Tag: finance

Global Debt Crosses $100 Trillion, Rises By $30 Trillion Since 2007; $27 Trillion Is “Foreign-Held”

While the US may be rejoicing its daily stock market all time highs day after day, it may come as a surprise to many that global equity capitalization has hardly performed as impressively compared to its previous records set in mid-2007. In fact, between the last bubble peak, and mid-2013, there has been a $3.86 trillion decline in the value of equities to $53.8 trillion over this six year time period, according to data compiled by Bloomberg. Alas, in a world in which there is no longer even hope for growth without massive debt expansion, there is a cost to keeping global equities stable (and US stocks at record highs): that cost is $30 trillion, or nearly double the GDP of the United States, which is by how much global debt has risen over the same period. Specifically, total global debt has exploded by 40% in just 6 short years from  2007 to 2013, from “only” $70 trillion to over $100 trillion as of mid-2013, according to the BIS’ just-released quarterly review.

It should come as no surprise to anyone by now, but the only reason why global stocks haven’t plummeted since the Lehman collapse is simple: governments have become the final backstop for onboarding risk, with a Central Bank stamp of approval – in other words, the very framework of the fiat system is at stake should global equity levels collapse. The BIS admits as much: “Given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers,” according to Branimir Gruic, an analyst, and Andreas Schrimpf, an economist at the BIS.

It should also come as no surprise that courtesy of ZIRP and monetization of debt by every central bank, debt has itself become money regardless of duration or maturity (although recent taper tantrums have shown what will happen once rates start rising across the curve again), explaining the mindblowing tsunami of new debt issuance, which will certainly never be repaid, and whose rolling will become impossible once interest rates rise. But of course, under central planning that is not allowed. As Bloomberg reminds us, marketable U.S. government debt outstanding has surged to a record $12 trillion, up from $4.5 trillion at the end of 2007,  according to U.S. Treasury data compiled by Bloomberg. Corporate bond sales globally jumped during the period, with issuance totaling more than $21 trillion, Bloomberg data show.

And as we won’t tire of pointing out, China’s credit expansion over this period is easily the most important, and overlooked one. Which is why with China out of the epic debt issuance picture, and with the Fed tapering, all bets are slowly coming off.

 

Bloomberg also comments, humorously, as follows: “concerned that high debt loads would cause international investors to avoid their markets, many nations resorted to austerity measures of reduced spending and increased taxes, reining in their economies in the process as they tried to restore the fiscal order they abandoned to fight the worldwide recession.” Of course, once gross government corruption and incompetence made all attempts at austerity futile, and with even the austere nations’ debt levels continuing to breach record highs confirming there was never any actual austerity to begin with, the push to pretend to reign debt in has finally faded, and the entire world is once again engaged – at breakneck speed – in doing what caused the great financial crisis in the first place: the issuance of record amounts of unsustainable debt.

All of the above is known. What may not be known is just who is issuing, and respectively, purchasing, this global debt-funded spending spree, especially in a world in which one’s debt is another’s asset. Here is the BIS’s answer to that question:

Cross-border investments in global debt markets since the crisis

Branimir Grui? and Andreas Schrimpf

Global debt markets have grown to an estimated $100 trillion (in amounts outstanding) in mid-2013 (Graph C, left-hand panel), up from $70 trillion in mid-2007. Growth has been uneven across the main market segments. Active issuance by governments and non-financial corporations has lifted the share of domestically issued bonds, whereas more restrained activity by financial institutions has held back international issuance (Graph C, left-hand panel).

Not surprisingly, given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers (Graph C, left-hand panel). They mostly issue debt in domestic markets, where amounts outstanding reached $43 trillion in June 2013, about 80% higher than in mid-2007 (as indicated by the yellow area in Graph C, left-hand panel). Debt issuance by non-financial corporates has grown at a similar rate (albeit from a lower base). As with governments, non-financial corporations primarily issue domestically. As a result, amounts outstanding of non-financial corporate debt in domestic markets surpassed $10 trillion in mid-2013 (blue area in Graph C, left-hand panel). The substitution of traditional bank loans with bond financing may have played a role, as did investors’ appetite for assets offering a pickup to the ultra-low yields in major sovereign bond markets.

