As noted more fully here the first instinct is for creditors and debtors alike to bury their heads in the sand and talk rather than act…effectively to kick the debt can down the road as they did over much of the last few years helped more recently by rate cuts and the introduction of QE.Comment:Image is snapped from the article.
MF Global Holdings Ltd, the futures broker run by former Goldman Sachs chief Jon Corzine, has filed for Chapter 11 bankruptcy after a tentative deal with a buyer fell apart.
The firm's meltdown in less than a week is a stunning setback for Corzine, who sought to turn MF Global into a mini-Goldman. Corzine became CEO last year after losing his governorship of New Jersey, and his big bets on euro-zone debt sealed the company's fate.
The bankruptcy filing came after talks to sell a variety of assets to Interactive Brokers Group Inc broke down earlier Monday, a person familiar with the matter said. Earlier, central banks and exchanges had slapped the broker with suspensions.
The bankruptcy makes MF Global the most prominent U.S. casualty yet from the euro-zone debt crisis, and harkens back to 2008 when Lehman Brothers collapsed at the height of the U.S. financial crisis.
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the talk among investors and some European politicians this week has been of Greek default. The graphic below outlines the likely consequences of a default by Greece. It is a description, not a prediction – a description that includes the possibility of the break-up of the eurozone
US Is in Even Worse Shape Financially Than Greece: Gross
Excerpt:
Much of the public focus is on the nation's public debt, which is $14.3 trillion. But that doesn't include money guaranteed for Medicare, Medicaid and Social Security, which comes to close to $50 trillion, according to government figures.
The government also is on the hook for other debts such as the programs related to the bailout of the financial system following the crisis of 2008 and 2009, government figures show.
Taken together, Gross puts the total at "nearly $100 trillion," that while perhaps a bit on the high side, places the country in a highly unenviable fiscal position that he said won't find a solution overnight.
"To think that we can reduce that within the space of a year or two is not a realistic assumption," Gross said in a live interview. "That's much more than Greece, that's much more than almost any other developed country. We've got a problem and we have to get after it quickly."
Number of the Week: $10.2 Trillion in Global Borrowing
Excerpt:
As the debts of advanced countries rise to levels not seen since the aftermath of World War II, it’s hard to know how much is too much. But it’s easy to see that the risk of serious financial trouble is growing.
Next year, fifteen major developed-country governments, including the U.S., Japan, the U.K., Spain and Greece, will have to raise some $10.2 trillion to repay maturing bonds and finance their budget deficits, according to estimates from the International Monetary Fund. That’s up 7% from this year, and equals 27% of their combined annual economic output.
Aside from Japan, which has a huge debt hangover from decades of anemic growth, the U.S. is the most extreme case. Next year, the U.S. government will have to find $4.2 trillion. That’s 27.8% of its annual economic output, up from 26.5% this year. By comparison, crisis-addled Greece needs $69 billion, or 23.8% of its annual GDP.
The yield on Ireland’s 10-year bond climbed to 7.6 percent on Friday, expanding the gap with the 2.5 percent interest rate on comparable bonds issued by Germany, which is emerging most strongly from the European debt crisis.
Borrowing costs in Spain, Portugal and Greece also spiked upward again, as investor concern re-emerged that those countries would be hard-pressed to bring their deficits under control and avoid defaulting on their bonds.
Even as global stock markets rallied last week, those bond market jitters were a forceful reminder of how wary investors remained after Europe’s debt crisis last spring, despite the commitment of a combined 750 billion euros ($1.05 trillion) in bailout funds by the European Union and the International Monetary Fund.
“The scale of the deficits are just so big,” said Philip R. Lane, a professor of international economics at Trinity College in Dublin. “The issues are political as much as they are economic.”
Morgan Stanley Says Government Defaults Inevitable
Excerpt:
Investors will face defaults on government bonds given the burden of aging populations and the difficulty of securing more tax revenue, according to Morgan Stanley.
“Governments will impose a loss on some of their stakeholders,” Arnaud Mares, an executive director at Morgan Stanley in London, wrote in a research report today. “The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.” The sovereign-debt crisis is global “and it is not over,” the report said.
Borrowing costs for so-called peripheral euro-region nations such as Greece and Ireland surged today, resuming their ascent on concern that governments won’t be able to narrow their budget deficits. Standard & Poor’s downgraded Ireland’s credit rating yesterday on concern about the rising costs to support nationalized banks. The yield on Greek debt rose to more than 900 basis points above that of Germany today, the most since the European Union and International Monetary Fund created a 750 billion euro ($948 billion) bailout package in May.
Mares said debt as a percentage of gross domestic product is a false indicator of an economy’s health given it doesn’t reflect governments’ available revenue and is “backward- looking.” While the U.S. government’s debt as a percentage of GDP is 53 percent, one of the lowest ratios among developed nations, its debt as a percentage of revenue is 358 percent, one of the highest levels, the report said.
