Category

Debt

U.S. Joins Global Parade of Countries Plagued by Debt Bomb

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

The most important fundamental development of the week was not any of a slew of economic reports at all but the new federal budget proposal released by the White House. And it was a doozy: The Obama Administration proposed to spend $3.8 trillion, with $1.6 trillion on the equivalent of the national credit card.

Investors did not overtly seem to mind today, but they will. It is almost mind-numbing to think we've gone from the surplus that President Clinton left President Bush to the trillion-dollar hole we're in now. There is nothing good about the scenario of bone-crushing debt, as we have seen repeatedly throughout the world recently in places like Dubai, Greece, the United Kingdom and Japan. The fact that the U.S. dollar has managed to hold its own despite representing a country deeply in hock is only testament to the weakness of every other major developed-world government.

It's ironic in fact that plenty of emerging-market countries are managing their books far better than the United States and Europe. They include Chile, Azerbaijan, Angola, Ukraine and Romania — all with debt at less than 15% of national GDP, while we are knocking on 60%!

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As Greece's Woes Demonstrate, the Fuse Has Been Lit on the Global Debt Bomb

By , Money Morning - • Print | Email

The big story in the international markets so far in the New Year has been the increasing shakiness of a number of countries' government bonds, with Greece right now being the most troubled of all.

Since U.S. investors tend to avoid foreign government bonds, many will dismiss this as an irrelevant development.

That's a mistake. The reality is that the international implications of this bond-market problem are serious for the world's stock markets, as well as for the global economy as a whole.

The fuse has been lit on a global debt bomb. And Greece has quickly become a poster child for the explosion that's all but certain to occur.

To find out all about the "Global Debt Bomb," read on...

Obama Deficit Brings Us Closer to the Brink of National Bankruptcy

By , Money Morning - • Print | Email

U.S. President Barack Obama's budget for 2011, presented on Monday, shows a deficit of $1.3 trillion for the fiscal year that ends that September. That shortfall is actually $287 billion more than the Congressional Budget Office (CBO) had projected less than a week earlier, when it had released a budget forecast of its own for that same fiscal year.

Granted, we're getting used to seeing budget deficits expand at a pretty quick pace these days. But even by government standards an increase of nearly $290 billion in less than a week is almost too much to bear!

All kidding aside, $105 billion of this $287 billion increase came about mostly because of a change in "assumptions." The CBO budget assumed that all the 2001 Bush tax cuts would be reversed, whereas the Obama budget reverses only those that applied to the rich (those with incomes above $250,000).

The CBO budget also made the ridiculous assumption that the Alternative Minimum Tax (AMT) would be allowed to revert to its 2001 level, forcing 25 million taxpayers to calculate their taxes twice – and to then pay the higher of the two estimates. That was never going to happen, and the Obama budget finally abandons that idiotic piece of fiction.

The disparity in deficit projections between the CBO and the Obama administration weren't limited just to fiscal 2011. For the period from 2011 to 2020, the CBO forecasted a budget deficit of $6.047 trillion, while the Obama budget released just days later projected a shortfall of $8.532 trillion – a difference of $2.485 trillion.

The difference in assumptions between the CBO and Obama projections explains nearly half of that difference. Of course, that still leaves the other half.

And a troublesome half it is.

To find out how these numbers may forecast a U.S. bankruptcy, read on…

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Why the Government Wants to Hijack Your 401(k)

By , Chief Investment Strategist, Money Map Report - • Print | Email

It's bad enough that we've been forced to bail out Wall Street. But now the Obama administration is hatching plans to raid our retirement savings, too.

To say that I'm "outraged" doesn't come close to describing the emotions I experience every time I think about the government's latest hare-brained scheme.

According to widespread media reports, both the U.S. Treasury Department and the Department of Labor plan are planning to stage a public-comment period before implementing regulations that would require U.S. savers to invest portions of their 401(k) savings plans and Individual Retirement Accounts (IRAs) into annuities or other "steady" payment streams backed by U.S. government bonds.

Folks, there's only one reason these agencies would do such a thing – the nation's creditors think that U.S. government bonds are a bad bet and don't want to buy them anymore. So like a grifter who's down to his last dollar, the administration is hoping to get its hands on our hard-earned savings before the American people realize they've had the wool pulled over their eyes … once again.

