Sovereign Debt Impact

What is Sovereign Debt & What is the Current State of Global Indebtedness
(DEC 2015) by Fulton Sheen (TOPIC: Sovereign Debt, Global debt, US debt)

Sovereign Debt is money which has been lent to a nation by individuals, businesses, mutual funds, insurance companies, brokerage companies, trust funds, foundations, banks, other sovereign nations and almost any other organizational structure. The lenders have purchased this debt in the form of sovereign bonds which the purchasers are guaranteed repayment by the full faith and credit of that nation. When a nation spends more than they take in and their debt is greater than their assets, it’s only a matter of time, until they default on their payments to their creditors, just like someone who goes bankrupt.

Over the last eight years this guarantee has failed when Cypress, Argentina, Greece, Puerto Rico, Venezuela, Russia and others defaulted, partially defaulted, delayed or in some way did not make their payments to their bond holders. Global sovereign debt is growing exponentially; in the EU, China and Japan, and they are all printing currency at record high levels. President Reagan’s former budget director, David Stockman wrote:

“The global economy has been on a credit binge for the past two decades. Since 1994, total credit market debt outstanding has soared from $40 trillion to $225 trillion or by nearly 4X the growth of GDP during the same period. But now that debt super-cycle has crested, and that’s exceedingly bad news for profits.”
ZeroHedge reported, “According to Hong Kong-based “Autonomous Research”, the real figure may be closer to 21% when one takes into account the aforementioned shadow banking sector.”

China finds many ways to avoid accurate reporting, but bottom line, China is facing a massive debt crisis. Greece signed its third bailout deal with the European Commission, most doubt they will be able to keep it, so a Greek exit is still very possible. Italy’s has had improved growth, but its massive amounts of non-preforming loans could put them in a worse position than Spain if they do not improve soon.

Not to be out done, US spending, debt and unfunded mandates, dwarf the rest of the world. Last month I sent out an article titled, “US Govt Reports Soc\Sec Medicare & Soc\Sec Disability not Solvent & Fed Reserve Reports US Banking System Unsound,” explaining how the US government and the Fed, by their own calculations, admit that these programs are insolvent and the US banking system is unsound (visit for the article and supporting info.). Central banks around the world are selling US government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the 2008 financial crisis. Some nations are cashing out while the USD is high and buying their own securities, because they know it’s not going stay that way.

Ex-GAO Head: US Debt is Three Times More Than You Think (11-9-15) by The Hill
This Time Is The Same But Worse (11-3-15) by David Stockman
The Greece Debt Watch (11-6-15)
Greece’s Five Ticking Time Bombs (12-8-15)
China’s Banking Sector May Be Sitting On $3 Trillion Neutron Bomb (11-4-15) by ZeroHedge
Credit Sleuths in China Uncover Bad Debt Dwarfing Official 1.5% (10-29-15)
Italy’s Bad Debt Hair Is Getting Uglier (12-10-15) |
Singapore Set to Suffer Indonesia’s Defaults as Well as Its Smog (10-19-15)
Once the Biggest Buyer, China Starts Dumping U.S. Government Debt (10-7-15) | WSJ
China’s Selling Tons of U.S. Debt. Americans Couldn’t Care Less (10-18-15)

A whopping $1.2 trillion worth of corporate bonds in the United States have just been downgraded by rating agencies and the US junk bond market is in a free fall; the contagion has now spread to the corporate band market. “The Price declines are alarming and worrying,” said Ahluwalia, JPMorgan’s head of global CLO research.

The US December 2015 budget deal was not good, as it raised the debt ceiling for two years and removed spending caps, paving the way for the US to deficit spend and increase their indebtedness. Over and over again most of the articles in publications like Bloomberg and The Wall Street Journal are saying that the situation in which the US, and other countries and global markets currently find themselves in, are almost exactly like they were in 2007-2008 precipitating the global financial meltdown. The amazing thing, is that, as obvious and clear as signs may be, very few people are doing anything about it. The central banks have almost maxed out their credit cards and as interest rates rise they will not be able to pay the interest maintenance on their already accumulated debt, not to mention the increase. 2015 was a tumultuous year for international economies and world markets and things are lining up for 2016 to be no less volatile, with many challenges ahead.

Age of Bubble Finance Crackup Phase New York, NY (What Should You Do) (11-26-15) David Stockman
The Best Worst Budget Deal (10-27-15) WSJ |
Junk-Bond Rout Deepens (12-10-15) WSJ |
Junk Bonds Are Tanking and Icahn Says Meltdown `Just Beginning’ (12-11-15)
Junk Contagion Spreads to Investment Grade Bonds Plunge to 2-Year Lows, Treasury Liquidity Collapses, CLOs Next (12-15-15) by ZeroHedge |
Financial Disaster Dead Ahead (11-6-15) by Michael Snyder |


US Government Reports Social Security, Medicare & Social Security Disability not Solvent Federal Reserve Reports US Banking System Unsound (11-12-15)

The Board of Trustee of Social Security & Medicare, comprised of the U.S. Treasury Secretary, Labor Secretary and Health & Human Services Secretary in their 2015 report wrote:

  • In the second paragraph: “Social Security as a whole as well as Medicare cannot sustain projected long-run program costs…”
  • In the fourth paragraph: “The DI (Disability Insurance) program satisfies neither the Trustees’ long-range test of close actuarial balance nor our short-range test of financial adequacy and faces the most immediate financing shortfall of any of the separate trust funds.”
  • In Paragraph eleven: “The Trustees project that the Medicare Hospital Insurance (HI) Trust Fund will be depleted in 2030…”
  • Conclusion statement: “Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”

The insolvency of these funds coupled with fact that too many Americans have very little if any retirement savings are going to create serious problems for retirees.  U.S. House Resolution 488 states that Social Security “was never intended by Congress to be the sole source of retirement income for families.” The Social Security Fund has $2.7 trillion in assets, but the government estimates it liabilities to exceed $40 trillion and the SS Disability Ins. Fund will be depleted in less than a month.  Congress has already diverted funds to extend that, but it’s not going to last.

Two weeks ago the Federal Reserve, FDIC and many other financial regulators in the Shared National Credit (SNC) Review expressed concerns about the “continuing gaps between industry practices and the expectations for safe and sound banking.” They highlighted the great increase in risky loans that exceed $3.9 trillion.  These concerns are further articulated in the article below titled, Astonishing Report from the Fed Says US Banks Are Not Sound.

In both these government reports they plainly admit too much debt, not enough revenue and if nothing changes insolvency.  However, neither report offers a solution or even a direction to take.  The Social Security report says people need to be prepared.  In other words, people need to find another source of retirement income or figure out how to live without Social Security & Medicare.

A Summary of the 2015 Annual Reports by Social Security & Medicare Boards of Trustees
Congress Proposes a Chilling Resolution on Social Security (11-4-15) SMC
The Fake Fix for Disability Insurance (11-11-15) WSJ
Astonishing Report from the Fed Says US Banks Are Not Sound (11-10-15) SMC
Shared National Credits Review Notes High Credit Risk & Weaknesses Related to Leveraged Lending & Oil & Gas (11/5/15)
Release 2015-149 | SNC Review (PDF) | SNC Program Industry Definitions (PDF)

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