Financial sector deleveraging in the aftermath of the financial crisis has been a primary reason for the sluggish growth of international compared to domestic debt markets. Financials (mostly banks and non-bank financial corporations) have traditionally been the most significant issuers in international debt markets (grey area in Graph C, left-hand panel). That said, the amount of debt placed by financials in the international market has grown by merely 19% since mid-2007, and the outstanding amounts in domestic markets have even edged down by 5% since end-2007.

Who are the investors that have absorbed the vast amount of newly issued debt? Has the investor base been mostly domestic or have cross-border investments grown at a similar pace to global debt markets? To provide a perspective, we combine data from the BIS securities statistics with those of the IMF Coordinated Portfolio Investment Survey (CPIS). The results of the CPIS suggest that non-resident investors held around $27 trillion of global debt securities, either as reserve assets or in the form of portfolio investments (Graph C, centre panel). Investments in debt securities by non-residents thus accounted for roughly one quarter of the stock of global debt securities, with domestic investors accounting for the remaining 75%.

The global financial crisis has left a dent in cross-border portfolio investments in global debt securities. The share of debt securities held by cross-border investors either as reserve assets or via portfolio investments (as a percentage of total global debt securities markets) fell from around 29% in early 2007 to 26% in late 2012. This reversed the trend in the pre-crisis period, when it had risen by 8 percentage points from 2001 to a peak in 2007. It suggests that the process of international financial integration may have gone partly into reverse since the onset of the crisis, which is consistent with other recent findings in the literature.

This could be temporary, though. The latest IMF-CPIS data indicate that cross-border investments in debt securities recovered slightly in the second half of  2012, the most recent period for which data are available.

The contraction in the share of cross-border holdings differed across countries and regions (Graph C, right-hand panel). Cross-border holdings of debt issued by euro area residents stood at 47% of total outstanding amounts in late 2012, 10 percentage points lower than at the peak in 2006. A similar trend can be observed for the United Kingdom. This suggests that the majority of new debt issued by euro area and UK residents has been absorbed by domestic investors. Newly issued US debt securities, by contrast, were increasingly held by cross-border investors (Graph C, right-hand panel). The same is true for debt securities issued by borrowers from emerging market economies. The share of emerging market debt securities held by cross-border investors picked up to 12% in 2012, roughly twice as high as in 2008.

* * *

Source: BIS


    



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Another East-Ukraine City Falls To Pro-Russian Protesters As Ukraine Denies Sending Troops To Crimea

Despite clear evidence otherwise, presented here extensively yesterday, this morning Ukraine has denied that is has “plans to send armed forces to Crimea” and instead Ukrainian troops are performing “training exercises” in base, Interfax news agency quoted Acting Defence Minister Ihor Tenyukh as saying on Sunday. Responding to media speculation about Ukrainian military movements after Russian forces took control of Crimea, Tenyukh said the only troop movements that might be seen would be from one base to another to take part in the training exercises. “No movements, no departures for Crimea by the armed forces are foreseen. They are doing their routine work which the armed have always had,” he said. Right, and Russia just happened to launch an ICBM as a “drill” in the middle of the greatest Cold War re-escalation in 30 years.

Adding somewhat to the confusion was the statement by Pavlo Shysholin, head of country’s border guard service tells reporters in Kiev, who said that so far Ukrainian border guards denied entry to 3,500 people and that Ukraine border troops remain in Crimea, would leave only if “forced” but more importanly:

  • UKRAINE BORDER TROOPS BOOST FORCES ON EAST BORDER: SHYSHOLIN

So there is an escalation in the mobilization, only not toward Crimea, which the Russians already control entirely, but the critical East, which as everyone knows, is the next target for Putin annexation once the Crimean referendum passes in one week.

Confirming just this were just released photos from another major city in east Ukraine, this time Lugansk, where pro-Russian protesters just stormed and took over the city administration building. Their demand: to be part of the March 16 referendum to become part of Russia.

