Category

Debt

Delay in Prudential's Deal for AIG's Insurance Unit Threatens U.S. Debt Repayment

By , Contributing Writer, Money Morning - • Print | Email

Regulators in the United Kingdom threw a wrench into British insurer Prudential PLC's plan to buy American International Group Inc.'s (NYSE: AIG) Asian insurance unit, delaying its $21 billion rights offering until the two parties agree the combined company will have adequate capital.

The delay, or any disruption to the proposed takeover deal, could mean a major setback for AIG's efforts to raise funds to pay back its debts to the U.S. government.

Prudential had planned to issue a prospectus with details of the offering yesterday (Wednesday), including how many new shares will be issued and at what price to shareholders. But the British government's Financial Services Authority (FSA) put the deal on hold with a last minute request for further unspecified information.

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$147 Billion Bailout Package for Greece Won't End European Debt Crisis

By , Contributing Writer, Money Morning - • Print | Email

In an effort to stabilize the widening European debt crisis, the International Monetary Fund (IMF), together with Eurozone countries, agreed to extend an unprecedented $147 billion (110 billion euro) bailout package to Greece in return for deep cuts to the country's budget.

Under the three-year agreement reached late Sunday, Greece would receive $105 billion (80 billion euros) in loans from other Eurozone members and $40 billion (30 billion euros) from the IMF. The planned rescue is the largest ever attempted by the IMF and a first for the 16-member Eurozone. It still requires final approval from national governments.

Also, the European Central Bank (ECB) said on Monday it would indefinitely accept the country's debt as collateral regardless of its credit rating. The ECB didn't release figures, but the value of Greek assets used as collateral in its liquidity-providing operations is thought to be worth tens of billions of euros.

Many observers felt the huge bailout was designed not only to support Greece, but to shore up confidence in the euro, which has come under fire by currency traders. Just a few weeks ago, EU countries offered only $40 billion (30 billion euros) to help Greece.

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Debt Contagion Fear Spreads in Europe as S&P Lowers Eurozone Credit Ratings

By , Associate Editor, Money Morning - • Print | Email

Standard & Poor's yesterday (Wednesday) lowered Spain's credit rating – just one day after downgrading the ratings of Greece and Portugal. The downgrades have prompted Germany to promise a quick release of Greece bailout funds as fears of a debt contagion spread rapidly across Europe.

"It is probably fair to say that Tuesday, 27 April was the day that the situation in the euro area took a dramatic and rather frightening turn for the worse," credit analysts at Credit Suisse (NYSE ADR: CS) in London said in a research note. "The concern is the extent and speed of the spreading of the crisis in an environment of too many financial obligations, not all of which will be serviced, in our view, and in a crisis which in our view is about far more than Greece."

S&P downgraded Spain's long-term credit rating one notch to AA from AA+ with a negative outlook, citing an extended period of low economic growth and high borrowing costs.

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Greece's Action on Aid Package Fails to Quiet Threat of Debt Contagion

By , Contributing Writer, Money Morning - • Print | Email

A request by Greece to trigger a $60 billion rescue package has failed to quell turmoil surrounding the country's bonds – heightening concerns that the debt contagion will force the European Union (EU) to bail out the region's other heavily indebted nations.

Greece on Friday asked the International Monetary Fund (IMF) and European governments to fund the emergency aid package to help fend off default when debt payments come due next month.

But instead of stabilizing the markets, uncertainty about Germany's willingness to fund its portion of the package, along with the potential for more bailouts, raised the cost of insuring Greek debt against default to a new record.

The euro plummeted after briefly bouncing off a 12-month low of $1.32 against the dollar Friday.

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Question of the Week: Is it Too Late to Stage an Intervention for Our Government's Spending Addiction?

By , Associate Editor, Money Morning - • Print | Email

As government debt levels soar, is America on the road to ruin?

The Obama administration's 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years – $1.2 trillion more than the administration predicted and enough to bring the federal debt to 90% of U.S. gross domestic product (GDP) by 2020, the Congressional Budget Office reported two weeks ago.

U.S. public debt was $6.3 trillion, or $56,000 per household, when President Barack Obama took office in the middle of the worst financial crisis since the Great Depression. It's now at $8.2 trillion ($72,000 per household) and if the present course continues, federal debt will hit $20.3 trillion (in excess of $170,000 per household) in 2020, the CBO predicts.

U.S. debt hasn't been that high since the end of World War II, when the debt-to-GDP ratio hit 109%. Greece – the focus of global default fears – currently has debt that's at 115% of GDP.

Money Morning Question of the Week: Are you worried about U.S. debt levels? Are we headed down the road to ruin? Why or why not? Would you favor tax increases and/or budget cuts if it meant the country would get this debt under control?

What follows are some of the most-well-thought-out and articulate answers to this question that we've received to date.

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How Long Will Emerging Markets Continue to Prosper From U.S. Debt Ills?

By , Contributing Writer, Money Morning - • Print | Email

A surge in purchases of emerging market debt and a dip in buyers' appetite for U.S. Treasury bonds has sparked speculation that developing nations have become the next safe haven for bond investors. But the more likely scenario is a reversal of capital flows that will sustain Treasury debt for a little while longer.

Emerging market bonds have enjoyed the best first quarter on record as new issuance has surged and interest rate spreads over U.S. Treasuries have narrowed to their lowest since 2008.

Sovereign bond markets in developing countries have sold a record $157 billion so far this year, a 42% jump over the same period in 2009, which marked the previous record, according to data from Dealogic Holdings plc.

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Are Coal Prices Ready to Burn Hot in 2010?

By , Contributing Writer, Money Morning - • Print | Email

For most of the past 50 years, since the birth of environmental awareness, coal has been the "black sheep" of the power-production family. Now, thanks to more efficient furnaces, better exhaust-scrubbing systems and other technological advances, coal is regaining favor in the world's energy markets.

However, the biggest factor in coal's recent price surge is steadily increasing demand for the fossil fuel in power generation and steel-making process, abetted by rising costs for other types of fuel, like oil and natural gas.

The question for investors, of course, is will this rising demand continue – and how can you profit if it does?

The answer to the first part of that question is almost certainly, "yes," but solving the second part is a little trickier.

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Greece Cutting Back to Court EU Favor

By , Associate Editor, Money Morning - • Print | Email

Greece unveiled its third austerity plan Wednesday and was met with praise from the European Union (EU), European Central Bank (ECB), and the International Monetary Fund (IMF), but hostility from the Greek public.

The plan consists of spending cuts and tax increases that will cut the budget deficit by $6.5 billion, and help Greece to reduce its current deficit to 8.7% of gross domestic product (GDP) from 12.7%.

"This was a necessary decision. It was not a matter of choice," said Greece's Prime Minister George Papandreou. "It was a matter of survival for our country, allowing it to breathe and break free from the clutches of speculative forces."

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Eurozone Action on Greece Fails to Defuse the Ticking Global "Debt Bomb"

By , Contributing Writer, Money Morning - • Print | Email

European leaders said yesterday (Thursday) that they were prepared to take a "determined" action to stave off the worst crisis in the euro currency's 11-year history. But their plan was short on details and is unlikely to totally dispel fears of a possible default by Greece.

European Council President Herman Van Rompuy said assistance for Greece would be forthcoming. But his speech lacked specifics about exactly what form that assistance would take and he offered no timeline for when aid for Greece would be initiated.

The statement seemed to be primarily aimed at reassuring markets that the EU wouldn't allow Greece's ballooning deficit to spark a debt crisis.  It simply ordered Greece to clean up its accounts and gave the International Monetary Fund (IMF) a monitoring role.

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