In yesterday’s article, “Where will all the new money come from?” we concluded the brief analysis with the Sovereign Debt Maturity profiles (otherwise known as the Debt Structure) of both the USA and Italy, noting how similar the two profiles looked at first glance.
Digging a bit deeper today, we would like to compare those charts to cliff edges. We trust that the sentiment of the article is that we perceive Central Banks across the globe fretting about the ‘New Money’ we were referring to. With general economic confidence waning and the outlook for a sustainable long-term solution to sovereign over (indulgence) spending fading, the landscape is looking very bleak at moment.
New money will have to be printed (Quantitative Easing or QE) if investors in the capital markets cannot be found to bear the burden of purchasing new Bond and Treasury issues.
Some headlines over the few weeks alluded to Bond auctions in Portugal, Italy and Spain being well supported (see related article at the bottom of this post), but these were not major refunding and roll-over exercises. Greece is continuing to be a welcome distraction for politicians and Central Bankers in both taking investor’s eye off the bigger problems coming along the line in Q2 2012 and in winning time to hopefully come up with a credible longer-term plan to reduce debt levels and then return to growth.
Let’s take a look at some of the crucial Sovereign Debt auctions coming up in the next few months:
The link below provides a time table schedule issued by the US Treasury for T-Bills, T-Notes, T-Bonds and TIPS, for at least the next six months.
To get the equivalent Eurozone calendar is not so easy. (Partly because each individual country issues Bonds, as there is no Central Eurozone issuer of Bonds, but at least a central purchaser, namely the ECB – European Central Bank)
We are currently investigating sources of information for Eurozone Sovereign Debt Bond auctions and will return to this theme in very near future.
- Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (fool.com)
- Investors eye European bond auctions (bbc.co.uk)
- Successful debt auctions give boost to Spain and Italy (independent.co.uk)
- Italy borrowing rates drop again in bond auction (newsok.com)
- Italy sells more bonds as Greece struggles with debt (ctv.ca)
- Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (dailyfinance.com)
- Stock Market To Cast Confidence Vote On Eurozone Monday After Disastrous German Debt Auction (jhaines6.wordpress.com)
- Italy’s borrowing costs tumble after debt auction (guardian.co.uk)
- S&P cuts French rating to AA, hurting eurozone confidence (ctv.ca)
- Eurozone faces tough hurdles early in 2012 (sfgate.com)
- EU Faces Debt Hurdles Early in 2012 (abcnews.go.com)
- The road ahead for the struggling eurozone economy (oregonlive.com)
- Eurozone faces tough hurdles early in 2012 (seattletimes.nwsource.com)
- The eurozone’s borrowing costs may stay lethally high (bbc.co.uk)
- Buba’s Jens Weidmann Voted Against ECB’s Decision To Undermine The Sovereign Bond Market (zerohedge.com)
- Eurozone will pivot on Italy in 2012 (cbc.ca)
- Eurozone faces tough hurdles early in 2012 (ctv.ca)
- Stock Market Plunges On German Debt Concerns (huffingtonpost.com)
On reflection, the ‘mechanism’ established to rescue or save the Euro is indicative of the fact that we still understand very little and can control and short-circuit systems to some extent, yet we think we value everything.
Inflation, and dare we state it openly, serious inflation of double-digit proportions must now surely be back on the cards?
We realise that we are not the only and first publication to come up with this analysis.
Bloomberg reported on 30 September 2011 that European Inflation had unexpectedly jumped to 3%, up from 2.5% in August. Yet, this is still a long way off a double digit scenario, however, the factors mentioned in the Bloomberg report included, the Greek Default (possibility) and the ECB actions still possible in terms of containing European wide inflation.
Although most economists predict that inflation will start to wane next year, we believe that actions like the Greek Debt haircut and the increase in the EFSF’s bailout fund to €1tr sends signals to the market that the value of money is now seriously ‘delinked’ from operational reality.
We will not comment here in depth on monetary policy, as it is currently applied, however, we are beginning to get the impression that inflation as ‘the silent and stealth’ taxation it really is, is now firmly (yet behind closed committee room doors) on the agenda to help “manage” the size of the European Debt mountain.
It is worth keeping an eye on the real drivers of inflation and then there is some value in keeping an open mind.
- ECB Preparing Italy Bailout, Massive Inflation Coming – National Inflation Association (jansurvivalgear.wordpress.com)
- Preview: BOE Inflation Report To Leave Scope For More QE (forexlive.com)
- Should we celebrate falling inflation? (blogs.telegraph.co.uk)
- Analysts See ECB In Wait-See Mode; May Cede On Greek Bonds (forexlive.com)
So, Europe proved yesterday with the uplift of the EFSF (European Financial Stability Fund) from its current base of €440bn to €1tr (boosting it by 127%), that it certainly has nowhere nearly reached European Peak Debt.
Well, as long as the Capital Markets buy this solution, can make a profit and move on to the next wave of Debt delusion, who are we mere citizens and commentators to criticise the massive instability Big Government and a BIGGER EU causes?
We argued back in 2009 that you cannot solve a “debt crisis with more debt” and this sentiment still rings true today. So when will they ever learn?
Yours forever indebted,
- Where will all the new money come from? (themarketsoul.com)
- Eurozone bail-out fund has to resort to buying its own debt (jhaines6.wordpress.com)
- UK’s public debt is about to exceed that of the US for the first time (leftfootforward.org)
- Everyone Is Starting To Realize The Size Of Britain’s Debt Crisis (businessinsider.com)
- ESM, EFSF, Or EB. Will Any Of It Work? (zerohedge.com)
- In The Meantime Iceland Is #Winning (zerohedge.com)
- We’re Not Getting Out of This in One Piece (lewrockwell.com)