The Christmas Surprise, aka The Christmas Heist
Call it the Christmas surprise.
The Treasury Department announced it had removed the $400 billion financial cap on the money it will provide to mortgage giants Fannie Mae and Freddie Mac to keep them afloat.
Taxpayers have already shelled out $111 billion to the pair. Now there is no end in sight.
A senior Treasury official said losses are not expected to exceed the government's estimate last summer of $170 billion over 10 years.
However, the government has not been accurate, or forthcoming, about the true scope of the problem or about the reality of potential losses.
At this point, we should not believe any government estimates or claims.
It's important for us to reflect on the fact that in July 2008, the Congressional Budget Office said that the government rescue of Fannie and Freddie would cost $25 billion, at most.
The Budget Office said there was a better than even chance that the rescue package would not even be needed before the end of 2009 and would not cost taxpayers any money.
Instead, what has happened is that losses have been so spectacular that the $400 billion cap was quietly removed on Christmas Eve, a traditionally slow news day when most Americans were busy celebrating the Christmas holiday and not paying attention.
The Treasury made the change before year-end to avoid having to ask Congress for another bailout, which would be politically risky in the 2010 election year.
It's also worth noting that the head of the CBO at the time was Peter Orszag, who is now White House Budget Director. What this proves is that being wildly incompetent, or grossly misleading, is actually rewarded.
Bert Ely, a banking consultant in Alexandria, Virginia, said that lifting the cap raises significant concerns and could spell big trouble ahead.
"The companies are nowhere close to using the $400 billion they had before, so why do this now? It's possible we may see some horrendous numbers for the fourth quarter and, thus 2009, and Treasury wants to calm the markets."
Exactly. Sudden moves of such magnitude don't occur in a vacuum. The government clearly knows what's coming and it is preparing for a tsunami of losses.
Without government aid, the two firms would have already gone under, leaving millions of people unable to get a mortgage.
Together, Fannie Mae and Freddie Mac own or guarantee almost 31 million home loans worth about $5.5 trillion, or about half of all mortgages.
The combination of high unemployment, adjustable-rate mortgages that will reset this year, and a likely increase in mortgage rates, will all combine to result in further foreclosures this year.
Currently, there are 2.8 million active interest-only loans nationally, worth a combined total of $908 billion. This year, about $70 billion of interest-only loans will reset. That will result in a massive number of additional defaults.
If the news of unlimited taxpayer support isn't disturbing enough, here's something additionally outrageous: The CEOs of Fannie and Freddie could get paid as much as $6 million apiece for 2009, despite the companies' dismal performances last year.
How's that for justice?
What's clear is that there is no justice. Bankers and lenders have created a "heads I win, tails you lose" environment, and our government has aided and abetted them.
This is no moral hazard anymore. There are no consequences for poor decision-making. There are only private gains and public losses. A government-backed, corporate socialism has arisen in modern America. This is not true, democratic capitalism.
All this latest news should do is lessen America's already diminished view of our government, its competence, and its truthfulness. The government's loss estimates have proven to be wildly inaccurate.
The reality is that without the huge government subsidization of the US housing market through Fannie and Freddie, the enormous housing bubble probably wouldn't have occurred in the first place. The balance sheets of Fannie Mae and Freddie Mac have grown by a stunning $4 trillion.
We, the American taxpayers — including those of us who didn't overextend ourselves, those who bought homes they could actually afford, those who didn't view their home as a financial investment or get-rich-quick scheme, and those who never even bought a home — are all stuck with this gargantuan bill.
It will just be added to the already existing national debt, which will never be successfully paid off. It just keeps growing, and accruing additional interest.
We will remain perpetually in debt, much to our own detriment.
Selasa, 05 Januari 2010
Sabtu, 02 Januari 2010
Populist Bank Reform
Since April, the Big Four banks -- JP Morgan/Chase, Citibank, Bank of America, and Wells Fargo -- all of which took billions in taxpayer money, have cut lending to businesses by $100 billion.
These big, bailed-out banks then spent millions of dollars on lobbying to gut or kill financial reform -- including "too big to fail" legislation and the regulation of the derivatives that played such a huge part in the meltdown.
