Shhh..I’m a Deficit Denier

Nov 23 • Between the lines • 1890 Views • Comments Off on Shhh..I’m a Deficit Denier

On Tuesday the UK’s ONS (official national statistics) released the latest budget deficit figures and the current coalition greeted the new figures with the kind of relish last witnessed when the UK Chancellor received hearty pats on the back from his front benchers in Parliament for announcing the reduction of the civil service by 25%, or in human cost 750,000 secure jobs.

Net borrowing excluding support for banks fell to 6.5 billion pounds from 7.7 billion pounds a year earlier, the Office for National Statistics reported. The shortfall was in line with the median of 13 forecasts in a Bloomberg News survey. So that’s good news then eh? Well hardly, not when you consider the full picture as revealed by the respected publication Global Finance.

Global Finance is a monthly magazine founded in 1987 by publishing entrepreneurs Joseph Giarraputo and Carl Burgen. Giarraputo continues as Publisher and Editorial Director. Its mission is to help corporate leaders, bankers and investors chart the course of global business and finance. It’s not an iconoclastic publication, it’s a painstakingly accurate data driven content magazine devoid of sensationalism. Within the content is a dynamic series of tables illustrating just how well UK ‘plc’ is actually doing and it’s not pretty…

If you do some simple sums it’s a xxx rated horror show that the Stephen Kings of the economics world would baulk at composing, here’s a snippet; you know those debt versus GDP figures that the UK mocks the rest of Europe for? You know the ones; Greece is 160%, Italy is 120% and the UK’s is…drum roll…a staggering 466% at the last count in 2009-2010. They kept that quiet eh? Not Global Finance, they simply quietly and efficiently compile and translate data, nope they as in “the UK government”. The truth, and we obviously can’t handle the truth, is that the UK is a basket case, only slightly behind ruinous and dubious Japan.

With the UK it breaks down like this, in 2009-2010 the UK had the following debt;

  • Government debt – 59%
  • Non financial debt – 110%
  • Households – 103%
  • Financial institutions – 194%

The less than grand total = 466%

Putting some perspective on this is simple; the UK’s financial debt versus GDP is the worst on the planet. Household debt is the second worst on the planet, and non financial debt comes in fourth. With a bit of clever ‘Enron’ style accounting the UK government apparatchiks and administration makes it appear that the UK’s debt to GDP is a credible 59%, however, that doesn’t include issues such as quantitative easing used to rescue UK state owned banks.

As to the overall debt of the UK it’s beyond conventional management, so much so that the piddling reduction of circa £1 billion announced on Tuesday would be like an individual debt junkie crowing he had ten grand of savings, whilst he has one million of debts he can’t possibly service on his UK median income of £23k.

And that’s the deficit right there, it’s a piddling ‘credit card’ debt that’s irrelevant to the big picture of a debt versus GDP of 466%. Oh alright I know, I’m being deliberately gloomy, ok let’s be kind and take off household debt and leave only the govt debt..there that looks better, it’s now only circa 350%, still above that of ‘bad boy’ Italy (combined debt v GDP minus household of 264%) and AAA threatened France (279%). Even with household debt stripped out the UK total indebtedness is still far worse than countries considered a terrible risk.

What also becomes clear, when analysing the UK specific household debt figures, are the reasons why the current govt and the BoE are terrified of raising interest rates and will continue to support the banks through further rounds of QE. A raise in rates and a lack of direct bank support would devastate the UK housing market.

Between the Lines - Anti BS FolderAnyhow here’s the link for Global Finance, it’s worth bookmarking. I put these bookmarks in a folder, I call it the “anti B.S. folder”, you may prefer to choose a different title.


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The S&P 500 fell for a fifth day, losing 0.4 percent to close at 1,188.04 at 4 p.m. in New York after briefly turning higher amid signs the Federal Reserve was discussing more stimulus efforts. The Stoxx Europe 600 Index lost 0.7 percent. Spain’s two-year note yield surged to the highest since 1997, while Belgium’s 10-year yield reached a nine-year high. Ten-year Treasury yields slipped three basis point to 1.93 percent.

The S&P 500 slid to its lowest level since Oct. 7 and has slumped 5.2 percent so far this month, led by an almost 11 percent tumble in financial companies. Financial firms were the biggest drag on the S&P 500 today, slipping 0.9 percent as a group. Goldman Sachs Group Inc. lost 2.1 percent to $89.40, its lowest price since March 2009.

The yield on Spain’s 10-year bond rose five basis points to 6.61 percent, the highest on an end-of-day basis since 1997. The government also offered six-month bills at an average yield of 5.227 percent, compared with 3.302 percent last month.

Spain needs a euro-region accord to “save and guarantee the solvency” of its debt amid surging bond yields. Maria Dolores de Cospedal, deputy leader of the People’s Party;

Spain cannot continue financing itself at 7 percent. So an agreement through a joint euro-zone operational strategy to save and guarantee our sovereign debt has to come from the European institutions.

Germany rejected calls to do more to counter market turmoil as Spain’s financing costs surged and pressure mounted on Greek political leaders to submit written commitments to austerity measures.

“We haven’t any new bazooka to pull out of the bag,” Michael Meister, finance spokesman for German Chancellor Angela Merkel’s Christian Democratic party, said.

European Commission President Jose Barroso said he expected the Italian government under Prime Minister Mario Monti to succeed in narrowing its budget deficit and bolstering the economy. Michel Barnier, the European Union’s financial-services chief, said he was putting finishing touches on a draft law on creditor write downs at failing banks.

The euro strengthened against 10 of 16 major peers, rising 0.2 percent to $1.3514 after climbing as much as 0.6 percent. The Swiss franc strengthened 0.4 percent against the dollar and 0.2 percent versus the euro, rising for the third consecutive day. The yen depreciated against 12 of 16 major peers monitored by Bloomberg, and the Dollar Index was little changed at 78.249.

Economic calendar data releases that may affect sentiment in the morning session

Wednesday 23 November

09:00 Eurozone – PMI Manufacturing November
09:00 Eurozone – PMI Services November
09:30 UK – Bank of England Minutes
09:30 UK- BBA Mortgage Approvals October
10:00 Eurozone – Industrial New Orders September

A Bloomberg survey yielded a median estimate of 46.5 for the eurozone PMI manufacturing compared to a previous figure of 47.1.

Analysts expect New Orders to come in at -2.7% (MOM), according to a Bloomberg survey, as compared with the previous figure of 1.9%. The median expectation for the annualised change is 6.1% from a previous figure of 6.2%.

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