 

A clip of the latest peaceful pro-Russian takeover via LifeNews:

 

Lugansk’s location in context:

 

And so one by one, the cities in east Ukraine are slipping away to Russia, even as Obama continues his Key Largo vacation and makes the occasional phone call.


    



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India Backs Russia’s “Legitimate Interests” In Ukraine

Submitted by Zachary Zeck via The Diplomat,

On Thursday a senior Indian official appeared to endorse Russia’s position in Ukraine in recent days, even as Delhi urged all parties involved to seek a peaceful resolution to the diplomatic crisis.

When asked for India’s official assessment of the events in Ukraine, National Security Adviser Shivshankar Menon responded:

“We hope that whatever internal issues there are within Ukraine are settled peacefully, and the broader issues of reconciling various interests involved, and there are legitimate Russian and other interests involved…. We hope those are discussed, negotiated and that there is a satisfactory resolution to them.”

The statement was made on the same day that Crimea’s parliament voted to hold a referendum for secession from Ukraine.

Local Indian media noted that Menon’s statement about Russia’s legitimate interests in Ukraine made it the first major nation to publicly lean toward Russia. As my colleague Shannon has reported throughout the week, many of China’s public statements could be interpreted as backing Russia in Ukraine, despite Beijing’s own concerns about ethnic breakaway states and its principle of non-interference.

However, at other times, including at the UN Security Council, Beijing has appeared to be subtly rebuking Moscow by suggesting that its unilateral path threatened regional and global stability. At the very least, however, Beijing has characteristically not gone as far as the U.S. and the West in publicly scolding Vladimir Putin for the military intervention in Crimea.

Ukraine certainly appeared to interpret India’s endorsement of Russia’s legitimate interests as far more hostile than Beijing’s position on Russia’s actions. According to the Telegraph India, a Ukrainian embassy spokesperson stationed in Delhi responded to Menon’s comments by saying: “We are not sure how Russia can be seen having legitimate interests in the territory of another country. In our view, and in the view of much of the international community, this is a direct act of aggression and we cannot accept any justification for it.”

The larger question, of course, is why India decided to take such a relatively pro-Russian stance on the Ukraine issue? There are a number of possibilities.

First, India and Russia have long-standing ties and Moscow is Delhi’s top arms provider. Moreover, Russia and the former Soviet Union has been nearly alone in the international community in continue to back India during crucial moments such as following its 1974 and 1998 nuclear tests.

It’s also possible that Delhi believes Russia’s intervention offers the best chance of stabilizing Ukraine. India’s Foreign Ministry on Thursday also released a statement noting that there are “more than 5,000 Indian nationals, including about 4,000 students, in different parts of Ukraine.” At the same time, India’s overall interest in Ukraine is fairly negligible—certainly less than China’s, for instance—and thus Delhi might assess that it has more to gain by publicly sticking by Moscow at a time when it desperately needs support.

India also has plenty of interests in certain regions along its peripheral, and at certain times—such as during the Sri Lanka Civil War—has intervened to protect various societal groups with strong ties to India. Unlike China, then, India may assess it has an interest in an international precedent in which major powers can intervene in countries along their borders. At the same time, such an international precedent could be used by Pakistan to justify intervening in Kashmir.

Telegraph India offers another reason. According to the report cited above, Indian officials have told Telegraph India that, in the newspaper’s words, Delhi is “convinced that the West’s tacit support for a series of attempted coups against democratically elected governments — in Egypt, Thailand and now Ukraine — has only weakened democratic roots in these countries.”

This rationale would be consistent with India’s long-standing, deep-seated abhorrence to anything that merely resembles Western imperialism. At the same time, India has not historically made supporting democracy abroad a central tenet of its foreign policy.

 


    



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Peter Schiff: Weather Or Not?

Submitted by Peter Schiff of Euro Pacific Capital,

Everyone agrees that the winter just now winding down (hopefully) has been brutal for most Americans. And while it's easy to conclude that the Polar Vortex has been responsible for an excess of school shutdowns and ice related traffic snarls, it's much harder to conclude that it's responsible for the economic vortex that appears to have swallowed the American economy over the past three months. But this hasn't stopped economists, Fed officials, and media analysts from making this unequivocal assertion. In reality the weather is not what's ailing us. It's just the latest straw being grasped at by those who believe that the phony recovery engineered by the Fed is real and lasting. The April thaw is not far off. Unfortunately the economy is likely to stay frozen for some time to come.   