The five largest US banks control roughly half of the industry's $13.3 trillion in assets. The 8,176 community banks control just 15%.
But local banks often have a positive impact on their communities. So, why not move your money out of one of the big banks and put it into a community bank?
If enough people who have money in one of the Big Four banks move it into smaller, more local, more traditional community banks, then collectively we, the people, will have taken a big step toward re-rigging the financial system so it once again becomes the productive, stable engine for growth it's meant to be.
The FDIC deposit insurance is just as good at small banks as the behemoths.
Watch Eugene Jarecki's amazing video at www.moveyourmoney.info to learn more about how easy it is to move your money. And pass the idea on to your friends (help make this video – and this idea – go viral!).
JP Morgan/Chase, Citi, Wells Fargo, and Bank of America may be "too big to fail" -- but they are not too big to feel the impact of hundreds of thousands of people taking action to change a broken financial and political system.
Let them gamble with their own money, not yours. Let's turn big banks into smaller banks. We'll all be better off – and safer – as a result.
Since April, the Big Four banks -- JP Morgan/Chase, Citibank, Bank of America, and Wells Fargo -- all of which took billions in taxpayer money, have cut lending to businesses by $100 billion.
These big, bailed-out banks then spent millions of dollars on lobbying to gut or kill financial reform -- including "too big to fail" legislation and the regulation of the derivatives that played such a huge part in the meltdown.
The five largest US banks control roughly half of the industry's $13.3 trillion in assets. The 8,176 community banks control just 15%.
But local banks often have a positive impact on their communities. So, why not move your money out of one of the big banks and put it into a community bank?
If enough people who have money in one of the Big Four banks move it into smaller, more local, more traditional community banks, then collectively we, the people, will have taken a big step toward re-rigging the financial system so it once again becomes the productive, stable engine for growth it's meant to be.
The FDIC deposit insurance is just as good at small banks as the behemoths.
Watch Eugene Jarecki's amazing video at www.moveyourmoney.info to learn more about how easy it is to move your money. And pass the idea on to your friends (help make this video – and this idea – go viral!).
JP Morgan/Chase, Citi, Wells Fargo, and Bank of America may be "too big to fail" -- but they are not too big to feel the impact of hundreds of thousands of people taking action to change a broken financial and political system.
Let them gamble with their own money, not yours. Let's turn big banks into smaller banks. We'll all be better off – and safer – as a result.
Rabu, 30 Desember 2009
Sprott Wonders If Treasury Has Created Its Own Epic Ponzi Scheme
Sprott Asks If Treasury Has Created Its Own Epic Ponzi Scheme
Sprott Asset Management, which has about $4 billion under management, just released its December newsletter. To say the least, it's quite provocative.
Titled, "Is It All Just a Ponzi Scheme?," the newsletter makes the case that the Treasury Department has invented its own bond market.
This isn't an entirely new thesis; Dr. Chris Martenson has been saying the same for months. But Sprott's research is very compelling.
In fiscal 2009, foreigners scooped up $698 billion of Treasuries while the Fed upped its holdings by $286 billion. But the public debt increased $1.9 trillion.
So who bought all the rest?
According to Treasury, “other investors” bought $510 billion, up from just $90 billion in 2008.
Can the Treasury maintain this charade in 2010? If they can't conjure up more phantom buyers, the bond market will dry up and the only alternative will be the Federal Reserve's printing press.
Either way, it's an ugly and frightening scenario.
Like any pyramid or Ponzi scheme, the system is in continuous need of new money to refinance debts and keep itself afloat.
I encourage everyone — all concerned citizens — to read this crucial report, which can be viewed here in PDF form.
Sprott Asset Management, which has about $4 billion under management, just released its December newsletter. To say the least, it's quite provocative.
Titled, "Is It All Just a Ponzi Scheme?," the newsletter makes the case that the Treasury Department has invented its own bond market.
This isn't an entirely new thesis; Dr. Chris Martenson has been saying the same for months. But Sprott's research is very compelling.
In fiscal 2009, foreigners scooped up $698 billion of Treasuries while the Fed upped its holdings by $286 billion. But the public debt increased $1.9 trillion.
So who bought all the rest?
According to Treasury, “other investors” bought $510 billion, up from just $90 billion in 2008.
