Daily Digest

Daily Digest - February 26

Friday, February 26, 2010, 10:54 AM
  • Wealth Disparities in U.S. Approaching 1920s Levels 
  • Bernanke’s BS Bounce
  • High unemployment likely for years to come
  • Bond Vigilantes Set Sights on Sovereign Debt
  • Recent Stats Indicate U.S. Economic Recovery Was an Illusion
  • Banks Bet Greece Defaults on Debt They Helped Hide
  • Meet The New Regime: Gold And Dollar Coincident
  • Bloom Energy unveils 'power plant in a box' 
  • Bloom Energy: What We Know, What We Don't 
  • Utility Will Help Homeowners Go Solar
  • Refinery crisis afflicts global oil sector

Economy

Wealth Disparities in U.S. Approaching 1920s Levels (mhoop)

There is no way we can have economic prosperity in this country when the top 1% has all of the money. The middle class is basically being destroyed right in front of our very eyes. Consumption economies die when the consumers have no money to consume!

Bernanke’s BS Bounce Part II (ilene)

Now, let’s say you, like most Americans, already own your home. That means what you pay on a monthly basis doesn’t change. Let’s say though, that the cost of Transportation goes up 20% (3.4 out of 100) and Food goes up 20% (3) and Medical Care goes up 30% (1.8) and Clothing goes up 10% (0.4) – that would be an increase in the CPI of 8.6 BUT (and it’s a big but) if you are lucky enough to lose 20% of the value of your home (and we all did), that knocks 8.5 back off the CPI and PRESTO – we have “just” a 0.1% increase in CPI – PRICE STABILITY!

High unemployment likely for years to come (mhoop)

Bond Vigilantes Set Sights on Sovereign Debt (Erik T.)

The world’s wealthiest nations responded to the crisis, acting in solidarity, with a rescue package of $12 trillion, equal to a fifth of the entire world’s annual economic output. Stabilizing the financial system required capital injections to be pumped into the banks in order to prevent them from collapse, where they could soak up toxic assets, guarantees over bank debt, and $5 trillion of liquidity support from the central banks.

Recent Stats Indicate U.S. Economic Recovery Was an Illusion (Erik T.)

A number of economic reports in the last few days indicate that the U.S. economy has not only not failed to recover from the recession, but continues to fall deeper into a hole. Banking, consumer confidence, employment numbers, durable goods and the housing industry - each representing a different aspect of the economy - are all sending out troubling signs. Despite the onslaught of negative data, mainstream economists continue to echo the official U.S. government view that "the recovery is still on track."

Banks Bet Greece Defaults on Debt They Helped Hide (Christian W.)

These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit.

“It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich.

Meet The New Regime: Gold And Dollar Coincident (Erik T.)

For all those who expect to see a strong dollar result in lower gold prices: our condolences. Gold is now as much a flight-to-safety target, as the the ra(p/b)idly devaluable dollar (and all other fiat currencies), as has been repeatedly observed on Zero Hedge. The chart below demonstrates that over the past three weeks, not only has dollar strength resulted in gold strength, it has resulted in gold strength at a 6X multiple.

Energy

Bloom Energy unveils 'power plant in a box' (Mike F.)

The Bloom Energy Server, a smooth metal box the size of a pickup truck, can generate electricity from multiple fuels while producing relatively few greenhouse gas emissions. With government subsidies factored in, power from the server costs less than power from the grid.

Bloom Energy: What We Know, What We Don't (Mike F.)

Where did the energy server come from?

It's from Mars. Or would have been going to Mars if NASA's plans hadn't changed. The fuel cell was developed at the space agency as part of its plan for planetary exploration. It potentially is as important as any other NASA discovery and directly benefits people here on Planet Earth, making it a pretty good investment of tax dollars.

Utility Will Help Homeowners Go Solar (Christian W.)

“Our vision is to supply solar power to millions of homes and businesses,” said Lyndon Rive, SolarCity’s chief executive. “The only way to achieve this is by partnering with companies that are providing power today. If we can partner with energy providers, adoption will happen much faster.”

