Sovereign debt bubble thread

[alfred russel]

Second, the nature of government accounting means there are truly massive off balance sheet liabilities that are not being recorded. There are reasons not to record them: for example, the liabilities are based on laws that can be changed. However, as we have seen, countries seem more willing to default on debt obligations than adjust payment schemes to pensioners. These massive liabilities can be funded if economies stay healthy, but it is unrealistic to believe they can if economies tank. Hence we have the current situation in Spain.

All of your post's fair.  Do you think it's the cause of market concern about any of these countries (Greece, Portugal, Spain, Ireland, Italy, Cyprus and Slovenia) - while countries like France and the UK are borrowing at negative interest rates?

I'm not an economist, and I haven't studied the books of these countries, but I think that is the answer. In finance, the standard for long term is generally considered 5 years. We aren't that far off from that in terms of when the crisis started. At a certain point, you have to look at a country like Spain and price in the possibility that this isn't a short term downturn but a new norm. Maybe not as bad as right now, but still bad.

Places like the US and the UK obviously benefit from having their own currency, but also by being close to the only games in town. Imagine you are a multi national with $50 billion in cash. All you want to do is keep the money safe for a future use. You don't get deposit insurance. Are you going to put the money in a European bank? That seems a bit risky. I'd also be uneasy about putting it all in a US bank like JP Morgan at the moment. At the end of the day the safest option you may have are the most secure soveriegn debt issuances, which is going to create a lot of demand for them and very low rates.

[Zanza]

Imagine you are a multi national with $50 billion in cash. All you want to do is keep the money safe for a future use. You don't get deposit insurance. Are you going to put the money in a European bank? That seems a bit risky. I'd also be uneasy about putting it all in a US bank like JP Morgan at the moment. At the end of the day the safest option you may have are the most secure soveriegn debt issuances, which is going to create a lot of demand for them and very low rates.

The German multinationals like Siemens, Volkswagen, Daimler etc. have founded their own banks with banking license and all and park their money with the ECB.

[Iormlund]

[MadImmortalMan]

Super Mario to the rescue!

[Iormlund]

We're the champions!




Graph shows renting costs to household income for younger folk. With utilities and related costs, it goes up to 85%.

[Neil]

How is that possible?  Aren't there a bunch of empty houses built during the construction boom?

[Iormlund]

1) High youth unemployment -- a result of dual labor market -- means young people make very little.
2) Most jobs are in expensive cities (Madrid, Barcelona and so on).
3) Renting market is severely dysfunctional due to excessive tenant protection.

[Tamas]

1) High youth unemployment -- a result of dual labor market -- means young people make very little.
3) Renting market is severely dysfunctional due to excessive tenant protection.

you know what I want to tell about state interventionalism

[Martim Silva]

Over here the troika is at odds with the government.

The highborns want to cut wages on everybody, to make up from the cuts that were considered unconstitutional by the courts, and hike VAT to 27% of stuff like milk.

The troika is arguing that, instead of stiffiling any hope of growth with those measures, they should dramatically increase property tax.

This is horrifying the highborns, who own extensive estates - I mean, that means they'll have to pay something, instead of putting the burden of deficit reduction squartely upon the shoulders of the poor. The government can't have any of THAT.

The tug between the two continues. Who will be the winner?

[Neil]

1) High youth unemployment -- a result of dual labor market -- means young people make very little.
2) Most jobs are in expensive cities (Madrid, Barcelona and so on).
3) Renting market is severely dysfunctional due to excessive tenant protection.

Wouldn't it make more sense for the young people in Spain to turn to crime than to go on in that system?

[Neil]

Over here the troika is at odds with the government.

The highborns want to cut wages on everybody, to make up from the cuts that were considered unconstitutional by the courts, and hike VAT to 27% of stuff like milk.

The troika is arguing that, instead of stiffiling any hope of growth with those measures, they should dramatically increase property tax.

This is horrifying the highborns, who own extensive estates - I mean, that means they'll have to pay something, instead of putting the burden of deficit reduction squartely upon the shoulders of the poor. The government can't have any of THAT.

The tug between the two continues. Who will be the winner?

Is property tax collected at the national level in Portugal?

[Admiral Yi]

This is horrifying the highborns, who own extensive estates - I mean, that means they'll have to pay something, instead of putting the burden of deficit reduction squartely upon the shoulders of the poor. The government can't have any of THAT.

If you prefer to pay your taxes through higher rents rather than higher milk prices I have no problem with that.  If while doing so you delude yourself that you've won a resounding victory over the feudal lords I'm still indifferent.

[Martim Silva]

Is property tax collected at the national level in Portugal?

It is paid to the local authorities, who then transfer a large % of it to the central government (the exact amount is determined by the state, with different provisions for each area of the country, in order to make it cheaper to have land/houses in the undeveloped interior than in the developed cities.

If you prefer to pay your taxes through higher rents rather than higher milk prices I have no problem with that.  If while doing so you delude yourself that you've won a resounding victory over the feudal lords I'm still indifferent.

The percentage amount a landlord may increase a rent is set by the State at the end of the year; it cannot be raised willy-nilly by the landlords.

[Admiral Yi]

The percentage amount a landlord may increase a rent is set by the State at the end of the year; it cannot be raised willy-nilly by the landlords.

Then I take it all back.  That truly would be a resounding victory over the feudal lords.

[crazy canuck]

Canada's budget deficit is shrinking and it is claimed on target to be eliminated by 2014.


http://www.theglobeandmail.com/news/politics/ottawas-deficit-shrinks-as-world-economies-struggle/article4444087/