Saturday, June 12, 2010
But since his sudden promotion to prime minister, Kan has been crying out about public debt levels. Today, he even used the signal word for austerity: Greece.
"Our country's outstanding public debt is huge. Our public finances have become the worst of any developed country. We cannot sustain public finance that overly relies on issuing bonds. As we can see from the eurozone confusion that started in Greece, there is a risk of default if growing public debt is neglected and trust lost in the bond market." (more)
A restructuring of Greek debt could happen as soon as August, when the Balkan country is due to receive another tranche of funds from its lending agreement with the International Monetary Fund (IMF) and the European Union, according to Weinberg. (more)
But the party may end soon. That’s because the Federal Reserve will eventually raise short-term interest rates from their current record lows near zero.
In addition, the exploding government debt burden threatens to spark an inflation outbreak, which would push long-term rates higher too.
Government debt totaled 56 percent of GDP last year. (more)
Today? A depressive episode. Markets opened down nearly 1%. Before the open, the Commerce Department reported a 1.2% drop in retail sales from April to May… the first drop in eight months. This is another one of those “unexpected” numbers that are increasingly whacking traders upside the head. In this case the numbers were “much worse than expected,” according to MarketWatch.
The folks at Westwood Capital put together these nifty charts with two commonalities -- a bubble peak and a period of panic selling followed by a rapid rebound. You’ll also see what may turn out to be a third commonality -- the rebound petering out in April 1930, and perhaps doing the same in April 2010.
Obviously, there are differences. In ’29, it took only three months to go from peak to trough. This time, it took nearly 18. As Mark Twain said, history doesn’t repeat, but it does tend to rhyme.
"We had less debt cumulatively (two years ago), and more people employed. Today, we have more risk in the system, and a smaller tax base," Taleb said.
"Banks balance sheets are just as bad as they were" two years ago when the crisis began and "the quality of the risks hasn't improved," he added.
The root of the crisis over the past couple of years wasn't recession, but debt, which has spread "like a cancer," according to Taleb, who is now relived that public attention has shifted to debt, instead of growth. (more)