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May 10, 2012 - Charts That Count: Sovereign Debt & Monetary Malfeasance insurance

May 10, 2012 - Charts That Count: Sovereign Debt & Monetary Malfeasance insurance

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Published by Capita1
inflationary defaults
inflationary defaults

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Published by: Capita1 on May 10, 2012
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May 10, 2012
Charts That Count
Sovereign Debt, Central Bank Balance Sheets and Monetary MalfeasanceInsuranceAccording to the Canadian Taxpayers Federation
"Canada's federal debt grew steadily between 5% and 10% per year until 1975 when it began to explode; growing for the next 12 years at more than 20% per year. It broke the $100 billion mark in 1981 and the $200 billion mark in 1985. While the growth slowed in 1988,our federal debt continued to climb, breaking $300 billion in 1988, $400 billion 1992,and $500 billion in 1994. It peaked in 1997 at $563 billion. Between 1997 and 2008,it slowly declined to $458 billion. After that, it all changed. Our federal debt grew by $5.8 billion in 2008-09, by $55.4 billion in 2009-10, $34 billion in 2010-11, $31 billion in 2011-12. It's expected to grow by $21.1 billion in 2012-13. Further, it's expected to grow until 2015-16. In just three years from 2008 to 2011 all the debt repayment ($105 billion) of the previous eight years was completely wiped out." 
Each Canadian's share of this debt amounts to approximately $16,000. Surely therewill come a point where the national debt will stop being an ideological debatingpoint and simply become a mathematical issue - the ability or more accurately theinability to repay in real terms.And on the small matter of repayment - lets examine these debt levels in moredetail. When you calculate complete public debt loads for various countries andinclude that often and conveniently overlooked matter of the future obligations forunderfunded social programs, the picture does not appear promising (Note: Thecountry labeled GRE to the left of the US and therefore with LESS public debt isGreece).Chart 1: Public Finances (% of GDP)Source: Morgan Stanley
 
 But before we become too smug in Canada with our relatively "low" governmentdebt levels let's not forget that simply looking at public finances does not tell thewhole story. When you take into account total debt levels - Canada is at around250% of GDP and notwithstanding the hypocritical concern of the Bank of Canada,continues to grow with the support of the historically low interest rates said bank hasengineered. I believe Canada is going to face some debt challenges of its own inthe not-too-distant future. Chart 2: G10 Debt DistributionSource: Haver Analytics, Morgan Stanley ResearchRemember that this chart does not attempt to account for the net present value offuture healthcare and pension costs which due, to the proverbial "pig in the python"effect of the retiring baby-boomer generation, are due to escalate significantly.What happens when a state can no longer service its debt? Just like any otherstruggling borrower it defaults. How often does this happen? More often than youthink and with a disproportionate number taking place in recent history.
 
Chart 3: Sovereign Defaults (Total number by period)Source: Econopicdata
De jure 
sovereign defaults also exhibit an alarming tendency to occur in clusters -not a promising characteristic if this were to prove to be the case in our ongoingepisode of sovereign debt distress.Chart 4: Sovereign Defaults or Restructurings (Number per year: 1824 - 2010)Source: UBS AGSadly the two charts above actually understate the problem as they only catalogue
de jure 
defaults and of course sovereign borrowers have a path not open to theaverage debtor on the street - they can print money. There have been many moresubtle and pernicious
de facto 
defaults arising from expansionary money supply

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