Over the past few weeks, I have seen just about every weak piece of economic news being blamed on the weather. First it was lackluster retail sales that were chalked up to consumers being unable or unwilling to make it to the mall. (This managed to ignore the fact that online sales were similarly weak – which would be unexpected for a nation of snowed in consumers). Then came the weak auto sales that were ascribed to similarly holed up potential car buyers. However, this ignores that while GM and Chrysler sales were way down, sales for luxury cars like BMW, Mercedes and Maserati, surged to record high levels (more on that later). No one offered a reason why wealthier motorists were able to brave the cold. A number of other data points, such as lower GDP, productivity, ISM and factory orders were also ascribed to the elements.

Analysts also blamed the weather for weak housing sales and mortgage applications, which both hit multi-year lows. The idea being that hibernating buyers could not get to real estate open houses or to the bank to process loans. This idea ignores the fact that the weakest home sales over the last few months have come from the states west of the Rockies, where temperatures have been above average.

Of course the biggest weakness ascribed to the snow and ice has been the very disappointing employment reports over the last few months. Analysts faced a very difficult task in squaring these reports, which showed fewer than 187,000 new jobs created in December and January combined, with the accepted narrative that the recovery was firmly underway and that the economy was no longer dependent on the Fed's monetary support.

For these desperate economists the weather was a godsend. Mark Zandi had virtually guaranteed that job creation was being deferred by the weather and that hiring would come roaring back once the mercury started rising. The weather has become such a handy and versatile tool for economic apologists that we may expect that financial news stations will start featuring meteorologists more heavily than financial analysts. Move over Jim Cramer, hello Al Roker.

The weather continued to be horrible in February and as a result, there were wide expectations that today's February jobs report would be similarly bleak. But yesterday's release detailed a slightly better than expected 175,000 new jobs, thereby convincing economists that the economy was so strong that it is overcoming the drag created by the weather. This lays aside the fact that 175,000 jobs should not be causing any optimism. After years of sub-par job growth, I believe a recovering economy would be expected to create more than 300,000 jobs per month in order to make a real dent in underemployment. Those levels, once routine in past decades, seem untouchable today. But weather-related pessimism had caused economist to ratchet down their predictions to just 150,000 jobs in February. Based on that, today's numbers were seen as a win.

But economists are ignoring the likelihood that the weather was never a major factor. Take the cold out of the equation and you would be left with a mediocre February number following two consecutive monthly disasters. This does not change the downward trajectory. In fact, the number may be revised lower in future months, as has been the norm in the years since the economic crisis began.

Drilling deeper into the report will provide little reason for optimism. The labor force participation rate stayed at a generational low and the unemployment rate edged up. On the other hand, the long-term unemployed (those out of work for more than 27 weeks) increased by 203,000 to 3.8 million. Furthermore, over half of the jobs created were low-paying or part-time jobs in education, health care, leisure and hospitality, government, and temporary services. Higher paying information jobs declined by another 16,000 following last month's 8,000 loss, and manufacturing added a scant 6,000 jobs.

The report also contained data that shows how older workers are coming out of, or postponing retirement. This trend is likely caused by inadequate savings rates, low interest rates, and increases in the cost of living that are rising faster than official CPI numbers. Not only does this point to falling living standards, but the jobs being taken by these older workers would normally be filled by younger, less skilled workers, who are left unemployed, buried beneath a pile of student debt and living in their parent's basements.

In truth, economic activity persists in good weather and bad. Winter is largely predictable. It comes around once a year, basically on schedule. Consumers are used to the patterns and know how to deal with them. But don't tell this to today's economists.

A much more plausible explanation to me is that the economy has been weak recently because it is weak fundamentally. The data deterioration corresponds not just to unseasonably low temperatures but also to the diminishment of monthly QE from the Federal Reserve. If you recall the highly anticipated "taper" finally began in mid- December. From my perspective the Quantitative Easing has become the sunshine that drives our phony economy. Diminish that sunshine and the economic winter spreads.

