BIS: The [Dim] Future of Public Debt

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machinehead's picture
machinehead
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BIS: The [Dim] Future of Public Debt

In a well-timed paper, authors from the BIS (Bank for International Srettlements) explain why nearly all of the developed economies are headed for a Greek-style crisis. Excerpt:

In our baseline case, we assume that government total revenue and non-age-related primary spending remain a constant percentage of estimated 2011 GDP. Using CBO and EC projections for age-related spending, we generate a path for total primary government spending and the primary balance over the next 30 years. The real interest rate is assumed to remain constant at the 1998-2007 average, and potential GDP growth is set to the OECD-estimated post-crisis rate.

Deficits rise precipitously. By 2020, the primary deficit/GDP ratio will rise to 13% in Ireland, 8-10% in Japan, Spain, the UK and US, and 3-7% in Austria, Germany, Greece, Netherlands and Portugal.

But the main point of this exercise is the impact on debt. Debt/GDP ratios rise rapidly in the next decade, exceeding 300% of GDP in Japan, 200% in the UK, and 150% in Belgium, France, Ireland, Greece, Italy and the US.

The path is unstable. In each of these countries, the fraction absorbed by interest payments rises from around 5% today to over 10% in all cases, and as high as 27% in the UK.

http://www.bis.org/publ/work300.pdf?noframes=1

The BIS paper calculates the primary surpluses necessary to stop debt/GDP ratios from rising. Such surpluses would require crushing, confiscatory levels of taxation. If the surpluses don't occur, the BIS authors then investigate the obvious risk that central banks will monetise debt. Here is their conclusion, which I would like to print on a red banner and hang across the entrance of the Marriner S. Eccles Federal Reserve Building:

The risk that long-term inflation expectations could suddenly become unanchored today is a possibility that should not be discounted. The most likely manifestation of this risk is an unexpected and abrupt rise in government bond yields at medium and long maturities as negative news about the state of the economy and public finances leads investors to reassess the risks of fiscal unsustainability and future inflation.

Note well that the BIS paper bears a publication date of March 2010. Exactly as the authors foresaw, Greece experienced an 'abrupt rise in government bond yields' in May 2010, leaving it effectively unable to roll over debt at affordable rates.

Those who imagine a stately, multi-decade linear descent into a debt-laden fiscal sunset are quite mistaken. As the Greek crisis has shown, confidence can evaporate in a matter of weeks. Debt ratings can be slashed by multiple levels overnight.

Meanwhile, the US is utterly dependent on rolling over and issuing tens of billions of dollars of debt in Treasury auctions every Monday morning. This is uncomfortably reminiscent of the commercial paper market, which 'seized up' during the Lehman crisis. Financing Usgov, the largest fiscal entity on the planet, with massive wads of short-term paper, is insanely dangerous and imprudent.

Whistle past the graveyard if you like. But the BIS has tolled the death knell for the Decline of the West. Basing monetary and social benefit schemes on the seductive illusion of endless growth was a pathetic delusion. The ultimate future for much of the sovereign debt and unfunded promises is hyperinflationary default. Governments are too broke to bail themselves out anymore.

 

 

 

 

agitating prop's picture
agitating prop
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Re: BIS: The [Dim] Future of Public Debt

Machinehead,  Are there any countries or parts of the world that can escape what looks like a meltdown of global proportions?  Papua, New Guinea, the Pitcairns? I'm ready to pack my bags!

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Re: BIS: The [Dim] Future of Public Debt

It is no surprise that the "well-timed paper" from the BIS (Bank for International Settlements) "explains why nearly all of the developed economies are headed for a Greek-style crisis.  After all, the BIS owners and operators, which not coincidentally also own and operate the Federal Reserve, Bank of England and all of the other western central banks and they are the ones who are purposely destroying our economies.

The exponential growth of interest debt is a tool that they use to take over the sovereignty of client states.  Soon they will have their totalitarian NWO and all of our private property and national resources.  This plot has been well documented though many prefer to live in denial.

Here is a link to a post I made about the BIS...Former Nazi Bank To Rule The Global Economy.  It is in the controversial section of this forum.  Instead of writing papers, the BIS folks should be stamping license plates from a Federal prison. 

Larry

machinehead's picture
machinehead
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Re: BIS: The [Dim] Future of Public Debt
agitating prop wrote:

Machinehead,  Are there any countries or parts of the world that can escape what looks like a meltdown of global proportions?  Papua, New Guinea, the Pitcairns? I'm ready to pack my bags!

This Alice-in-Wonderland world map, with countries scaled according to their debt levels, shows how disproportionately debt is concentrated in the rich world:

http://benhennig.postgrad.shef.ac.uk/wordpress/wp-content/uploads/2010/0...

Not surprising, of course -- those with high credit ratings have gone on a manic borrowing spree; the credit-redlined rest of the world pays as they go -- which suddenly has become an unexpected virtue.

I would focus on 'skinny countries' on the debt map, which are relatively energy and agriculturally self-sufficient. That gives you several dozen to choose from.

Long term, they face the same problems as the rich West, but perhaps can squeeze out an extra generation of 'life as we knew it.' And that might be enough, depending on your planning horizon.

Otherwise, maybe we can open a Soylent Green franchise. FrownSurprised

SagerXX's picture
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Re: BIS: The [Dim] Future of Public Debt

Just a quick shout-out to MH -- I always get useful info/perspective out of your posts and therefore really appreciate your presence here.  Rock ON!

Viva -- Sager

agitating prop's picture
agitating prop
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Re: BIS: The [Dim] Future of Public Debt
SagerXX wrote:

Just a quick shout-out to MH -- I always get useful info/perspective out of your posts and therefore really appreciate your presence here.  Rock ON!

Viva -- Sager

I feel the same way, that map is fantastic. And it looks like New Guinea actually would be a safe bet. So I'll be packing swim gear, bug spray and cannibal-be-gone, in my knapsack, and then I'm off!

CB's picture
CB
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Re: BIS: The [Dim] Future of Public Debt

Notice that the souce of the data for the map is the World Bank and the CIA - what do you suppose the contingency plans being contemplated are?

machinehead's picture
machinehead
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Re: BIS: The [Dim] Future of Public Debt

The BIS paper makes the same point as the debt map:

According to the OECD, total industrialised country public sector debt is now expected to exceed 100% of GDP in 2011 -- something that has never happened before in peacetime. Public finances in emerging market economies are generally in much better shape. With their financial systems and economies remaining relatively immune to the crisis, public debt levels have grown much less rapidly, and are on average around 40%.

One notable exception is India -- a country with a history of fiscal problems -- where public debt remains high by today's emerging market standards.

Well, there goes my cherished notion of camping on the beach in Goa with a supersize can of Bankster-B-Gone! But they's plenty of other unspoilt places to study yoga, pick mushrooms, and star in populist poetry slams.

Who be John Galt? / He say 'DEFAULT!' Pass it on, bro's ...

Davos's picture
Davos
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Re: BIS: The [Dim] Future of Public Debt

They are continually rolling over 650 billion now, a number that is quickly rising. What is going to happen when they can't issue short term debt? This gig is going to be ending sooner, not later.

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