Refinery crisis afflicts global oil sector (Christian W.)

"The global refining situation today is not good," said Colette Lewiner, an energy expert at the French global consultancy Cap Gemini. "At all the oil majors, refining activities are losing money."

Please send article submissions to: [email protected]

20 Comments

Johnny Oxygen's picture
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Sovereign Debt to Collapse En Masse as Recession Deepens

Sovereign Debt to Collapse En Masse as Recession Deepens

http://www.bottomviolation.com/sovereign-debt-to-collapse-en-masse-as-recession-deepens/

“We almost always have sovereign risk crises in the wake of an international banking crisis, usually in a few years, and that’s happening,” he said. “Greece is just the beginning.”

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China To Purchase Half of IMF's Gold

China To Purchase Half of IMF's Gold

http://english.pravda.ru/business/finance/25-02-2010/112369-china_gold-0

Jim Sinclairs commentary

A tip of the hat to CIGA “MD” who supplied this link to the English version of Russia’s Pravda.

I have no way of confirming the accuracy of the report but perhaps this is what put such a fire under the gold market today. It does seem strange to me to read of China announcing their intentions before hand in such an obvious fashion however as they are generally quite secretive about their buying or selling until after the fact. Besides, if news like this was confirmed, it is not hard to understand how that would just about guarantee them a much higher purchase price unless of course the IMF had already agreed to sell them the gold at a predetermined level.

Either way it serves to underscore the fact that the Asian Central Banks are still wanting to buy gold, assertions by the plethora  of gold market analysts here in the West who erroneously interpreted the original news about the IMF sale as a sign that demand from these official sources was waning. As I said then and will say now again, Asian Central Banks have already made quite clear their interest in acquiring gold to diversify their reserves. They are not going to stop doing so because a Prechterite shows them an Elliot Wave chart that looks like a mountain range somewhere in Tibet.

The East has a history of respect for the yellow metal unlike the West which in enthralled with paper slips printed with ink which they seemingly increase with reckless delight.

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saxplayer00o1
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Re: Daily Digest - February 26

"WASHINGTON (Reuters) - About 1,000 U.S. banks could fail as a result of the recent banking crisis that saddled financial institutions with large portfolios of bad loans, a leading investment banking executive said on Thursday.

James Dunne, senior managing principal of Sandler O'Neill, said 300 to 400 banks could be seized this year, especially as institutions start to deal with deteriorating commercial real estate loans."

"BEIJING, Feb. 25 (Xinhua) -- China defended its move to reduce its holdings of U.S. Treasury securities, saying the United States should take steps to promote confidence in U.S. dollar .

Foreign Ministry spokesman Qin Gang made the comment Thursday when responding to questions on China's sale of U.S. Treasury securities last December"

"Greece needs to refinance 20 billion euros' worth of debt by May, but has found it difficult to raise money on the bond markets. On Thursday, the country delayed an issue out of fear of a ratings downgrade. And on Friday, German banks said they aren't interested in taking on more Greek debt.

The deadline facing Athens is an ominous one. By April and May, Greece must refinance €20 billion in sovereign debt, the first chunk of the €53 billion the country will need to refinance by the end of the year. But as winter turns to spring, it's growing apparent that Greek efforts to raise money face big challenges."

..........................3A) Greek debt sees worst one-day fall

"The Greek bond markets yesterday saw their biggest one-day fall of the year as shaken investors warned that the country faced the growing threat of a ratings downgrade.

In spite of signals that Greece was planning new austerity measures, government two-year bond yields, which have an inverse relationship with prices, rose nearly a percentage point as a second ratings agency warned of a downgrade."

.......................3B) Greek PM says economic crisis confirmed worst fears

"Unfortunately, history has fully confirmed our worst fears," he said. "Our duty today is to forget about political costs and only think about the survival of our country ... Past policies make it necessary to proceed to brutal changes."

