard and international money. Monetary debasement always hinders real wealth creation; it does not aid it. Easy money leads to boom and bust, never to lasting prosperity. Easy money is not a positive-sum game and not even a zero-sum game. It is always and everywhere a negative-sum game."

http://detlevschlichter.com/2013/04/its-official-global-economic-policy-now-firmly-in-the-hands-of-money-cranks/

GUS chowa dług

"Polskie zadłużenie publiczne wynosi ponad 200% PKB. A Główny Urząd Statystyczny informuje, że będzie tę informację ukrywał tak długo jak tylko potrafi. Mam to na piśmie. Właśnie dostałem z GUS odpowiedź na pytanie o termin wylicznia ukrytego długu Polski. To co Brytyjczycy dostali w 2012 my dostaniemy w 2020. Główny Urząd Statystyczny ukrywając informacje o długu ukrytym pomaga obecnie rządzącym przejadać naszą przyszłość: ratować budżet terazniejszy kosztem większej katastrofy później.

Polska jak wiele innych państw obiecała swoim seniorom emerytury na koszt podatników. Dlatego oprócz długu w postaci wyemitowanych obligacji i kredytów zaciągniętych w bankach naszym długiem również są obietnice emerytalne złożone wobec naszych dziadków i rodziców.

Te zobowiązania emerytalne są ogromne. Różni autorzy korzystając z różnych metod szacują ukryty dług Polski na 200-300% PKB: (...) "

http://www.obserwatorfinansowy.pl/blogi/p-dobrowolski/gus-chowa-dlug/