Scary Chart: US Private Debt to GDP

The US Private Debt to GDP chart is one that concerns me, it spells ‘deleveraging for many years’ in big bold letters. You don’t need much more than this to get the picture. With households so heavily indebted – and consumer spending being the driver of the US economy, it is now wonder that QE2 and whatever else they try is to be expected.

The trajectory of the chart after major financial crashes (remember this is the ‘worst since the great depression’), has a clear path, and for that reason it is likely that we’ll see deleveraging continue on the downward trendline you can see forming above.

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Writedown America?

The USA is made up of 50 states, each state is made up of lots of localities, referred to as municipalities. So while the USA may be AAA, it would stand to reason that if every state was marked down that you couldn’t have a country that is AAA when the sum of its components isn’t, equally, on a smaller scale could you assume each state is top class if the sum of their parts are not? This is the situation we have currently in the US.

Moody’s has placed all municipal bonds on a negative outlook. That means that every single bond financed municipal project, irrespective of jurisdiction is now on a negative outlook. What kind of projects are these? They can be anything from making a train line to a reservoir and the loan is paid back when the local/state authority then charge people for its use.

However, the US state and local authorities have a second wave issue they are facing, the same tax collection collapse that is the hallmark of federal or …

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Auction Rate Bond Market feels the pinch

There has been unforseen intervention by the US Fed in the American markets, however there is still a domino effect, today we saw that there was a problem with the Auction Rate Bond Market and it has culminated in an investigation by nine state regulators.

It was said in the past that the Auction Rate market was dead after Wall Street banks ceased to purchase their own unwanted bonds, Auction Rate Securities are not liquid and this has resulted in the above case which broke in the news today. Investors were lead to believe that the bonds were a ‘cash equivalent’ however they are not, and the regulator is pushing to over rule the bonds because if money was to be seen as cash going in it has to be treated as cash on the way out (i.e.: it can’t be tied into conditions).

Auction Rate Bonds allow issuers such as Governments, Hospitals and Municipalities to issue …

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