Who Owes What

[Graemsay]

There's a nice graphic on Zerohedge, which appears to be lifted from the NY Times, so it might disappear before too long. It shows who owes what, and as far as I can tell the US is not in a good way...

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2011/10/who owes what.jpg

I'm sure that it's being posted here before, but here's the xkcd graphical representation of amounts of money.

http://xkcd.com/980/

 

[Bird Dog]

Great chart Graemsay...

Although I would say the "American" author is a little biased about it's very own position...but useful all the same...

Given that the creation of EU gave poorer countries the ability to leverage huge amounts of debt at significantly lower rates makes me wonder why the richer countries ever agreed to the united economy in the first place (shows my lack of economic sophistication I guess)

Say for arguments sake I was going into a property syndicate; a key part of my DD would be to check the financial "credibility" of my fellow investors. It appears as though they have a history of poorer debt management and do not share the same financial diligence as say Germany who at this point.....must be really p*ssed!
Without naming specific countries (as I do not wish to offend anyone) Germany must be feeling like they've gone into business with partners who have a rather large gambling problem and are only just finding this out now!

Even Britain, who opted out of the EU at the very beginning is still being penalised by their loan exposure....

BTW: If anyone is seeking a simple perspective on the US Economy, how it got into its mess and where it's going...make sure you watch either "I.O.U.S.A" or "The Inside Job"...
Both paint a slightly different picture to the author of the attached chart and make for great viewing.

cheers

B.D

 

[Graemsay]

Bird Dog, Britain is a part of the EU, but not a member of the Eurozone.

Much of the printed press here verges on the xenophobic with regards to Europe. If you look at the Daily Mail, Telegraph, Times (paywall) Sun, Daily Express or Daily Star then there's a very good chance at least one of them will be carrying a hostile story about the EU. A large part of the governing Conservative party shares these instincts.

Greece shouldn't have been a part of the Eurozone initially. The entry criteria were fudged to allow it to join, in part because historically it's the epicentre of European culture.

The issues are largely that tax evasion is a national pass time for the Greeks, there's an incredibly generous social welfare system, a very well paid civil service, and there hasn't been the political will to take on the vested interests who benefit from this, which is probably a large segment of the population.

Ireland and Spain were both in a good shape before the GFC, but they had housing market crashes that wrecked their economies, in particular their financial sector. Much of Ireland's debts stem from a government guarantee of the banking sector.

Italy has a large public sector debt, but the budget deficit is smaller than Germany's. The problems are partly due to markets getting nervous, and the size of the Italian economy being such that no-one could afford to bail it out. And partly because Berlusconi didn't show a huge amount of economic competence.

The technocratic government there being headed up by Mario Monti could well resolve matters. There's scope for public sector cuts, and the Italian state holds a significant number of assets that could be privatised to raise money to pay down debt.

The US probably gets a free pass because the chart was drawn up by an American.

The reason that the US and UK don't have the junk bond status of the PIIGS, despite being in a similar fiscal position, is that both countries can print or devalue their currencies to reduce pressure. So (arguably) by being able to mismanage their finances, they're in a better position, and that's why France was downgraded, but the UK remains AAA for now.

 

[Aaron Sice]

Great chart Graemsay...

Although I would say the "American" author is a little biased about it's very own position...but useful all the same...

the US is stronger that the Euro at the moment.

hence the flight to USD - it's like fighting over the last deck chair on the titanic.

fraction reserve banking - we are seeing he beginning of the end.

 

[wealth]

Excuse my lack of economics, but what does it mean when most of Japan's debtors are internal? Meaning, the mums and dads who put their money in the banks.

 

[lizzie]

fraction reserve banking - we are seeing he beginning of the end.

And as someone I listen to and respect ... what do you see coming and what do you see as the end?

p.s. I will not hold you to it, if the predictions turn out to be not 100% right.

 

[Bird Dog]

Yes you are correct Graemsay. I meant to say "not part of the currency", not EU...

I heard that expression about the titanic a few weeks ago Aaron and it certainly made me laugh... quite apt.
What do you mean "the beginning of the end" re fractional reserve banking as I thought the practice was commonplace amongst all banking? Or are you referring to something else?

Wealth,
Internal Debt, from what I understand is not specifically "money mum's and dad's put in the bank" but moreso Govt bonds , treasury notes and sometimes savings bonds etc.
As an example, the US made a very concerted effort to push for them in 1917 to fund their efforts in the first World War called..you guessed it, "War bonds".
It's another way of raising $$$ without borrowing outside of your country OR simply printing more money (and thus devaluing your currency) but I'm sure someone else might be able to give a better explanation..

cheers

B.D

 

[Aaron_C]

(The other) Aaron is suggesting that the banking system that relies on fractional reserve lending will be overhauled with a return to a gold-backed system. This is as opposed to the current system where new debt is created by banks out of thin air so all money = debt. I, however, doubt this would happen. Perhaps governments will simply return to issuing their own banknotes instead.