......................3C)PM warns of Greek bankruptcy risk

"Spain – wary of joining Greece as the next target for investors and speculators concerned about rising levels of sovereign debt – has launched a radical cost-cutting plan to reduce its budget deficit from 11.4 per cent of gross domestic product last year to 3 per cent of GDP by 2013. It has sent the plan to Brussels for approval.

Economists and central bankers have cast doubt on the plan’s chances of success, saying its economic growth forecasts are too optimistic and insisting on the need for ambitious reforms to the rigid labour market to make the economy more competitive.

“The market consensus is that Greece isn’t the real issue. It’s Spain,” Alastair Newton, senior political analyst at Nomura International, said yesterday"

"Finance Minister Pranab Mukherjee told parliament the government plans to increase market borrowing by 1.3 percent in his $239 billion budget, pushing bond prices lower as investors feared a flood of fresh debt supply.

Analysts said the borrowing plan cements the likelihood that the central bank will raise interest rates at its next meeting on April 20 as policymakers scramble to keep surging food inflation from spreading to the wider economy and fueling social unrest.

Mukherjee announced plans to hike spending on social and agricultural programmes popular among voters, but moved only tentatively to cut a fiscal deficit that is worrying investors."

"By mid-afternoon, the bonds were yielding 7.87 percent, up from 7.83 percent on Thursday."

.......................5A) India May Struggle to Cut Budget Gap on Spending, Rogers Says (Jim Rogers)

"‘Serious Problems’

Should India’s government continue to spend at the present rate, the nation’s debt to gross national product may reach 100 percent in three to four years from more than 80 percent currently, Rogers said. This may mean that India will face the problems besetting Greece, whose struggle to slash its fiscal shortfall has sparked a sell-off in global stocks, he said.

“Many studies have shown that when your debt gets up to 90 percent of GNP, your growth slows immensely and you usually wind up having serious problems,” Rogers said. “India is becoming a very indebted nation and that’s not good for India or for the world.”"

"The average GDP growth of the U.S. economy since 2003 has been 3.5 percent," said Samuel Kahan, chief economist, Federal Reserve Bank of Chicago at REIA's Summit 2010 in Chicago. "The economy will grow at a much more modest pace the next two years at 2.5-3 percent."

"Currently, the U.S. sits at 60 percent debt to GDP. With recent federal spending and stimulus projects, Kahan said that the country will likely be at 85 percent debt to GDP within 10 years. This is a less than ideal situation. 100 percent debt to GDP "will grind the economy to a halt" said Kahan."

"The plan to replace 30-year-old ‘High Speed Trains’ that operate out of London’s Paddington and Kings Cross stations will be put on hold until after a general election that must be held by June 3, Transport Secretary Andrew Adonis said today.

“There has been a reduction in the capacity of the debt market to support the transaction as originally envisaged, and passenger growth has also slowed,” Adonis said in a statement. "

"Two dozen state office buildings across California officially go on sale Friday as the cash-strapped state seeks to raise more than $2 billion to pay off some of its long-term debt."

....................8A) Arizona Includes Prisons in Property Sale

"PHOENIX — Arizona completed $735 million in sale and lease-back deals for public buildings and state properties, including several prison facilities, as lawmakers attempt to close the state’s multibillion-dollar budget deficit."

"CARSON CITY — Most of Nevada’s government will soon transition to a four-day workweek. But the reasons for it go beyond filling the state’s $887 million deficit."

"Albany economist Hugh Johnson expects New York state to lose 150,000 jobs this year, a slightly smaller decline than what happened in 2009.

Johnson disclosed that projection at a Feb. 25 meeting of state legislators and state budget officials. Legislators warned that the state budget gap is $1 billion or more larger than Gov. David Paterson’s projections."

"The project, Neiman said, would help the city substantially at a time when officials are examining bankruptcy and detaching portions of the city to return to the county out of concern for budget shortfalls. They're also having to cut services and reduce the police force.

“You know as well as I do it's been real difficult the last three years balancing the budget,” he told the council."

