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Agcapita - March 12 2012 - Charts That Count

Agcapita - March 12 2012 - Charts That Count

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Published by Capita1
Collection of interesting charts helping put the financial and economic issues of the week into perspective
Collection of interesting charts helping put the financial and economic issues of the week into perspective

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Published by: Capita1 on Mar 10, 2012
Copyright:Attribution Non-commercial

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03/12/2012

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March 12 2012
Charts That Count
 
"Risk Free Return" or "Return Free Risk" - Will Canada be the Only Investment GradeG7 Issuer by 2040?According to research by SocGen, by 2040 Canada will be the only G7 country withinvestment grade sovereign debt. By as early as 2030 the US, France, Italy and Japanwill all lose investment grade status. To put this into perspective this means that inless than 2 decades the debt of countries currently representing approximately 50% ofglobal GDP will be ineligible for investment by the smallest municipal pension fund.Japan is actually expected to lose investment grade status in less than 10 years andlooking at the charts below this should not come as a surprise when it happens. BTW -Japan by itself represents almost 10% of global GDP.Clearly some profound changes are coming to the sovereign debt markets and mostimportantly to the idea of the "risk free" rates of return that can be found there. As onewag recently described it, sovereign debt no longer represents
"risk free return" 
butrather
"return free risk" 
.US Budget Deficits - Sustainable?Perhaps a picture truly is worth a thousand words. In this case think of the word"unsustainable" over and over again.
 
 If Greece is Bad What are the UK and Japan?The chart below is the total debt as percent of GDP for the 10 largest matureeconomies. Greece isn't even worth a honourable mention when placedalongside the truly gargantuan debts of Japan and the UK - on a per capita orabsolute basis.
 
 Is Even More Bad News Possible for Japan?Sadly the answer appears to be yes. Deteriorating demographics with theattendant upward pressure on government spending and a move to sustainedcurrent account deficits - all in a low growth environment - have combined tocreate the perfect storm for Japan's fiscal position - its bad and getting worserapidly. 

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