Can the Treasury maintain this charade in 2010? If they can't conjure up more phantom buyers, the bond market will dry up and the only alternative will be the Federal Reserve's printing press.
Either way, it's an ugly and frightening scenario.
Like any pyramid or Ponzi scheme, the system is in continuous need of new money to refinance debts and keep itself afloat.
I encourage everyone — all concerned citizens — to read this crucial report, which can be viewed here in PDF form.
Senin, 28 Desember 2009
US GPD Fueled by Debt
In what should hardly come as a surprise, US third-quarter GDP has once again been revised downward from the initial projection of 3.5% annual growth. First the figure was revised downward to 2.8%, and now it has been revised down to 2.2%.
That means the government overestimated the nation's third-quarter economic performance by 37%, a rather large error.
GDP numbers are often revised, seemingly at will, allowing the government to control the message and spin the story. After six consecutive quarters of negative GDP, the government was desperate to create some good news. As it turns out, that news was too good to be true.
Our meager third-quarter growth was largely the result of further government spending, not private sector spending. Auto purchases were in fact undergirded by government support.
Under the latest revision, the government's Cash for Clunkers program now accounts for 66% of the remaining GDP "growth," up from 47% in the initial report. This is an error of $185 billion, which is larger than the $152 billion Bush stimulus package of 2008.
The reality is that this 2.2% growth was fueled by even further government debt, as well as consumer debt. The latter is exactly what got us into this economic malaise in the first place, and the average US household is still overburdened and saddled with debt.
According to data released in July by the Federal Reserve Board, revolving consumer debt in the United States totals about $928 billion.
Federal Reserve surveys suggest that about 75% of households have at least one credit card, and 25% have none. If we count only those households that report actually having one or more credit cards, the average household credit card debt is $10,482.
However, the Federal Reserve puts total household debt, including mortgage debt, at about $13.7 trillion, or 125% of annual after-tax income, a burden that many economists believe will take several years to pare down to what is viewed as a more sustainable level of 100%.
When one considers that consumer spending makes up more than two-thirds of the U.S. economy, and about one-fifth of the global economy, you realize it won't be able to play a leading role in any recovery. Seventeen percent of US workers are either unemployed or under-employed.
The federal government has jumped into the breach to try to make up for the resulting decline in consumer spending. But that is only increasing an already whopping federal debt.
U.S. government debt has reached 85% of annual economic output and is showing no signs of slowing; the White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, it has to service all that debt – in addition to current debt – with interest.
Paying down this enormous national debt will eventually require Americans to pay more taxes. That will only hamper consumer spending even further. Consumers will ultimately feel the combined burdens of private and public debt because we all owe a share of the national debt.
A 1998 Congressional Joint Economic Committee study concluded the optimal size of government to maximize economic growth was about 18% of gross domestic product.
However, in May, Business Week reported that, even before this year's unprecedented debt and spending, all levels of government in the U.S. controlled 37% of GDP. Recent federal spending will drive up government’s share to more than 40%.
Our entire economic system is based on perpetual growth. However, there is no real growth; there is only more debt.
In what should hardly come as a surprise, US third-quarter GDP has once again been revised downward from the initial projection of 3.5% annual growth. First the figure was revised downward to 2.8%, and now it has been revised down to 2.2%.
That means the government overestimated the nation's third-quarter economic performance by 37%, a rather large error.
GDP numbers are often revised, seemingly at will, allowing the government to control the message and spin the story. After six consecutive quarters of negative GDP, the government was desperate to create some good news. As it turns out, that news was too good to be true.
Our meager third-quarter growth was largely the result of further government spending, not private sector spending. Auto purchases were in fact undergirded by government support.
Under the latest revision, the government's Cash for Clunkers program now accounts for 66% of the remaining GDP "growth," up from 47% in the initial report. This is an error of $185 billion, which is larger than the $152 billion Bush stimulus package of 2008.
The reality is that this 2.2% growth was fueled by even further government debt, as well as consumer debt. The latter is exactly what got us into this economic malaise in the first place, and the average US household is still overburdened and saddled with debt.
According to data released in July by the Federal Reserve Board, revolving consumer debt in the United States totals about $928 billion.