But the sad fact is that QE can push up prices in stocks and real estate, but can do very little to affect positive change in the real economy. That's why I believe that BMW's are selling like hotcakes even as Chevies sit on the lot. Our current policies help the wealthy at the expense of everybody else. Unfortunately, I don't think the economy will improve as long as the QE keeps us locked into a failing model. What's worse, once the weather warms and the economy does not, look for Janet Yellen to first taper the taper, then to reverse the process completely.

So be very wary of the rationalizations that come from economists. I believe they are being used to hide the truth. I just can't wait to see the excuses they come up with once the flowers start blooming in April. They will be doozies.


    



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The Demise Of The American Dream (In 2 Charts)

Presented with little comment aside to note that when ‘work is punished’ the demise of ‘opportunity’ will continue…

 

The painful reality in America: for increasingly more it is now more lucrative – in the form of actual disposable income – to sit, do nothing, and collect various welfare entitlements, than to work.

And that trend appears to be accelerating as more and more men drop out of the workforce…

and the demise of opportunity continues unabated…

 

… “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement” regardless of social class or circumstances of birth (or amount of stock ownership).

 

h/t @Not_Jim_Cramer


    



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Guest Post: Is US Losing The New Cold War?

Authored by Kristina Wong and Jeremy Herb, originally posted at The Hill,

If there is a new cold war with Russia, many observers believe the U.S. is losing it.

First under President George W. Bush and now under President Obama, the U.S. and Vladimir Putin’s Russia have engaged in a series of foreign policy battles — and Putin has repeatedly got his way.

The Russian president’s objective is clear. He wants to reassert Russia’s influence in Eastern Europe while preventing NATO’s further expansion toward Russia, said Erik Brattberg, a resident fellow at the Atlantic Council.

Diplomatic fights over Syria in 2013 and Russian’s military clash with Georgia in 2008 have given Putin confidence in the current fight over Russia’s invasion of Crimea, a region in eastern Ukraine with long ties to Moscow. 

“He's counting that there would be no significance response from the U.S. and the European Union and so far he’s been right,” Brattberg said. 

Lawmakers and experts across the political sphere warn that if the Obama administration and its western allies are not effective in dealing with Putin this time, it could have serious consequences going forward.

And the dangers go beyond Putin.

China is closely monitoring what’s going on, Brattberg said, and could become more assertive in territorial disputes with its neighbors if it sees the West back down from Russia.

Of particular concern is a small group of islands in the South China Sea that both China and Japan claim, he said. If China were to use military force against Japan, the U.S. would be contractually bound to defend it. 

“It’s not like the Chinese are sitting there [thinking], ‘What can we take tomorrow that we maybe thought we couldn’t do a month ago,’” said Gary Schmitt, a resident scholar at the conservative-leaning American Enterprise Institute. 

“It’s more the case that some incident will happen and they’ll calculate: “Look, the U.S. really isn’t going to react,’ and they’ll take advantage of that situation,” he said. 

Putin has arguably emerged as the victor in a series of confrontations with the U.S.

In 2008, Putin caught U.S. officials flatfooted and annexed Georgian territory without serious repercussions, according to a recent interview in the Washington Post with Daniel Fata, deputy assistant secretary of defense for European and NATO policy from September 2005 to September 2008.

Last August, Russia thumbed its nose at the U.S. by granting former National Security Agency contractor Edward Snowden asylum after he leaked classified material to the press and fled the country. 

In September, Putin got the U.S. to back down from military strikes against ally Syrian dictator Bashar Assad, by brokering a last-minute deal to destroy Syria’s chemical weapons.

The deal had the advantage to Russia of ensuring Assad could stay in power, and since the deal Assad has solidified his control of the country.

Although Russia's invasion of Georgia happened during the Bush Administration, Brattberg said Putin views Obama as particularly weak and his "reset" policy as naive.

“Putin sees Obama as a weak leader. I would point to Syria in particular. We drew a red line and didn’t back it up,” he said. 

