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The U.S. Lunatic Asylum (i.e., Economy) Is Facing Approximately $15 Trillion In Roll Risk By 2012
Zero Hedge recently highlighted the developing risk in the government's outstanding Treasury portfolio, where nearly 40% of all issues mature within the year. As such the roll risk for the US government is massive, and even the smallest unexpected macro blip would make the rolling/refinancing of roughly $5 trillion in debt very problematic. Yet the US government is not alone in this quandary of how to keep T-Bill interest rates at record lows: an earlier report by Moody's demonstrates that the banking system is in far, far worse shape: "we note that average maturities of new debt issuances rated by Moody’s – which we use as an indicator of general trends -- fell from 7.2 years to 4.7 years globally over the last five years. This is the shortest average maturity for new debt at any given point during the 30 years of bank funding history covered by our analysis. As a related matter, we estimate that banks that we rate will face maturing debt of about $10 trillion between now and the end of 2015, $7 trillion of which will occur by the end of 2012."
Let's do the math: the US Gov't needs to roll about $3 trillion (and increasing) every year, Commercial Real Estate has a $3 trillion refi cliff around 2014 and the banking system has a $7 trillion roll maturity by 2012. In other words at or about 2012, or at the time Barack Obama is sure to be enjoying record approval ratings (high or low, your choice) courtesy of 30% unemployment, the American economy will be straddled with not just the ongoing burden of issuing about $2 trillion in debt each year to finance what can only be characterized as a budget concocted by the most hard-core, raving lunatics in the Federal Insane Asylum Reserve, but will have to deal with roughly $15 trillion of rolling maturities.
- One hears such sounds, and what can one say but... "Salieri"
- One fathoms such idiocy, and what can one say but..."Bernanke"
Full Moody's report for those who would rather see that the US economy is going to 10th circle of hell promptly, instead of buying Amazon stock at 1E10^18243 P/E, attached below.
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apparently even the circles of hell are experiencing inflation.
Ha, I guess this happens just before the arctic ice caps melt, and floods the whole world, like the movie 2012 prophesizes. But I guess the elites probably built big metal arks to save their own hides.
yet again, pure bliss...
This seems to sum up the obvious yet salient points:
They need a lesson in WACCness and an understanding of capital structures -- or even a lesson in common sense. Blaming the predecesor for inhereted debt, and then increasing the debt exponentially, is ignorance and arrogance of the highest degree.
Good point, I didn't really read it that way (blaming the predecessor) but I do agree with your take; I was more reading it as "we've now crossed a point of no return" wherein the banks are going to have trouble keeping up the charade.
heh, No, you're right.. I just wanted to use "WACCness" in a sentance.
But seriously, the general approach of the administration/Fed toward debt is the same: careless, at best -- reckless, at worst.
Salieri - LMAO!
Great reporting, Tyler!
Given that the window still remains in the "open" position, I left wondering why matruities haven't extended across the board already.
Are the banks and our goverment waiting for term spreads to narrow on a zero percent short end??? The "roll" issue is something I've been perplexed about for quite some time... I keep concluding that those in charge of things must be expecting the long end of the curve to contract.
Either that, or their just insanely myopic. And stupid.
Demand for long is insufficient at yields acceptable to issuers. QE is a stop gap measure to delay the inevitable rise in the cost of money.
QE can fix anything, does the amount really matter? I just hope they've ordered lots of ink.....
Rough calculations of how much debt needs to be rolled by 2012 is an exercise that I've done napkin style a few times for my friends when I regale them with tales of doom. The next step is figuring out what kind of issuances are needed (just .gov or private sector too) between now and 2012 to get a real butthole puckering #. Putting it all together we might even be able to pinpoint the quarter where interest rates globally are blown out to the moon.
The U.S. Lunatic Asylum (i.e., Economy) Is Facing Approximately $15 Trillion In Roll Risk By 2012.
the mayan's saw this coming. thats why they ended their calendar in 2012. they figured if they stopped printing anymore playboy calendars past 2012, they could stop this mess.
Bullish - as someone on Bloomberg said, underperforming bonds will push more money into the equities(!)
if bonds underperform and yields spike, they will crash the equity markets faster than geithner can lie about the strong dollar for the umpteenth hundred time.
Where do they sell those "The End is Near" signs?
See movie "Rollover".
Yep, a Day of Reckoning is coming. USA just keeps kicking the can down the road as long as possible. This doesn't even take into account tens of billions of unfunded liabilities for Social Security, Medicare, & federal civilian/military pensions & benefits that will come due eventually.
Tyler, you are no doubt one of the best reporters of all time. I am so impressed. My prayer for you is strong. The trumpet sound you offer is vital to the mission to awake the sleeping bride and to stoke the fire under the feet of the lukewarm. Your voice is profoundly important. The Truth has chosen you my friend.
wait but rising rates is bullish for equities - and multiples (WACC be damned)
You're missing the point.
Yes, rising rates are bullish for equities and multiples.
But, so are falling rates.
In the "new normal," gravity works UPward.
Always, under all conditions. (Bernankfein Theorem No. 3)
Get used to it.