Federal Reserve surveys suggest that about 75% of households have at least one credit card, and 25% have none. If we count only those households that report actually having one or more credit cards, the average household credit card debt is $10,482.
However, the Federal Reserve puts total household debt, including mortgage debt, at about $13.7 trillion, or 125% of annual after-tax income, a burden that many economists believe will take several years to pare down to what is viewed as a more sustainable level of 100%.
When one considers that consumer spending makes up more than two-thirds of the U.S. economy, and about one-fifth of the global economy, you realize it won't be able to play a leading role in any recovery. Seventeen percent of US workers are either unemployed or under-employed.
The federal government has jumped into the breach to try to make up for the resulting decline in consumer spending. But that is only increasing an already whopping federal debt.
U.S. government debt has reached 85% of annual economic output and is showing no signs of slowing; the White House estimates that the government will have to borrow about $3.5 trillion more over the next three years. On top of that, it has to service all that debt – in addition to current debt – with interest.
Paying down this enormous national debt will eventually require Americans to pay more taxes. That will only hamper consumer spending even further. Consumers will ultimately feel the combined burdens of private and public debt because we all owe a share of the national debt.
A 1998 Congressional Joint Economic Committee study concluded the optimal size of government to maximize economic growth was about 18% of gross domestic product.
However, in May, Business Week reported that, even before this year's unprecedented debt and spending, all levels of government in the U.S. controlled 37% of GDP. Recent federal spending will drive up government’s share to more than 40%.
Our entire economic system is based on perpetual growth. However, there is no real growth; there is only more debt.
Selasa, 22 Desember 2009
Unemployment Benefits Extended Up To 99 Weeks; May Cost $140 Billion
Unemployment has been so widespread, so lasting and so costly that the federal government projects that 40 state programs will go broke within two years and need $90 billion in loans to keep issuing benefit checks.
Collectively, states are projected to run a $57 billion deficit in the program in 2010 alone. The federal government is obligated to lend them the money to cover that gap.
Many states will be faced with the unpleasant choice of raising taxes, cutting benefits, or both. Nationally, the average tax is about 0.6 percent of payroll; the average weekly check is about $300.
Currently, 25 states have run out of unemployment money and have borrowed $24 billion from the federal government to cover the gaps.
Unemployment benefits are typically paid for 26 weeks. But, due to the length and severity of the recession, Congress has repeatedly extended that period since June 2008.
The emergency extensions had previously allowed laid-off workers to collect benefits for up to 46 weeks in some states. But in other states the benefits had stretched up to 79 weeks, the longest period since the unemployment insurance program was created in the 1930s.
However, that period has now been extended up to 99 weeks in some states.
Saturday morning, the Senate approved a $626-billion defense bill that included a two-month extension of unemployment benefits for the long-term jobless.
The benefits of 1.5 Americans were set to expire at the end of this year. Those benefits will now be paid through the end of February.
According to AP, the costs of another extension of unemployment benefits will reach $100 billion. The estimated price tag includes the costs of extending unemployment benefits through 2010 for those who have been unemployed for more than six months, as well as costs to provide subsidies to assist in paying health insurance premiums.
This is in sharp contrast to the unemployment benefit costs of just two years ago. Back in 2007, the cost of unemployment benefits was only $43 billion dollars. Since that time, unemployment has ballooned from 4.8% to 10%.
Obviously, the unemployment problem will not improve significantly in the next two months, and Congress will once again be faced with the task of extending benefits further. The cost to the federal government and the states will be burdensome, and require taking on even further debt.
Even before the last round of extended benefits in November, the White House estimated the cost of unemployment compensation to exceed $140 billion for fiscal 2010, which began in October.
The Labor Department projects that eight million Americans will exhaust their regular 26 weeks of unemployment benefits in 2010.
Unemployment has been so widespread, so lasting and so costly that the federal government projects that 40 state programs will go broke within two years and need $90 billion in loans to keep issuing benefit checks.
Collectively, states are projected to run a $57 billion deficit in the program in 2010 alone. The federal government is obligated to lend them the money to cover that gap.
Many states will be faced with the unpleasant choice of raising taxes, cutting benefits, or both. Nationally, the average tax is about 0.6 percent of payroll; the average weekly check is about $300.