For the full details on the government's newest financial gambit, read on...

Will Greece Default on its Debt, and Take the Eurozone Down with It?

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

As the European Commission holds its regular monthly meeting in Brussels this week, ministers find themselves debating what to do about the Greek debt crisis — the biggest credibility test the Eurozone has faced since the single currency was created.

The question is whether the 16 countries that share the European Union's (EU) currency can force a rogue member with a weak economy to take drastic measures to cut its budget deficit without calling in the International Monetary Fund (IMF) or sparking social unrest.

Still in the depths of recession, Greece is plagued by a spending deficit that rose to 12.7% of gross domestic product (GDP) last year, far in excess of the 3% ceiling permitted to countries in the union. It's also saddled with debt amounting to 113% of GDP, which prompted Moody's Corp. (NYSE: MCO) to downgrade its debt to A2 from A1 on December 22.

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Coming Soon: The Bill for the Massive U.S. Debt

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

Americans could be in for a rude awakening in coming months when they discover the true scope of the massive national debt racked up by the U.S. government.

In fact, the $1.6 trillion deficit expected for 2010, which is above 10% of gross domestic product (GDP), is only the beginning.

Since the current economic crisis began in late 2007, the U.S. Federal Reserve has tripled the size of its balance sheet, creating enormous amounts of new money by lending to hundreds of ailing banks and buying up more than $1 trillion of questionable asset-backed securities.

But that's only a small part of the story. Since the beginning of the crisis, the Fed has lent, spent, or guaranteed $11.6 trillion, including underwriting the entire system of mortgage finance in the United States, a system that currently shows a nearly $1 trillion loss.

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GDP Revised Lower For Third Quarter, Sets Stage For Slow Growth in 2010

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

The U.S. economy expanded at a slower rate than expected in the third quarter, but reductions in corporate spending and inventories have set the stage for continued growth of gross domestic product (GDP) in 2010.

GDP, a broad measure of economic activity, rose at a 2.2% annual rate from July through September, the Commerce Department reported yesterday (Tuesday), compared to a 2.8% gain in its previous estimate.

The new figure was below the 2.8% median estimate of 73 economists in a Bloomberg News survey, and significantly below the government's initial estimate of 3.5%.  The GDP report is the third and final for the quarter.

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$10 Billion Bailout Just Beginning of Dubai's Debt Problems

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

When Abu Dhabi agreed on Monday to provide Dubai with $10 billion to settle some of its debt obligations, it may have temporarily soothed the concerns of major creditors. But the bailout, and a separate move to set out a legal framework for further debt restructuring, won't do much to relieve Dubai's long-term debt problems.

Plenty of questions remain as Dubai works to repair its reputation and tries to renegotiate the rest of its debts. The full extent of its liabilities is uncertain, but Dubai's known debts are roughly equal to its total economic output last year, with some analysts estimating its total obligations at $100 billion or more, Bloomberg News reported.

"It's not going to stop and go away," John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh, Saudi Arabia told Bloomberg. "There's still debt that needs to be settled in 2010 and 2011."

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Credit Trouble for Spain and Greece Spreads Fears of Sovereign Defaults

By , Money Morning - • Print | Email

Standard & Poor's today (Wednesday) cut its credit outlook for Spain to "negative" from "stable," fanning concerns that sovereign defaults will spread throughout the global economy.

The dimmer outlook for Spain "reflects the risk of a downgrade within the next two years," S&P said.

It also increased fears among investors that the world could see a wave of global credit defaults. After the default of state-owned Dubai World forced investors to think twice about the recent rally in global stocks, Fitch Ratings Inc. on Tuesday cut Greece's credit rating to BBB+ from A-minus.

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Could Goldman Sachs Explode? How to Dodge the Ongoing Mortgage Mess

By , Money Morning - • Print | Email

By Martin Hutchinson Director of Global Investing Research The $8.4 billion write-down announced by Merrill Lynch & Co. Inc. (MER) last week was just the latest in a series of similar revelations by Bank of America Corp. (BAC), Citigroup Inc. (C), The Bear Stearns Cos. (BSC) and Lehman Brothers Holdings Inc. (LEH). And it underscores […]

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