Debt Default

The $6 TRILLION Corporate Debt Implosion Begins In T-Minus 3…2…

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By Graham Summers – Re-Blogged From http://gainspainscapital.com

The corporate bond market is a $6 trillion time bomb waiting to go off.

It took the US half a century to grow its corporate bond market to $3 trillion.

Thanks to the Fed implementing ZIRP and holding rates there for seven years, we’ve doubled the corporate bond market, adding another $3 trillion in corporate debt… since 2009.

These bonds are junk… literally. The average credit rating is junk. All told, since 2012, 75% of companies accessing the bond market have had a credit rating of single-B.

So… if the corporate bond market is now TWICE as large as it was in 2008. And the quality of the bonds is lower than it was at the PEAK of the previous bubble… what does that tell us about the state of affairs for the markets in 2016?

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Rising Default Rates

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By Chris Ciovacco – Re-Blogged From http://www.Gold-Eagle.com

Yield vs. Safety Of Principal

If an investor was given the opportunity to invest in two nearly identical bonds with one bond paying 2% per year and the other paying 6% per year, logic says most would choose to invest in the higher-yielding bond. In the real world, the bond paying 6% also comes with a higher risk of default. Therefore, when investors start to become more concerned about the economy and rising bond default rates, they tend to gravitate toward lower-yielding and safer bond ETFs, such as IEF, relative to higher yielding alternatives, such as JNK. The chart below shows the performance of JNK relative to IEF. The chart reflects a bias toward return of principal over yield.

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Euro Bond Crisis Returns As Germany Pushes Euro Sovereign Debt Bail-in Clause

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By Mark O’Byrne – Re-Blogged From http://www.Silver-Phoenix500.com

European Banks holding European sovereign debt may have to take haircuts and be part of bail in plans should that same debt default, according to a plan being pursued by German government advisers. In another attempt to shelter German tax payers from the largess and excess of fellow European neighbouring countries’ national banks, the move could trigger a run on billions of euro of sovereign debt of said banks. In an article penned by the Telegraph’s Ambrose-Evans Pritchard, one of the council’s dissenting members describes the plan as the “fastest way to break up the Eurozone”.

The plan, by The German Council Of Economic Experts, calls for banks to be bailed in should losses occur from a sovereign default before the European Stability Mechanism steps in to stabilise the situation.

Italian and Spanish banks hold vast amounts of their national government debt; in Italy’s case they are supporting the Italian treasury. Should that debt default, which is a very real possibility, then Italian banks would have to take significant losses first, only then would the ESM be allowed to step in.

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What Two Risks From Rising Interest-Rates Could Each Trigger A New Global Crisis?

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By Daniel R Amerman – Re-Blogged From http://www.Gold-Eagle.com

Why are interest rates at historic lows in the United States and around the world?

The widely-accepted answer is that very low interest rates exist for the purpose of stimulating economic growth and corporate profits, and are thereby helping the United States and other nations that are struggling with persistent and deep-rooted economic and unemployment problems.

However, if we accept this answer, then another question arises. If the US economy is booming while unemployment purportedly nears a mere 5% – then why do interest rates remain so low? Why the continuous drama about whether the Federal Reserve will slightly increase interest rates?

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Three Reasons Why The US Government Should Default On Its Debt Today

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By Doug Casey – Re-Blogged From http://www.Gold-Eagle.com

The overleveraging of the U.S. federal, state, and local governments, some corporations, and consumers is well known.

This has long been the case, and most people are bored by the topic. If debt is a problem, it has been manageable for so long that it no longer seems like a problem. U.S. government debt has become an abstraction; it has no more meaning to the average investor than the prospect of a comet smacking into the earth in the next hundred millennia.

Many financial commentators believe that debt doesn’t matter. We still hear ridiculous sound bites, like “We owe it to ourselves,” that trivialize the topic. Actually, some people owe it to other people. There will be big transfers of wealth depending on what happens. More exactly, since Americans don’t save anymore, that dishonest phrase about how we owe it to ourselves isn’t even true in a manner of speaking; we owe most of it to the Chinese and Japanese.

Another chestnut is “We’ll grow out of it.” That’s impossible unless real growth is greater than the interest on the debt, which is questionable. And at this point, government deficits are likely to balloon, not contract. Even with artificially low interest rates.

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Greeced Lightning!

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By Bill Holter – Re-Blogged From http://www.Gold-Eagle.com

We seem to have finally arrived at some sort of moment of truth regarding Greece and their inclusion in the EU.  The speculation is they will be out of money by April 9th, this Thursday, unable to make a less than 500 million euro payment.  Please keep in mind they have already been raiding the country’s pension plans to fund day to day services.  How large of a “dent” they have already made remains to be seen but that is not the point.  The point is this, any person, corporation or government who needs to dig into retirement savings for daily operations is like buying a carton of cigarettes with a credit card at 14.99% …and then carrying the balance!

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