Currently, 25 states have run out of unemployment money and have borrowed $24 billion from the federal government to cover the gaps.
Unemployment benefits are typically paid for 26 weeks. But, due to the length and severity of the recession, Congress has repeatedly extended that period since June 2008.
The emergency extensions had previously allowed laid-off workers to collect benefits for up to 46 weeks in some states. But in other states the benefits had stretched up to 79 weeks, the longest period since the unemployment insurance program was created in the 1930s.
However, that period has now been extended up to 99 weeks in some states.
Saturday morning, the Senate approved a $626-billion defense bill that included a two-month extension of unemployment benefits for the long-term jobless.
The benefits of 1.5 Americans were set to expire at the end of this year. Those benefits will now be paid through the end of February.
According to AP, the costs of another extension of unemployment benefits will reach $100 billion. The estimated price tag includes the costs of extending unemployment benefits through 2010 for those who have been unemployed for more than six months, as well as costs to provide subsidies to assist in paying health insurance premiums.
This is in sharp contrast to the unemployment benefit costs of just two years ago. Back in 2007, the cost of unemployment benefits was only $43 billion dollars. Since that time, unemployment has ballooned from 4.8% to 10%.
Obviously, the unemployment problem will not improve significantly in the next two months, and Congress will once again be faced with the task of extending benefits further. The cost to the federal government and the states will be burdensome, and require taking on even further debt.
Even before the last round of extended benefits in November, the White House estimated the cost of unemployment compensation to exceed $140 billion for fiscal 2010, which began in October.
The Labor Department projects that eight million Americans will exhaust their regular 26 weeks of unemployment benefits in 2010.
Minggu, 20 Desember 2009
The 10 Countries Most Likely To Default
The recent economic meltdown in Dubai may turn out to be the proverbial canary in the coal mine.
The Emirate's massive debt problem may ultimately serve as a warning of the troubles brewing in other nations. Could other sovereign debt defaults be on the horizon?
Remarkably, there are countries even worse off than Dubai.
The Business Insider recently ranked "The 10 Countries Most Likely to Default."
#10 Lebanon
Cumulative Probability of Default: 17 %
Reuters: "Lebanon, one of the most heavily indebted states in the world, completed a debt swap in March for around $2.3 billion of foreign currency paper maturing this year.
Strong economic growth has helped reduce Lebanon's ratio of debt to gross domestic product to 153 percent in June from around 180 percent three years ago. The country's gross debt stands at $48 billion."
#9 State of California
Cumulative Probability of Default: 18 %
Though it is just a U.S. state and not an independent nation, the Golden State has the world's eighth largest economy, and it is a mess. California’s budget deficit will balloon to $20.7 billion during the next year and a half, the nonpartisan Legislative Analyst’s Office predicted in a November report. As of November, year-to-date revenues were more than $1 billion below what had been expected.
According to The Press Enterprise, “California will pay $6 billion in debt service in the current fiscal year, or nearly 7 percent of the state’s general fund. And that expense is only for part of the bonds voters and legislators have approved: California has $83.5 billion in outstanding debt, including $64 billion in general obligation bonds. But the state has $47.5 billion in already authorized bonds that it has yet to sell, too.”
#8 Lithuania
Cumulative Probability of Default: 19 %
Bloomberg: "Lithuania will probably miss a 2011 European Union deadline to bring its deficit in line with the bloc’s budget threshold, ruling out euro adoption before 2013, Finance Minister Ingrida Simonyte said..
The former Soviet state’s budget shortfall will swell to 9.8 percent of gross domestic product this year, and narrow to 9.7 percent in 2011"
#7 Iceland
Cumulative Probability of Default: 23%
Bloomberg: "Iceland’s economy contracted the most on record last quarter after the island’s banking failure left locals poorer and as businesses lacked funds for investment.
Gross domestic product shrank an annual 7.2 percent, after contracting a revised 6.2 percent in three months through June, Reykjavik-based Statistics Iceland said on its Web site. From the previous quarter, GDP shrank 5.7 percent."
Iceland’s banking collapse last year plunged the Atlantic island into its worst economic decline since gaining independence from Denmark in 1944 and forced the government to seek an international bailout to avert default."
