US Closes 2011 With Record $15.22 Trillion In Debt, Officially At 100.3% Debt/GDP, $14 Billion From Breaching Debt CeilingSubmitted by Tyler Durden on 01/03/2012 16:49 -0500
While not news to Zero Hedge readers who knew about the final debt settlement of US debt about 10 days ahead of schedule, it is now official: according to the US Treasury, America has closed the books on 2011 with debt at an all time record $15,222,940,045,451.09. And, as was observed here first in all of the press, US debt to GDP is now officially over 100%, or 100.3% to be specific, a fact which the US government decided to delay exposing until the very end of the calendar year. We wonder, rhetorically, just how prominent of a talking point this historic event will be in any upcoming GOP primary debates. And yes, technically this number is greater than the debt ceiling but it excludes various accounting gimmicks. When accounting for those, the US has a debt ceiling buffer of... $14 billion, or one third the size of a typical bond auction.
The Wall Street mantra of stocks for the long run is beginning to get a little stale. If Abbey Joseph Cohen had been right for the last twelve years, the S&P 500 would be 4,000. For this level of accuracy, she is paid millions. Her 2011 prediction of 1,500 only missed by16%. The S&P 500 began the year at 1,258 and hasn’t budged. The lowest prediction from the Wall Street shysters at the outset of the year was 1,333, with the majority between 1,400 and 1,500. The same Wall Street clowns are now being quoted in the mainstream media predicting a 10% to 15% increase in stock prices in 2012, despite the fact we are headed back into recession, China’s property bubble has burst, and Europe teeters on the brink of dissolution. They lie on behalf of their Too Big To Tell the Truth employers by declaring stocks undervalued, when honest analysts such as Jeremy Grantham, John Hussman and Robert Shiller truthfully report that stocks are overvalued and will provide pitiful returns over the next year and the next decade.
America Maxes Out Its Credit Card Again - Treasury To Raise Debt Limit By Another $1.2 Trillion On December 30Submitted by Tyler Durden on 12/27/2011 10:22 -0500
You didn't think US consumer confidence could be bought for free now did you?
- U.S. TREASURY SAYS DEBT LIMIT TO BE RAISED BY $1.2 TRILLION
- U.S. DEBT TO BE $100 BLN WITHIN LIMIT ON DEC. 30, TREASURY SAYS
- STEPS FOR INCREASING DEBT LIMIT UNDER 2011 BUDGET CONTROL ACT
And the piece de resistance that 100% debt to GDP brings:
- OBAMA ON DEC. 30 LIKELY TO ASK CONGRESS TO RAISE DEBT LIMIT
Just as we thought the circus was over if only for a few weeks. Also, this means that in a few days, the US debt ceiling will be raised from $15.194 trillion to $16.394 trillion. As a reminder, US GDP was just revised down to $15.176 trillion.
There has been a large debate as of late about the economy going into 2012. Will it "muddle through" at a sub -2% rate, rebound sharply to more than 3% as currently estimated, or will we decline into a secondary recession? Cases can clearly be made for all three scenarios and only time will tell who is correct. However, this debate entirely misses the essence of what we are most concerned about - our investment portfolios and the risks to those investments from economic pressures. I have clearly made the case in past missives about the potential for a recession in 2012. When real GDP has declined below 2% growth on a year over year basis the economy has normally been, or was about to be, in a recession. With today's downward revision to Q3 GDP we have now had two consecutive quarters of sub-2% GDP growth. There are only two instances in history (Q3-1956 and Q1-2007) where there were two consecutive quarters of sub-2% GDP annual growth and the economy wasn't already in a recession. In 1956 the economy rebounded for one quarter to 2.93% annual growth in Q4, slipped to 1.88% in Q1 of 1957, rebounded once again to 2.99% growth in Q2 1957 as the recession officially started. The other was in Q1 and Q2 of 2007 and we all know how that worked out in next couple of quarters. These are the only instances where the economy "muddled" along for a period of time before way to the recession. The reality is that an economy cannot muddle along - it will either grow or contract. "Muddling" isn't historically an option.