"The Arizona Super Bowl Host Committee said Thursday it would not bid to host the 2014 Super Bowl in Arizona because of the economy.

The committee said it would be back next year to vie for the 2015 NFL showcase.

The announcement leaves just three cities in the 2014 hunt: Tampa, South Florida (Miami) and New York City."

"The National Association of Realtors said sales fell 7.2 percent to a seasonally adjusted annual rate of 5.05 million from a downwardly revised pace of 5.44 million in December.

The results, the weakest since June, were far worse than forecast. Economists expected a slight increase to a rate of 5.5 million."

"(New York, NY) -- Troubled insurance giant AIG has posted an eight-point-nine-billion-dollar loss for the fourth quarter of 2009.

That sizeable loss has AIG warning it may need even more taxpayer money from the federal government.

It attributes the loss in the three months ended December 31st to billions in restructuring costs as it sold large stakes in two foreign life insurance units to the federal government."

New Jersey Focuses On Insolvent Unemployment Insurance Fund

Unemployment fund borrowing to pay claims (Massachusetts)

Ohio has no idea how to pay US back for jobless benefits ($2 billion, $3 billion at end of the year)

Housing Recovery Is Looking A Lot Shakier Than Expected (CNBC)

China's 71% Small-Cap Stock Premium Signals Peak

Energy Crisis to Worsen in Pakistan 

N.J.'s pension plans underfunded by almost $17000 for each resident of the state (Commentary)

State economist: Douglas' AHS budget cuts would cause 1000 to 1400 layoffs (Vermont)

Up to 175 layoff notices possible in Murrieta school district (CA)

Pomona Unified board votes to send out 321 layoff notices to certificated employees (CA)

Las Vegas Proposes Layoffs (215)

Budget: Arlington prepares for 100 layoffs

The Pain in Spain Falls Mainly on the Cajas

Moody's: Iceland Rating Under Pressure From Debt Talks Collapse

BART begins budget process $14 million in red (SF)

Bogdan's picture
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Re: Daily Digest - February 26

Hi,

There's something I don't understand:

"Currently, the U.S. sits at 60 percent debt to GDP. With recent federal spending and stimulus projects, Kahan said that the country will likely be at 85 percent debt to GDP within 10 years. This is a less than ideal situation. 100 percent debt to GDP "will grind the economy to a halt" said Kahan."

I thought the US debt/GDP ratio already was close to 85%. How is it possible for the economy to halt at 100% debt/GDP ratio, I thought Japan's ratio was far worse, at 180% debt/GDP. What exactly am I missing?

Thanks,

Bogdan.

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - February 26

 

 

"Gov. Ed Rendell said Thursday that changes to Pennsylvania's budget need to be made now, in order to avoid the "tsunami" he says is coming once federal stimulus funding ends."

"The shortfalls will arise, the governor says, when the $2.3 billion in federal stimulus is no longer available to the state. Add to that $2.3 billion in additional pension fund costs, Rendell said, and by his estimate, the state is looking at a $5.6 billion deficit in the 2010-11 fiscal year."

"While the economy and many Americans struggle to find or keep jobs and pay their bills, the public-sector has been rapidly expanding. The U.S. is also facing a fiscal crisis with the national debt currently above $12.4 trillion, but that hasn’t stopped “generous” pensions for former government officials.

“They can draw on their pension beginning at age 50; depending on the years of service they can get as much as 80 percent of their final salary, there are cost-of-living-adjustments added on, and they’re still eligible to receive Social Security.”

Citing the analysis of the National Taxpayers Union (NTU), Sylvester used Sen. Chris Dodd, D-Conn., as an example of broken government. NTU, a nonpartisan taxpayer group that has worked under the guiding principle "This is your money and the government should return it to you" since its inception, found that Dodd will have a starting annual pension of $125,500 when he retires next year. "

"Illinois Gov. Pat Quinn has proposed cutting spending and raising taxes to deal with one of the biggest state budget crises in the nation, but his plan will likely be unpopular with some voters and lawmakers during a tough election year.