#6 Emirate of Dubai
Cumulative Probability of Default: 29%
Dubai's inability to pay its debts on time forced it to request a six-month extension on loan repayments. That news rocked world markets and sent shivers throughout the financial world. Dubai may simply be the beginning of further sovereign defaults in the coming year.
#5 Latvia
Cumulative Probability of Default: 30%
Bloomberg: "Latvia’s economy contracted a preliminary 18.4 percent in the third quarter, the biggest decline in the EU. The country’s banks may have the highest need for new capital in eastern and central Europe along with Lithuania because they rely on collateral that’s been falling in value amid house price declines, Fitch Ratings said in a report today...
The country is rated two levels below investment grade at BB by Standard & Poor’s. Moody’s Investors Service ranks Latvia at the lowest investment-grade level of Baa3."
#4 Pakistan
Cumulative Probability of Default: 36%
Business Recorder: "The country's external debts and liabilities have posted a raise of some three billion dollars to a new peak of 55.2 billion dollars by end of September 2009."
#3 Argentina
Cumulative Probability of Default: 49%
WSJ: "Fitch Ratings said Argentina's credit ratings are likely to remain in highly speculative territory even if its planned $20 billion debt exchange is executed successfully, noting the country's continuing economic and financial pressures as well as high debt ratios.
Argentina's Senate voted to approve a bill that would allow the government to reopen a 2005 debt restructuring. At issue are about $20 billion in face value of bonds that weren't included in a 2005 transaction. Economy Minister Amado Boudou said recently that the government plans to reopen the offer under similar terms to try to attract as many of those investors as possible."
#2 Ukraine
Cumulative Probability of Default: 55%
Bloomberg: "Ukraine will keep its B2 credit rating, with a negative outlook, the ratings company said in a statement released late yesterday, after Ukrzaliznytsya defaulted on a principal payment on a Barclays Capital-led syndicated loan on Nov. 20...
The B2 rating reflects “weak macroeconomic fundamentals, a banking system that remains under strain, and distinctly poor coordination between fiscal and monetary policies,” Moody’s said. “While some of these problems may well reflect political in-fighting in the run-up to the presidential election, the fiscal loosening inherent in recent legislation -- which may raise the budget deficit by up to 7 percent of gross domestic product in 2010 -- is a serious concern. Hence, the negative outlook on the B2 sovereign rating remains in place.”
#1 Venezuela
Cumulative Probability of Default: 60%
WSJ: "one week ago, the government was forced to begin shutting down seven small banks that together represent up to 12% of banking system deposits, after the public began to get wind of some of the banks allegedly using depositors' funds for corrupt ends.
Those takeovers alone would have frayed nerves in financial markets. But Chavez piled on by saying he would nationalize the entire banking system if needed. The comments, last Wednesday, sent Venezuela's bolivar currency and sovereign bond prices tumbling."
Somehow, Greece didn't make this list. Perhaps it should have.
Late Wednesday, Standard & Poor's downgraded Greece to a BBB+ rating, matching a downgrade from Fitch Ratings just over a week ago, on concerns the country will struggle to rein in a deficit that stands at more than 12% of gross domestic product.
The recent economic meltdown in Dubai may turn out to be the proverbial canary in the coal mine.
The Emirate's massive debt problem may ultimately serve as a warning of the troubles brewing in other nations. Could other sovereign debt defaults be on the horizon?
Remarkably, there are countries even worse off than Dubai.
The Business Insider recently ranked "The 10 Countries Most Likely to Default."
#10 Lebanon
Cumulative Probability of Default: 17 %
Reuters: "Lebanon, one of the most heavily indebted states in the world, completed a debt swap in March for around $2.3 billion of foreign currency paper maturing this year.
Strong economic growth has helped reduce Lebanon's ratio of debt to gross domestic product to 153 percent in June from around 180 percent three years ago. The country's gross debt stands at $48 billion."
#9 State of California
Cumulative Probability of Default: 18 %
Though it is just a U.S. state and not an independent nation, the Golden State has the world's eighth largest economy, and it is a mess. California’s budget deficit will balloon to $20.7 billion during the next year and a half, the nonpartisan Legislative Analyst’s Office predicted in a November report. As of November, year-to-date revenues were more than $1 billion below what had been expected.