An analysis of the job market in the UK and USA including suggestions for future growth.
The United States increasingly resembles a 3rd world country in terms of unemployment, lack of economic opportunity, falling wages, growing poverty and concentration of wealth, government debt, corporate influence over government and weakening rule of law. Federal Reserve monetary policies and federal government economic, regulatory and tax policies seem to favor the largest banks and corporations over the interests of small businesses or of the general population. The potential elimination of the middle class could reshape the socioeconomic strata of American society in the image of a 3rd world country. It seems only a matter of time before the devolution of the United States becomes more visible. As the U.S. economy continues to decline, public health, nutrition and education, as well as the country’s infrastructure, will visibly deteriorate. There is little evidence of political will or leadership for fundamental reforms. All other things being equal, the U.S. will become a post industrial neo-3rd-world country by 2032.
Record Low Yield At 7 Year Auction, Second Highest Bid To Cover Ever Sends Total US Debt Over $15.1 TrillionSubmitted by Tyler Durden on 11/23/2011 13:17 -0500
As the panic from the busted German 10 Year auction earlier has settled, the money has gone to the last "safe" place for fiat (until the world wakes up to the fact that the "US is not Germany" and comprehends that it actually is) and flooded today's final of the week $29 billion 7 Year auction. The auction was a massive success: it priced at 1.415%, the lowest yield ever, and well inside of the WI which was trading at 1.44%. Not only that but the Bid To Cover soared from 2.59 to 3.20, the second highest ever except for May's 3.24. The internals were a little shaky, with Directs taking down a record 18.85%, and Indirects responsible for 39.88% (the balance going immediately to repoing Dealers). Still there is no denying it: when the panic is palpable, the last safe place for the time being are US bonds. And with that auction, total US debt, which was at $15.042 trillion, has now been pushed above $15.1 trillion a few days after we passed $15 trillion for the first time ever, once the $60 billion in new debt issued this week settles. As a reminder, the debt ceiling currently is at $15.194 trillion, which means there is about two auctions worth of issuance left before the US has to deal with the whole temporary debt ceiling hike all over again - luckily it will be merely a Senate vote (democrat controlled), so there will be no full blown scandal. The scandal will come soon enough.
First the EFSF had trouble raising money. Then EIB spreads widened. Then EXPT got crushed. And now Germany struggled to raise money. Is there a realization that all the quasi-sovereign debt and supranational debt is actually someone’s debt? Is relying on implicit or explicit guarantees as a way to raise money indirectly over? Guarantees do count. AIG never “owned” any mortgages, all it did was write insurance or CDS contracts on them. As investors get more concerned about sovereign credit and dig deeper, will some of these programs be tested?
So Whose Debt Am I?
Credit Suisse Goes For Broke: Predicts End Of Euro, Escalating Bank Runs On "Strongest European Banks"Submitted by Tyler Durden on 11/21/2011 09:43 -0500
Just because Credit Suisse bankers are people too (even if 1% people, but still people), and just because they know too damn well that "no ECB intervention" means "no bonus", and very likely "no job", they go for broke and join Deutsche Bank, JPM, RBS, and everyone else (but, again, not Goldman), in predicting the end of Europe unless Draghi does his rightful duty and remembers that without banker support he will also be lining up at the jobless claims office very soon. Of course, being a Goldman boy, Draghi will only do what Lloyd tells him to. Either way, here is Credit Suisse's rejoinder to the global Mutual Assured Destruction tragicomedy, which now makes Honk (as Lagarde calls him) Paulson's overtures to congress seem like amateur hour. "We seem to have entered the last days of the euro as we currently know it. That doesn’t make a break-up very likely, but it does mean some extraordinary things will almost certainly need to happen – probably by mid-January – to prevent the progressive closure of all the euro zone sovereign bond markets, potentially accompanied by escalating runs on even the strongest banks. That may sound overdramatic, but it reflects the inexorable logic of investors realizing that – as things currently stand – they simply cannot be sure what exactly they are holding or buying in the euro zone sovereign bond markets...One paradox is that pressure on Italian and Spanish bond yields may get quite a lot worse even as their new governments start to deliver reforms – 10-year yields spiking above 9% for a short period is not something one could rule out. For that matter, it’s quite possible that we will see French yields above 5%, and even Bund yields rise during this critical fiscal union debate." Of course, the explicit message is: help us ECB-Wan Kenobi, you are our only hope. The implicit one is: do it, or we pull the trigger and blow it all up to hell.