Illinois's deficit through mid-2011 is estimated at $11 billion to $13 billion—close to 50% of the expected $26.7 billion in available revenue for the coming fiscal year, which begins July 1. That is among the worst such percentages among states. Health-care and social-service agencies routinely wait three months or more for the state to pay its bills.

The state pension system also is the worst-funded in the U.S. Illinois borrowed nearly $3.5 billion last year to make its annual pension payment. State auditors estimate that the pension systems are underfunded by $62 billion.

Warning residents that the state faces a fiscal crisis, Mr. Quinn's office on Wednesday posted his proposals, along with preliminary budget figures, on a state Web site. He isn't set to deliver his formal budget speech—which kicks off the legislative process—until March 10. Lawmakers allowed him to postpone that address in exchange for publishing the information online."

"RICHMOND -- The two chambers of the Virginia General Assembly passed competing two-year budget proposals Thursday that include deep cuts to education, health care and public safety designed to close a two-year, $4 billion shortfall. "

"Both chambers agreed to underfund pension plans for state and local employees by $508 million over the next two years. The Senate agreed that the money should be paid back over 10 years at $74 million a year starting in 2013. "

"Feb. 26 (Bloomberg) -- Unemployment benefits will temporarily expire Feb. 28 after a Senate Republican blocked a one-month extension because it would add to the federal budget deficit.

Senator Jim Bunning, a Kentucky Republican, objected to consideration of the measure, demanding that lawmakers offset its $10 billion cost to prevent it from adding to the government’s $1.6 trillion deficit. "

......................5A) Unemployment benefits for 1.2 million Americans could expire Sunday

cmartenson's picture
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Re: Daily Digest - February 26

Good questions.  The basic idea here is that the reported "60% of GDP" refers only to federal debt held by the public.  When we toss back in the money that the government has borrowed from itself, the number is over 85%.   This number would refer to total outstanding Treasury Debt which is the same number that is subject to the so-called debt ceiling.

However, when we toss back in all the other "off balance sheet" obligations we get this sort of a view.

 

And, for the record, the US is far from unique in this position nor in how it fudges the reporting of its debts to use the smallest possible number.  Just compare the red bars (the reported debts) in the chart below with the gray bars (the actual total debts and obligations).

(note that the chart above does not agree in percentage amounts with the chart below due to methodology differences...but you get the story).

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Re: Daily Digest - February 26

Thanks, that does answer my question.

There's only one more question left: For what periods are the unfunded liabilities computed? For how many years?

For example it is said that Medicaid in unfunded by X trillions. But for what period has this been calculated? For the next 10 years? The next 20 years? When exactly is the governemnt going to need those X trillions?

Thanks,

Bogdan.

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Re: Daily Digest - February 26
Bogdan wrote:

Thanks, that does answer my question.

There's only one more question left: For what periods are the unfunded liabilities computed? For how many years?

For example it is said that Medicaid in unfunded by X trillions. But for what period has this been calculated? For the next 10 years? The next 20 years? When exactly is the governemnt going to need those X trillions?

Thanks,

Bogdan.

Maybe a simpler way to ask it is what do they take in and what do they spend per year. I used to use the 2 in and 4 out answer. Listening to John Williams of Shadow Statistics though I think he said it best: Using Generally accepted accounting practices our yearly shortfall is 8 trillion. That is a paraphrase. 

Link and it was towards the later half

or

Link and it was towards the later half

idoctor's picture
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Re: Daily Digest - February 26

Another one bites the dust LOL. What is up with all these guys not wanting to stick around??

NY Governor Paterson Formally Withdraws From Race

http://www.cnbc.com/id/35602626

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Re: Daily Digest - February 26
idoctor wrote:

What is up with all these guys not wanting to stick around??

+1

No more up. All down now. Someone said it best...Rats fleeing a ship.