According to The Press Enterprise, “California will pay $6 billion in debt service in the current fiscal year, or nearly 7 percent of the state’s general fund. And that expense is only for part of the bonds voters and legislators have approved: California has $83.5 billion in outstanding debt, including $64 billion in general obligation bonds. But the state has $47.5 billion in already authorized bonds that it has yet to sell, too.”
#8 Lithuania
Cumulative Probability of Default: 19 %
Bloomberg: "Lithuania will probably miss a 2011 European Union deadline to bring its deficit in line with the bloc’s budget threshold, ruling out euro adoption before 2013, Finance Minister Ingrida Simonyte said..
The former Soviet state’s budget shortfall will swell to 9.8 percent of gross domestic product this year, and narrow to 9.7 percent in 2011"
#7 Iceland
Cumulative Probability of Default: 23%
Bloomberg: "Iceland’s economy contracted the most on record last quarter after the island’s banking failure left locals poorer and as businesses lacked funds for investment.
Gross domestic product shrank an annual 7.2 percent, after contracting a revised 6.2 percent in three months through June, Reykjavik-based Statistics Iceland said on its Web site. From the previous quarter, GDP shrank 5.7 percent."
Iceland’s banking collapse last year plunged the Atlantic island into its worst economic decline since gaining independence from Denmark in 1944 and forced the government to seek an international bailout to avert default."
#6 Emirate of Dubai
Cumulative Probability of Default: 29%
Dubai's inability to pay its debts on time forced it to request a six-month extension on loan repayments. That news rocked world markets and sent shivers throughout the financial world. Dubai may simply be the beginning of further sovereign defaults in the coming year.
#5 Latvia
Cumulative Probability of Default: 30%
Bloomberg: "Latvia’s economy contracted a preliminary 18.4 percent in the third quarter, the biggest decline in the EU. The country’s banks may have the highest need for new capital in eastern and central Europe along with Lithuania because they rely on collateral that’s been falling in value amid house price declines, Fitch Ratings said in a report today...
The country is rated two levels below investment grade at BB by Standard & Poor’s. Moody’s Investors Service ranks Latvia at the lowest investment-grade level of Baa3."
#4 Pakistan
Cumulative Probability of Default: 36%
Business Recorder: "The country's external debts and liabilities have posted a raise of some three billion dollars to a new peak of 55.2 billion dollars by end of September 2009."
#3 Argentina
Cumulative Probability of Default: 49%
WSJ: "Fitch Ratings said Argentina's credit ratings are likely to remain in highly speculative territory even if its planned $20 billion debt exchange is executed successfully, noting the country's continuing economic and financial pressures as well as high debt ratios.
Argentina's Senate voted to approve a bill that would allow the government to reopen a 2005 debt restructuring. At issue are about $20 billion in face value of bonds that weren't included in a 2005 transaction. Economy Minister Amado Boudou said recently that the government plans to reopen the offer under similar terms to try to attract as many of those investors as possible."
#2 Ukraine
Cumulative Probability of Default: 55%
Bloomberg: "Ukraine will keep its B2 credit rating, with a negative outlook, the ratings company said in a statement released late yesterday, after Ukrzaliznytsya defaulted on a principal payment on a Barclays Capital-led syndicated loan on Nov. 20...
The B2 rating reflects “weak macroeconomic fundamentals, a banking system that remains under strain, and distinctly poor coordination between fiscal and monetary policies,” Moody’s said. “While some of these problems may well reflect political in-fighting in the run-up to the presidential election, the fiscal loosening inherent in recent legislation -- which may raise the budget deficit by up to 7 percent of gross domestic product in 2010 -- is a serious concern. Hence, the negative outlook on the B2 sovereign rating remains in place.”
#1 Venezuela
Cumulative Probability of Default: 60%
WSJ: "one week ago, the government was forced to begin shutting down seven small banks that together represent up to 12% of banking system deposits, after the public began to get wind of some of the banks allegedly using depositors' funds for corrupt ends.
Those takeovers alone would have frayed nerves in financial markets. But Chavez piled on by saying he would nationalize the entire banking system if needed. The comments, last Wednesday, sent Venezuela's bolivar currency and sovereign bond prices tumbling."