Barely has America had the pleasure of enjoying its new found status as a 15-handle country (as in $15 trillion, or $15,033,607,255,920 to be specific) that the US Treasury went ahead and announced its latest forward issuance calendar of $99 billion in bonds and $11 billion in TIPS. Sure enough, by the end of next week, total US debt will be greater by $62 billion including a Bills auction, bringing the revised total to just under $15.1 trillion, and less than a $100 billion from the re-re-revised debt ceiling, even as the Supercommittee is deadlocked beyond fixing. Also, this means that even assuming the Q3 GDP is not revised lower, total debt-to-GDP will almost certainly surpass 100% by the end of the calendar year since December will have at least another $100 billion in issuance net of redemptions.
The political pressure on the ECB (and implicitly the Bundesbank's oh-so-stubbornly sensible and correct bankers) to just-print-baby-print is growing by the hour (or down-tick in BTPs and OATs). The cacophony of long-only strategists, Keynesian central bankers, and desperate (under speculative attack) politicians has perhaps reached a crescendo as it appears (from a Reuters article) that the ECB has found a workaround. By lending to the IMF, who are able to do pretty much whatever they want with regard to on-lending and primary issuance support, the ECB denizens can maintain their tough no nonsense anti-monetization stance while providing a leveragable IMF with more support for whatever leveraged buying they deem necessary (cough France Italy Spain cough). And all this as the IMF scrambles to replace its European Director - what could possibly go wrong?
Physics has the elusive Theory of Everything which consists of several Grand Unified Theories and which represents the holy grail of the science and which "fully explains and links together all known physical phenomena, and predicts the outcome of any experiment that could be carried out in principle." In other words, once proven it would make life boring. We doubt it ever will be. Finance does not have anything like it, for the simple reason that while physics is a deterministic science, finance, predicated to a big extent on assumptions borrowed from the shaman cult known as 'economics' is always and everywhere open ended, and depends just as much on chaotic 'strange attractors' as it does on simple linear relationships. Yet when it comes to presentations, especially of the variety that attempt to explain not only where we are in the world, and how we got there, but also where we are headed, we have yet to see anything as comprehensive as the Investment Strategy guidebook from Pictet's Christophe Donay. If there is indeed a holy grail of presentations, this is it, at least for a few more instants, until something dramatically changes and the whole thing becomes an anachronism. In the meantime learn everything there is to know about global decoupling and the lack thereof, the reality of an over-indebted global regime and its 3 incompatible targets, the outlook for the US and the 30% probability of a hard recession, a recessionary Europe and the five possible outcomes of its crisis, China and its hard landing, and how this all ties into an outlook on where the world is headed together with appropriate investment strategies and proper asset allocation, the fair value of the EURUSD, systemic risk evaluation, cross asset correlation, the impact of central bank intervention, debt redemption profiles, the role of gold and commodities in the new reality, and virtually everything else of importance right here and right now.
Too sad for commentary, but here is some math: total US debt has increased by 41.5%, or $4.4 trillion, from $10,626,877,048,913 on January 20, to $15,033,607,255,920, under Obama as president.
As the ECB remains the liquidity provider of last and only resort, we suspect the oh-so-transparent central bank is causing some banks to avoid it and look to the cross-currency basis swap market to fund themselves in USD as the 3 month EUR-USD swap reaches 126bps (-6bps more today). These levels are the lowest (widest and most USD desperate) since December 2008 and perhaps, away from the SMP-driven sovereign spread markets, are the cleanest and least interfered with market view of the extraordinary USD funding crisis that is occurring. These stresses are just as evident in the GC repo markets and Goldman agrees with us that this crisis is escalating and offers a primer on why the GC repo / Libor markets are dysfunctional currently.