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Re: Daily Digest - February 26

Something Very Strange Is Happening With Treasuries

http://seekingalpha.com/article/190362-something-very-strange-is-happening-with-treasuries?source=email

Why do politicians like debt so much? Easy, the unborn can't vote.
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Re: Daily Digest - February 26

Why do politicians like debt so much? Easy, the unborn can't vote

Good one idoctor.

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Re: Daily Digest - February 26

City removes trash cans, streetlights to save cash

 

Colorado Springs, Colorado (CNN) -- If you come to a neighborhood park in Colorado Springs, plan on bringing your own trash bags.

To save money, the city has removed the trash cans.

Need to catch a bus? Don't try on evenings or weekends. The city has cut that service, too.

And when the sun goes down, Colorado Springs is going to look a little bit dimmer. City crews are removing every third streetlight to save money on electricity and light bulbs.

http://www.cnn.com/2010/US/02/25/spellman.colorado.springs/index.html?hp...

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Re: Daily Digest - February 26

Rats fleeing a ship.

Right on Davos!

I suspect this is just the beginning!   ... dons

 

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Davos
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Re: Daily Digest - February 26
idoctor wrote:

 

Why do politicians like debt so much? Easy, the unborn can't vote.

Super ethics & morals there. Huh?

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V
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Re: Daily Digest - February 26

i had a feeling there was something missing in the hoopla around the Bloom Energy Box. Now with this article in the SF Chronicle BINGO I got the missing piece.

"Sridhar's price estimate includes financial incentives from the federal and California governments, which together can cover half the server's cost. He defended those subsidies Wednesday as necessary to help innovative technologies grow and said the server's prices will fall as the company scales up."

The article states with government subsidies it will produce electricity cheaper than the current grid. Well boy howdy. Give me subsidies from the INSOLVENT State of California and the INSOLVENT Federal Government and I could produce electricity cheaper than the grid. All along I thought this was going to be private industry. Shoulda known

And we are going to use it to provide electricity for the po folk in the third world. Stealth Copenhagen.

V

PS I will stay tuned

 

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/02/24/MNIO1C6M96.DTL#ixzz0ggpUXQLg

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Re: Daily Digest - February 26

Easy Money Trumps Weak Economy on Wall Street http://www.cnbc.com/id/35607647

When is bad news not really bad? When it's eclipsed by the promise of enduring easy money for Wall Street.

The Fed is keeping interest rates near zero to encourage lending to businesses and consumers in order to stimulate growth.

What is also means is there is little money to be made by investors holding cash or bonds, making equities a more lucrative bet.

But the Fed's statement couldn't have been more depressing on the economic outlook, noting "considerable stress" in financial markets and "deepening of the housing contraction."

Amazing times we are living in LOL.

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Re: Daily Digest - February 26

I wouldn't want to be a politician at anything but maybe the HOA level at this time in history. Cool Anyone with .25 of a brain knows that they can't make a dent in the problem and if they are in office when some shtuff hits the fan, it will be their fault.

idoctor's picture
idoctor
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Re: Daily Digest - February 26

Let's see, Greek gov't in bed with Goldman Sachs, destroying the economy and making the people serfs. Gee as an American this sounds very familiar.

Ok I can sleep much better now after watching the video below LOL......

George doesn't seem to keen on things in California......

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Re: Daily Digest - February 26
Bogdan wrote:

I thought the US debt/GDP ratio already was close to 85%. How is it possible for the economy to halt at 100% debt/GDP ratio, I thought Japan's ratio was far worse, at 180% debt/GDP. What exactly am I missing?

These numbers don't really mean anything on their own.. In my opinion, the important factors that you need to look into so that they all make sense are

  1. How much does it cost to finance that debt (interests, trade deficit, etc.)?
  2. How much liquidity does all that debt inject into the economy (causing inflation, etc.)?
  3. How much of that debt is sovereign, not held by entities outside the country? (protection against financial warfare, etc.)

In the case of Japan, unlike America, its trade deficit is positive, and most of the national debt is financed from inside the country (Japanese are hard workers), so they can keep defying (denying?) gravity a bit longer than one might expect, but not much longer I'm sure :)

Samuel

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