The administration has pushed back at such criticisms, with Obama this week saying Russia’s actions were a sign of weakness that would isolate the country.

The administration has taken several steps to make that happen.

The U.S. has sent six additional F-15 fighter jets to Poland to bolster a NATO air policing mission, and announced sanctions and visa restrictions that could be imposed on Russian leaders and entities found to have threatened Ukraine’s sovereignty.

But the efforts appear to have done little to slow Russia down.

Crimea’s autonomous parliament appears to be moving ahead with a vote to secede from Ukraine and join Russia. A referendum is planned on March 16.

Schmitt said that for the United States to turn the tide, it should take stronger steps such as admitting Ukraine into NATO or sanctioning Russia’s gas exports. 

“The legacy [for Russia] would look like: ‘It looked good at the time but now it looks like we really stepped into it,’” Schmitt said.

Brattberg said the U.S. should be doing more to lead and unify a fragmented European Union. 

“There has been some disconnect over sanctions between some European Union countries, and there is the need for the U.S. to really show leadership and lead them in the same direction,” he said. 

Critics doubt the administration can provide this leadership at a time it is looking to focus on domestic policy, end the war in Afghanistan, and pivot to the Asia Pacific. 

At the SASC hearing earlier this week, Republican senators decried shrinking defense spending as a part of the U.S’s GDP at a time when the U.S. was being challenged by Russia and China.

The White House’s 2015 budget request, unveiled earlier this week, would hold defense spending nominally flat for a third year and a decline in real terms.


    



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Pentagon Warns Increase In Terrorism Due To Global Warming

For the past few weeks we have seen stock markets surge as macro-economic data has collapsed around the world. The ‘excuse’ given for this apparent dichotomy – weather. But now it seems “weather” is to blame for other problems in the world too. As Russia Today reports, in its latest Quadrennial Defense Review, the US Department of Defense (DoD), stressed threats to global stability and American hegemony posed by climate change warning that that an erratic climate will likely cause increased “terrorist activity,” among other impacts…“The pressures caused by climate change will influence resource competition while placing additional burdens on economies, societies, and governance institutions around the world…these effects are threat multipliers.”

 

Via Russia Today,

Like the 2006 and 2010 versions, the 2014 Quadrennial Defense Review (QDR) – a report released every four years on US military strategy and the challenges to its global operations – highlights threats, some more predictable than others, that global climate change will present to human civilization.

 

“The impacts of climate change may increase the frequency, scale, and complexity of future missions, including defense support to civil authorities, while at the same time undermining the capacity of our domestic installations to support training activities,” states the 64-page report, published Tuesday.

 

“Climate change poses another significant challenge for the United States and the world at large. As greenhouse gas emissions increase, sea levels are rising, average global temperatures are increasing, and severe weather patterns are accelerating.”

 

A warming planet will likely “exacerbate water scarcity and lead to sharp increases in food costs,” the report details, leading to devastated infrastructure and living conditions, especially in poorer regions of the world.

 

In addition, this fierce “resource competition” will only push the likelihood of additional terror threats, the QDR states.

 

“The pressures caused by climate change will influence resource competition while placing additional burdens on economies, societies, and governance institutions around the world,” the report continues.

 

“These effects are threat multipliers that will aggravate stressors abroad such as poverty, environmental degradation, political instability, and social tensions – conditions that can enable terrorist activity and other forms of violence.”

Perhaps more ironically, despite identifying climate change as a global menace and an antagonist to American power, the Defense Department does not address its own unrivaled fuel consumption.

According to the Pentagon’s Defense Energy Support Center, the military spent $3.8 billion in 2009 for 31.3 million barrels, or about 1.3 billion gallons, of oil that was consumed at posts, camps, and overseas bases, TomDispatch’s Nick Turse reported in 2010.

 

Estimates as to how much oil the US military uses per day varies between about 400,000 barrels per day in “peacetime” to around 800,000 barrels each day during the height of the Iraq war.

Bad economic data, blame the weather! Bad earnings, blame the weather! Bad Social Unrest, blame the weather!


    



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