Showing posts with label Fiscal Crisis. Show all posts
Showing posts with label Fiscal Crisis. Show all posts
Thursday, February 28
Tuesday, October 2
Why Italy Isn't In Such Bad Shape, But the U.S. and UK Are
Bill Gross runs PIMCO's huge flagship bond fund which, having engaged in an untimely shorting of U.S. Treasuries, has hit a bit of a rough patch in recent times. Some have suggested that the 69-year old might be a few years past the recommended portfolio manager retirement age and that it's no longer as useful as it once was to read his monthly investment newsletters.
Think again.
While Gross's timing on shorting U.S. treasuries has been poor, and his revealing in this month's column of memory issues is a little unnerving, his analysis of the fundamentals and medium to long-term sovereign fiscal picture remains sound.
Take his updated 'Ring of Fire II' chart, the first version of which he first published a few years back. The chart (below) plots countries by both their annual public sector deficit (y-axis), which is the difference between government spending and taxes, and what is termed a 'fiscal gap' (x-axis). The fiscal gap takes into account future expenditures, which in the U.S.'s case include entitlements such as Social Security, Medicare, and Medicaid.
Think again.
While Gross's timing on shorting U.S. treasuries has been poor, and his revealing in this month's column of memory issues is a little unnerving, his analysis of the fundamentals and medium to long-term sovereign fiscal picture remains sound.
Take his updated 'Ring of Fire II' chart, the first version of which he first published a few years back. The chart (below) plots countries by both their annual public sector deficit (y-axis), which is the difference between government spending and taxes, and what is termed a 'fiscal gap' (x-axis). The fiscal gap takes into account future expenditures, which in the U.S.'s case include entitlements such as Social Security, Medicare, and Medicaid.
As you can see from the chart Italy appears to be in better fiscal shape than several 'Ring of Fire' members like the U.S., Japan and the UK. How is this possible? Italy has been experiencing what economists refer to as a 'speculative attack' from the sovereign bond market, while the three Ring of Fire countries are currently enjoying record low yields on their government debt.
Continue reading the full article here.
Sunday, September 23
California's Debt 6-12X Higher Than Previously Estimated
California Governor Jerry Brown thought he only had a $28 billion 'wall of debt' to deal with, but it turns out it is much larger. From the NY Times:
Second, it is important to keep figures like California's estimated $335 billion debt in perspective. According to Wikipedia, California has the world's ninth largest economy with a 2010 gross state product (GSP) of $1.9 trillion, or 13% of the United States gross domestic product. Assuming the top end $335 billion debt figure is accurate that works out to only a 17% debt to GDP ratio for the state. Compare that with Japan's and U.S. federal governments's approximately 225% and 100% debt to GDP ratio's, respectively.
Having said that, the significance of these new debt estimates should not be underestimated, particularly when you consider how politically difficult it has been for Brown and the California legislature to address a shortfall which was estimated as a small fraction of the true debt.
Other than the NY Times article, which was cross-published at CNBC, this news is getting zero attention. This is somewhat surprising given that the independent panel includes former Federal Reserve Chairman Paul Volcker. However, I couldn't find anything on either the LA Times or the San Francisco Chronicle's website on this topic.
Directors of the State Budget Crisis Task Force said their researchers had found a lot of other debts that did not turn up in California’s official tally. Much of it involved irrevocable promises to provide pensions to public workers, health care for retirees, the cost of delayed highway maintenance and an estimated $40 billion bill to bring drinking water up to federal standards.
They also pointed out many of the same unpaid bills from previous years that the governor had brought to light, like $8 billion in delayed payments to schools and community colleges, and $250 million that was raided from a fund dedicated to transportation and treated as revenue.
The task force estimated that the burden of debt totaled at least $167 billion and as much as $335 billion. Its members warned that the off-the-books debts tended to grow over time, so that even if Mr. Brown should succeed in pushing through his tax increase, gaining an additional $50 billion over the next seven years, the wall of debt would still be there, casting its shadow over the state.First, $40 billion for drinking water? As a longtime Bay Area resident I've regularly sung the praises of San Francisco's water and had no idea the rest of the state's water was so far off the mark.
Second, it is important to keep figures like California's estimated $335 billion debt in perspective. According to Wikipedia, California has the world's ninth largest economy with a 2010 gross state product (GSP) of $1.9 trillion, or 13% of the United States gross domestic product. Assuming the top end $335 billion debt figure is accurate that works out to only a 17% debt to GDP ratio for the state. Compare that with Japan's and U.S. federal governments's approximately 225% and 100% debt to GDP ratio's, respectively.
Having said that, the significance of these new debt estimates should not be underestimated, particularly when you consider how politically difficult it has been for Brown and the California legislature to address a shortfall which was estimated as a small fraction of the true debt.
Other than the NY Times article, which was cross-published at CNBC, this news is getting zero attention. This is somewhat surprising given that the independent panel includes former Federal Reserve Chairman Paul Volcker. However, I couldn't find anything on either the LA Times or the San Francisco Chronicle's website on this topic.
Wednesday, May 2
Video: El-Erian, Buiter, Warsh, etc. on Economic Growth
This is another excellent panel from the Milken Institute Conference. It has a somewhat more investment focus than the previous one posted with discussion/predictions on the Eurozone (Greece in or out), elections, interes rates, etc.
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