While both parties continue to emphasize fiscal austerity in the coming election, the image below shows that politicians are merely blowing hot air at each other. Regardless of your political beliefs, Democrat or Republican, both parties show that they are good at one thing only, ISSUING DEBT!
Investors/economists remain pessimistic on the sovereign debt being issued by governments across the globe. Even the ratings agencies have woken up and downgraded (either on purpose or by accident) most of the G8. While I remain highly bearish, even sounding downright loco at times, the government debt crisis (specifically in the U.S.) seems to be overblown. This blog is going to focus on the sovereign debt markets and what that means for the global economy.
I was reading an article written by one of my favourite bond managers, William H. Gross, and he pointed out that the cycle of leveraging/deleveraging has been interrupted by governments and central banks all over the world. Financial institutions, non-financial corporations, and households have done their part by cleaning up all that excess debt, unfortunately, I can’t say the same for the US government.
While it’s inevitable that investors will lose faith in U.S. government debt at some point, we are currently seeing this situation unfold in Europe, private sector deleveraging has forced investors into government paper. Nominal world wide GDP has remained stable thanks to a defibrillator provided by the global central banking cartel, this, combined with a decline in private sector debt has forced investors to park their cash in government treasuries in the near term.
The U.S. government is $25 Million Away From Debt Ceiling Breach
