LONDON (Reuters) - With Greece's second bailout seemingly in the bag at last, Spain is shaping up as the next big test of whether euro zone policymakers can keep striking the right balance between carrot and stick to reconcile the very different interests of lenders, debtors and markets. Fine-tuning incentives and getting policy sequencing right is key to tackling the euro zone's debt and banking crisis. Imposing losses on Greek bondholders before erecting a firewall to shield other vulnerable sovereigns was an example of how not to do it. ...
BERLIN (Reuters) - Athens' failure to accept Germany's help on reducing bureaucracy and boosting private investment is disappointing, German Economy Minister Philipp Roesler was cited as saying by a newspaper on Thursday. Germany pledged last October to advise Greece on cutting red tape and attracting investment to help its economy get back on its feet and have a fighting chance to cope with its debt. The agreement was struck during Roesler's visit to Greece as head of a 70-strong delegation of German industry representatives seeking business in the country. ...
ATHENS (Reuters) - Major banks and pension funds threw their weight behind Greece's bond swap offer to private creditors on Wednesday, making it increasingly likely that the deal will pass and clear the way for a bailout package to avert an immediate default on its debt. A group of banks and funds representing 40.8 percent of Greece's 206 billion euros of outstanding debt said they would take part in the deal, joining other Greek and foreign banks and pension funds which have already pledged to accept the offer. ...
Stocks fell early and often Tuesday as the situation in the eurozone continued to deteriorate.Â The Greek Bailout 2.0 plan is being jeopardized by weaker-than-expected" participation in the country's debt swap offer and fears that its failure would result in â¬1 trillion in losses for European banks. Also adding to concerns is word that Ireland could require a second bailout package -- something that might not be forthcoming if the Irish reject a strict new fiscal austerity pact.Â
If you liked last year’s battle over raising the debt ceiling, just get ready for the fight to come.
Last summer’s agreement, you will recall, raised the federal government’s debt limit from $15.194 trillion to $16.394 trillion in exchange for promised future reductions in spending. Until recently, the consensus has been that federal borrowing will bump up against the new limit sometime between late November of this year and early January 2013.
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LONDON/ATHENS (Reuters) - Athens turned up the heat on its creditors on Tuesday as it sought to secure a bond swap that will cut its mountainous debt, while the main bondholders group warned a disorderly default would cause more than a trillion euros of damage to the euro zone. Greek private creditors have until Thursday night to say whether they will participate in the exchange that is a key part of a bailout program to help Greece manage its wrecked finances and meet a debt repayment on March 20. ...
To say that Detroit has seen better days is an understatement. After years of struggling with decreasing auto sales, the city has recently had to deal with extremely high unemployment rates, increasing crime, and an exodus of taxpaying residents from its city limits. In the last decade alone, the New York Times reports that the city has lost a quarter million of its residents. Many have moved out of the city to surrounding suburbs where many of the Big 3’s plants remain, after the major restructuring of their companies in 2009. With only 2 plants left in the city limits, Detroit has lost its industrial base and with it, the tax revenue it once generated.
Many of the plants today are located just outside the city limits, while some are located across the river in Ontario, and as a resulttheir employees have moved with them. Though these companies are returning to profitability, Detroit has lost much of its tax base and revenues have dropped considerably in the past years. Since 2005, the city has taken on deficits to maintain its services. This year the city hired a third party firm to come and evaluate the worsening situation. The group has estimated that the city will run out of money by April of this year.
The city’s financial crisis has prompted speculations that the city will either enter into a municipal bankruptcy, much like Vallejo, CA, or an emergency manager will be sent from the state to help resolve the fiscal issues. Currently there are 3 other cities in the state working with such a manager. The problem here is that though a municipal bankruptcy may be the preferred option politically for Gov. Rick Snyder, it may not be possible. In the case of Vallejo in California, it took nearly 3 years for the federal judge to finish the case- and Vallejo is only 1/8th the size of Detroit.
So how did Detroit, after the auto bailout and the stimulus package, end up in this situation?
- Detroit currently has $2 billion dollars in outstanding debt as a result of deficits from 2005 to today.
- The city owes more than $5 billion dollars in retiree health care costs over the next thirty years and currently has no funding behind these costs.
- While its revenues have been decreasing from its moving population, the city has not made major spending cuts to services or to city employees to offset the lost revenue.
- Though the state’s unemployment rate stands between 9.3% and 14.1%, Detroit’s city officials estimate and unemployment rate close to 30%.