Somehow, Greece didn't make this list. Perhaps it should have.
Late Wednesday, Standard & Poor's downgraded Greece to a BBB+ rating, matching a downgrade from Fitch Ratings just over a week ago, on concerns the country will struggle to rein in a deficit that stands at more than 12% of gross domestic product.
U.S. Already $296 Billion in Red for 2010
According to the Congressional Budget Office, the government spent $292 billion more than it took in during October and November.
It was a record 14th straight monthly deficit.
However, according to the Treasury Department, the budget deficit was $176.4 billion in October and $120.3 billion in November, meaning that the deficit actually amounts to more than $296 billion.
The 2010 fiscal year began on October 1, meaning that just two months in, the nation is already nearly $300 billion in the red.
The deficit was even worse than the same period last year, when the government was on its way to posting a record $1.4 trillion deficit for the fiscal year that ended Sept. 30.
Tax revenues have plunged just as spending on safety-net programs like unemployment insurance and food stamps have skyrocketed.
The CBO noted that government outlays through the first two months were $559 billion, meaning that the government had already spent more than double what it had taken in.
The Obama Administration expects the 2010 deficit to set a new record at $1.5 trillion.
There is a widespread sentiment among economists that all of this red ink will lead to higher interest rates and borrowing costs. That outcome would hinder any potential recovery, though it would reward savers.
The National Debt is presently $12.1 trillion, and climbing at a rate of $1 million every minute.
Meanwhile, the gross domestic product has been shrinking during the economic contraction, and will be $13.7 trillion for 2009.
Obviously, the National Debt and the GDP are moving in opposite directions. We've been warned repeatedly that this situation is simply unsustainable. None other than the government's former top accountant, David Walker, has made this point numerous times.
The meager economic growth in the third quarter was the result of nothing more than government spending. Any further growth in the fourth quarter will be the result of even more than the same.
No matter how deep the hole gets, our elected leaders can't stop digging.
One in every six dollars in the U.S. economy is now the product of government spending. At a minimum, that is both unhealthy and unproductive.
The government, and the public, can continue to ignore this for a little while longer, but at our own peril. Sooner or later, there will be very uncomfortable, and destructive, implications.
The U.S. debt clock can be seen here.
According to the Congressional Budget Office, the government spent $292 billion more than it took in during October and November.
It was a record 14th straight monthly deficit.
However, according to the Treasury Department, the budget deficit was $176.4 billion in October and $120.3 billion in November, meaning that the deficit actually amounts to more than $296 billion.
The 2010 fiscal year began on October 1, meaning that just two months in, the nation is already nearly $300 billion in the red.
The deficit was even worse than the same period last year, when the government was on its way to posting a record $1.4 trillion deficit for the fiscal year that ended Sept. 30.
Tax revenues have plunged just as spending on safety-net programs like unemployment insurance and food stamps have skyrocketed.
The CBO noted that government outlays through the first two months were $559 billion, meaning that the government had already spent more than double what it had taken in.
The Obama Administration expects the 2010 deficit to set a new record at $1.5 trillion.
There is a widespread sentiment among economists that all of this red ink will lead to higher interest rates and borrowing costs. That outcome would hinder any potential recovery, though it would reward savers.
The National Debt is presently $12.1 trillion, and climbing at a rate of $1 million every minute.
Meanwhile, the gross domestic product has been shrinking during the economic contraction, and will be $13.7 trillion for 2009.
Obviously, the National Debt and the GDP are moving in opposite directions. We've been warned repeatedly that this situation is simply unsustainable. None other than the government's former top accountant, David Walker, has made this point numerous times.
The meager economic growth in the third quarter was the result of nothing more than government spending. Any further growth in the fourth quarter will be the result of even more than the same.
No matter how deep the hole gets, our elected leaders can't stop digging.
One in every six dollars in the U.S. economy is now the product of government spending. At a minimum, that is both unhealthy and unproductive.
The government, and the public, can continue to ignore this for a little while longer, but at our own peril. Sooner or later, there will be very uncomfortable, and destructive, implications.
The U.S. debt clock can be seen here.
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