FYI: US bank roll is $2T not $7 Trillion per the report - $7 may be global roll
ZH: "Let's do the math: the US Gov't needs to roll about $6 trillion (and increasing) every year, Commercial Real Estate has a $3 trillion refi cliff around 2014 and the banking system has a $7 trillion roll maturity by 2012"
Moody's
The debt maturity contraction at US banks over recent years translates to significant amounts of debt maturing over the next few years. The table below shows that more than $2 trillion of debt issued by Moody’s-rated banks will mature by the end of 2015, about $1.5 trillion of which will come due by the end of 2012.
So I'll just pay off my Visa with my Mastercard, my Mastercard with my Visa, my Amex with my HELOC - and oh what, I can't get the HELOC? Now what do I do? I guess I could cash in my 401k for the Amex and then take out a cash advance on Discover to pay the taxes on that...
One obvious solution;
Make babies. Quickly! New consumers for a new economy.
Everybody is heading to the exits...party is just about over!
There is not going to be a dollar by 2012, much less something called "roll risk".
Make sure to turn your sound on when you click it.
http://www.instantrimshot.com
Every online vaudevillian comedian needs one.
Can you say "massive sovereign default"?
Sure you can.
Mr. Cougars
Real estate in rural Idaho is looking like a better and better investment. How many guns can I purchase in a given month?
When did the future switch from being a promise to a threat?
I've owned a patch in Eastern Idaho for years with my brothers. Just for bird hunting. Lease it to the farmers for planting with recip hunting rights on their land. Covers the tax nut and Crown Royal expense for the season. Our women avoid unannounced visits because they know it's so nasty and boring.....heh-heh.
Methinx it will be a future homestead site as things get uglier.
Bring as many guns as you like.
Rainman,
I'll take you in my foxhole anytime.....
Keep the wind at your back, and your eyes on the skyline..
No gun limits here, no registration (yet...). Though personally I prefer the much more liberatarian view of Montanans (sp?), its a little too socially conservative in Idaho (we are the conservative-liberatarian-hippy family...do what you want, just don't step on our freedom)...Montanans, in my expreience, are more laid back.
On the other hand, Idaho has (had?) tech jobs (I am an IT d00d) until TSHTF...but lots of "alternative places to re-establish' oneself quickly...:)
Just my 2 FRNs...:)
When did the future switch from being a promise to a threat?
The check's in the mail...
Tyler - Funny stuff!
Dont worry, the sovereign debt problem is being solved by the BIS.
Look at the proposed liquidity requirements for banks under Basel II: extended name crisis scenario means a lot more liquidity is required, and the proposal is that sovereign bonds will be the only acceptable form of liquidity backing the name crisis requirements. Except in countries where there isnt enough govt bonds on issue, there the banks will be able to use some other instruments (probably until the govt can issue enough new debt to cover it, then remove any non-govt debt from eligibility).
All of a sudden the banks need to hold much more govt debt, govts will be free to keep issuing for a little while longer and the whole problem shifts down the road a few years.
If they manage to put the requirements in place in time, that is...if the US suddenly adopts Basel II very quickly you'll know why.
Some of us never tire of asking the rest of us believe that the sky is always falling. We've got a lot of really smart people in this country and we'll will find a way out from all of this. BTW, if those people don't currently live here, we'll import them and claim them as Americans. This is America, afterall. When we didn't have rising incomes the last 10 to 15 years, we invented HELOC's. It's called, "financial engineering", people. Learn it, live it, love it. You think that was a one-time deal? Hell, no! HELOC's are nothing next to fractional reserve lending, and that is straight-up old school fin-eng. I could go on and on, e.g. fiat currency over the "gold standard", but you get the drift. There's always a way out from financial ruin. The sad thing is that some of you (and you know who you are) want to wallow in self-pity, self-doubt and needless worrying about the future. That kind of thinking is for LOSERS! Rest assured that a future of unbelievable wealth and unimaginable pleasure (and, yes, mind-boggling equity values) awaits us all in the Ownership Society of Tommorow. I know some of you doubt your financial prowess and are wondering inside, "But, what can I do?" Well, it's easy, my fellow Americans. All you need to do is keep shopping, it's the American thing to do. So, let your financial genious out this holiday shopping season, keep on charging it to the max and beyond! Remember, you owe to your country.
Signed,
Ben Bernanke
Lloyd Blankfein
Jim Cramer
Jamie Dimon
Ken Fisher
Timothy Geithner
Jeremy Siegal
The NYSE/Euronext
National Association of Realtors
National Association of Broker Dealers
Retail Trade Association, etc...
ok, I'll be honest, you had me going there, wanting to upside yo' head...nice sarcasm...:) I just got back from fishing, so maybe I need to adjust my present reality (got skunked..damn steelies not biting, no hatch...damn...but was good to be on the river away from the insanity for a few precious hours...:).
OK, let's make it simple. The third world is way, way ahead of the FED. All you have
to do is drop 9 zeros off the currency and the debt becomes way manageable. Like thoudands instead of trillions. So, now the roll over is $12,000 instead of 12 trillion. And, of course your salary is now .000000009 dollars. Make that a banana split to go...
But how do these numbers as %s of GDP compare with the situation Japan entered in 1989 ? That perspective might help gauge the time remaining. Of course there are differences -- now the crisis is global, and Japan is now 20 years into its funk. All kinds of factors are different, but still there must be enough similarity for a meaningful comparison ?
And the hampster wheel spins faster.