 

[Intrinsic_Value]

Excuse my lack of economics, but what does it mean when most of Japan's debtors are internal? Meaning, the mums and dads who put their money in the banks.

Mr and Ms Japan effectively finance their government debt through buying governmetn bonds through one facility or another (savings plans, superannuation, retirement savings accounts, retirement annuity plans etc).

Thus most government debt is owned by the Japanese people themselves.

Now here is the elephant gun: Japan is a declining nation popularity wise. Their race is effectively dying based on current demographic trends.

SO WHO IS GOING TO REFINANCE THIS DEBT IN THE YEARS TO COME.

Japan is a ticking time bomb, there is no way i am allocating any of my recourses there (and i am a value investor, i love looking for things cheap)

 

[Intrinsic_Value]

the US is stronger that the Euro at the moment.

hence the flight to USD - it's like fighting over the last deck chair on the titanic.

fraction reserve banking - we are seeing he beginning of the end.

no we are not, its like anything, sometimes we get 'too much of something' and things need to contract for a while, or at least stabalise until other things can catch up.

Its a bit like democracy, its not a perfect system, but its the best of all the alternative systems. But even democracy can have rocky results for a while.

 

[kotim]

there are only two options with Europe, the first one is that all the real negative value for implosion or partial implosion is allreayd built into the sharemarkets or it is not.

Leaves 2 conclusions. The March 09 sharemarket bottoms will not be taken out, so buy anytime you like for the long haul


OR

we have a massive depression reminiesent of the financial times etc of the 20's and 30's and all that goes with it, in other words, anyone with super for the next 10 years can kiss goodbye their value and the same with property.

Personally I find it hard to believe the whole system will crash and depress and lead us into the dark ages for a decade or more, but anything is possible.

Won't really know until we lay our money on the table.

 

[Graemsay]

I'm not sure what's going to happen with the Eurozone. My guess is that it'll pull through somehow, but whether or not it retains all of its constituent countries is a different matter entirely, and its governing treaties will probably change radically in the process.

And bear in mind that despite all the negative press, the Euro is holding its own against the Dollar, as a glance at a ten year chart will reveal.

OK, so it's collapsed against the Aussie Dollar...

 

[Graemsay]

Just seen this at the Telegraph website:

http://www.telegraph.co.uk/finance/...s-as-Britain-sinks-deeper-into-the-swamp.html

The US gets a bit of an easy ride (again), but it's a right wing commentator, so the American way is always the right one.

What really struck me was the comment that 12pc of all UK mortgages are in 'forbearance'". If that's the case when interest rates are at record lows, then this country is really screwed. Where's my plane ticket?

 

[joeExpat]

Say for arguments sake I was going into a property syndicate; a key part of my DD would be to check the financial "credibility" of my fellow investors. It appears as though they have a history of poorer debt management and do not share the same financial diligence as say Germany who at this point.....must be really p*ssed!
Without naming specific countries (as I do not wish to offend anyone) Germany must be feeling like they've gone into business with partners who have a rather large gambling problem and are only just finding this out now!


B.D

But most of the European countries with problems now do not have a history of bad debt management, in fact many of their banks have been more responsible than German banks in the past. But the lure of of easy credit caused debt explosions and property bubbles exactly as has happened in Australia now. Germans on the other hand are not as addicted to buying property as say British, Irish, Spanish and Australians.

Does that make Australia a "problem gambler" as well ? maybe.

 

[Dazz]

Does that make Australia a "problem gambler" as well ? maybe.

Excellent conclusion....now what are you meant to do with that ??

 

[Ed Barton]

Excellent conclusion....now what are you meant to do with that ??

trial precommitment restrictions on property investing in Canberra?

 

[Bird Dog]

But most of the European countries with problems now do not have a history of bad debt management, in fact many of their banks have been more responsible than German banks in the past. But the lure of of easy credit caused debt explosions and property bubbles exactly as has happened in Australia now. Germans on the other hand are not as addicted to buying property as say British, Irish, Spanish and Australians.

Does that make Australia a "problem gambler" as well ? maybe.

Fair point Joe.

Perhaps a better analogy might have been around lottery winners being worse off.
I cannot seem to locate the lottery success statistics but there is a old saying about "a fool and his money being soon parted"
Good financial skills are not commonplace in poorer socio economic areas so yes, the lure of easy money to someone who has not had it in the past can be disastrous.

I'm not sure if I agree with your summation about "easy money in Australia" though. We have some of the most heavily regulated banking industry practices in the world and it was this regulatory attitude that is now helping us through the Western Global Financial Crisis..

I will preface the above comments by saying I'm certainly not an economist and can only form the views from a very basic knowledge of O/S markets.