With gas prices on the rise and the auto industry still struggling, the road back to prosperity will be a rough one, but without major reforms to their local government, the services provided by the city and its healthcare/pension programs, the city will continue to run deficits. We can only hope that which ever path the city takes, it will reduce its spending and bring its budget back in line so that the motor city can start to rebuild.BA
Here’s a roundup of this morning’s must-read budget and economic stories:
- The Financial Times says companies are scrambling to sell off “dollar-denominated debt.”
- Reuters looks at AIG’s efforts to find money to pay back taxpayers for the bailout the company received.
- CNBC says businesses are wary of a flat tax.
- Bloomberg takes a look at how wealthy “multinational” families are trying to reduce their tax burdens.
- The Wall Street Journal reports that some companies are asking Congress to reduce the amount they have to contribute to their pension programs.
LONDON (Reuters) - A disorderly default in Greece would probably leave Italy and Spain needing outside help to stop risks spreading, and cause more than 1 trillion euros damage to the euro zone, the Institute of International Finance said. "There are some very important and damaging ramifications that would result from a disorderly default on Greek government debt," the IIF said in a document obtained by Reuters. "It is difficult to add all these contingent liabilities up with any degree of precision, although it is hard to see how they would not exceed 1 trillion euros. ...
The Hill reports that a bipartisan group of 10 negotiators in the House are currently drafting a “grand bargain” piece of legislation that would reform entitlements and raise new revenue for the federal government. The goal of this legislation is to “make sure debt is not growing bigger than the size of the economy”.
These renewed efforts are likely to be based off of a deficit reduction plan, which was proposed last year in the Senate by a select committee nicknamed the “Gang of Six,” after its members. If the new legislation being drafted follows the outline of this proposal, originally based upon the Bowles-Simpson Fiscal Commission Report, we can expect to see:
- An initial bill with immediate deficit reduction measures
- A process for budget reform
- A plan for Social Security reform
- Fundamental reforms to the U.S. taxcode
The proposals made by Bowles-Simpson and the Gang of Six, were both published before the Super Committee failed to pass a deficit reduction agreement in November 2011, ensuring automatic spending cuts in Jan, 2013. We hope that the members of Congress involved in these new negotiations will remember the failure of the Super Committee, and will focus less on political battles and more on their stated purpose. Reduce government spending and stabilize our national debt.BA
An ad sponsored by the Red White and Blue Fund -- a pro-Rick Santorum super PAC -- attacks former Massachusetts Gov. Mitt Romney over his record of fiscal stewardship while in office. The ad says that Romney "left Massachusetts $1 billion in debt." We decided to see if that was accurate. In the ad, the Red White and Blue Fund cites three articles that were included in an opposition-research document attributed to the campaign of Arizona Sen. John McCain, who faced Romney in the Republican presidential primary four ...>> More
The Economist has released an interactive map of the world displaying Debt to GDP ratios for each country. The map highlights a growing problem worldwide. As the world sinks further and further into debt at a rate of $403,052 dollars every 5 seconds, the stability of financial markets begins to come into question.
As we have seen with the most recent situation in Europe, debt can stagnate economies, skyrocket interest rates and cause high unemployment. While Greece wrestles with new austerity measures designed to bring their change in annual debt to near 0%, the United States currently is projected to have an annual debt change of 16.5%. By ending fiscal year 2011 with a deficit of $1.3 trillion dollars, we are not making much progress toward reducing the burden on our economy. (Take a look at our newest Infographic here to see where that money went.)
China in the mean time is adding debt at an annual rate of 13.2%. While the two rates are not drastically different, our % of GDP to Debt is 76.3% instead of China’s low 17.3%. With public debt added by governments each year, it is the citizen’s of those nations who end up paying the price later to stabilize their markets. With such a blatant example of what can happen when debt gets out of control taking place in Europe, we can only hope that our leaders will begin to reign in spending.
Right now the countries with the Highest Debt to GDP ratio are:
Japan : 204.9% of GDP – $11,059,346,575,343 dollars in debt
Greece : 141.0% of GDP – $349,915,616,348 dollars in debt
Lebanon : 131.4% of GDP – $57,990,410,959 dollars in debt
Iceland : 128.7% of GDP – $13,476,438,356 dollars in debt
Italy : 121.6% of GDP – $2,312,663,835,616 dollars in debtBA
When explaining the dangers of America’s ballooning national debt, fiscal conservatives unwittingly sabotage their cause by invoking “the children.” They should spend lots more time discussing how federal red ink harms adults today.
Tying debt reduction to future generations causes two problems:
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