US Debt/GDP Hits Post WW2 High 99.5% Following $55 Billion Overnight Debt Increase: Total Debt Now Over $15.1 Trillion
It seems like it was only yesterday that we celebrated 15,OOO,OOO,OOO,OOOBAMA day. Two weeks later, we are now well over 100 billion in debt over this historic landmark, or $15.11 trillion to be precise, following the predicted $55 billion increase in debt with the settlement of all auctions from last week. And aside from the mind-staggering rate of new debt increase why else is this number notable? Because as we learned 10 days ago, total Q3 GDP in current dollars is $15.18 trillion. In other words, US debt/GDP is now 99.5%, the highest it has been in the post WW2 period, and rapidly rising. What is worse is that the delta to 100% debt/GDP is only $70 billion: this is about half of the next two weekly gross issuances of 3,10,30s and 2,5,7s of about $160 billion over the next two weeks. In other words by the end of 2011, debt/GDP will finally be a triple digit number percentage. And the other notable thing is that the debt limit still is $15.194 trillion. It is ironic that the economic growth ceiling and the debt issuance ceiling are now one and the same: if the the debt target number does not rise neither will the US economy. Q.E.D.
With the Dow rallying more than 400 points and gold trading up over $30, near the $1,750 level, today King World News has released the eagerly anticipated interview with legendary investor Marc Faber, author of the Gloom Boom and Doom Report. Faber warned KWN that the Chinese economy may crash and noted this will have a huge impact on various economies and markets, "Well if we define a bubble as a period of excessive growth and artificially low interest rates, then China had a huge bubble. Usually bubbles are not deflated by a soft landing, but by a hard landing and this concerns me, actually, much more than the European situation."
Marc Faber continues:
"The European situation is basically hopeless, but it will lead to money printing. In China, if the economy slows down meaningfully or if there is a crash, it will have a huge impact on the demand from China for raw materials, for commodities. It will impact Australia, Africa, the Middle-East and Latin America.
If these countries are faced with declining commodity prices, especially industrial commodities such as copper, nickel, oil and so forth, then they will buy less from China and we will have a vicious spiral on the downside.
I'm sure the economy (of China) is softer than official statistics would suggest and probably the government will start to print money at some point. So maybe stocks will rebound here because of money printing, but again, it won't help the economy….
When asked about a sputter or collapse in the Chinese economy, Faber stated, "I live in Asia and all I can say is I observe a meaningful slowdown in business activity recently and increasing corporate earnings that disappoint."
When asked if he was aware of capital flight out of China, Faber replied, "There's a huge capital flight, there's no question about this."
When asked why the Chinese are panicking to move their money out of China, Faber responded, "That is a very good question because, you see, the bullish analysts will tell you will tell you, 'Oh, if the Chinese economy slows down they are going to print money and lower interest rates and ease monetary conditions.'
But if that happens, then obviously capital flight will increase, especially if, unlike all of the expectations, the Yuan or the Chinese RMB begins to weaken rather than to strengthen against the US dollar. So that could actually accelerate the decline or let's say capital outflows and declining asset values in China.
Faber had this to say about the situation in the West, "Well, as you know we have some deflationists, they think the whole debt bubble will collapse and I believe that will eventually be the case. But between now and then there will be QE3, 4, 5, 6 and so forth and in Europe they will print money."
Peter Schiff Explains What Today's Global Fed-Funded Bailout Means For The Future
If anyone is still confused by what has transpired today, here is Peter Schiff explaining in simple words, why what happened "may be one of the most important economic events of the year" and what to do next: "Today's unprecedented announcement by the world's most powerful central banks was a loud and clear bell ringing to buy precious metals. The move, disguised as an attempt to help the fragile state of the global economy, is in reality a move to prop up failing banks in Europe and the US. By reducing interest rates paid for dollar swaps, central bankers are in effect increasing the quantity of global dollars in circulation. The result? The dollar will weaken, inflation will rise, and gold will soar. Gold was up more than $30 today, and the dollar got crushed. I urge you to take 7 minutes to watch the video I recorded exclusively for my subscribers a few hours ago. It explains, in plain language, what happened today – and what is the likely outcome for your portfolio. This may be one of the most important economic events of the year." And pardon Schiff's self-promotional piece at the end, but the truth is that he is essentially correct about what the actions means from a big picture perspective. Furthermore, as Goldman made all too clear, this is merely the beginning as more and more inflationary actions have to be undertaken by central banks to save banks from being crushed by untenable debt loads. Whether they succeed in overturning the deflationary tsunami is unknown. What is certain is that they will bring fiat currencies to the verge of viability (and beyond) in trying.
With domestic interest rates hardening even as fixed income returns fall globally , there is a sudden spurt in remittances from non-resident Indians (NRIs) seeking to arbitrage between local and international rates. Indians are borrowing overseas at low rates and are remitting funds in India for investments. As on June 30, total NRI deposits on various banks was pegged at $53 billion. With the rupee depreciating over 18% in the last six months, non-residents are getting more for the dollar than ever before. Avijit Nanda, president Times of Money, told TOI, "NRIs are seen borrowing overseas at Libor minus rates and invest in
Indian equities, mutual funds and real estate sectors. The FCNR rate for NRI deposits has increased by 125 basis points (Libor+125 basis points) effective from November 23, 2011, thus encouraging NRIs to open deposits in India. Our estimates are that the remittance flows into India have gone up 20-25 % when compared to the same period last year. NRIs are making the most of better interest rates in India."
Private sector banks like Kotak Mahindra Bank and Federal Banks have witnessed over 40% and 30% surge in remittances respectively from the year ago period. According to World Bank estimates, India received $55 billion in remittances in 2010 and Gulf region accounts for almost half of that.
Indian equities, mutual funds and real estate sectors. The FCNR rate for NRI deposits has increased by 125 basis points (Libor+125 basis points) effective from November 23, 2011, thus encouraging NRIs to open deposits in India. Our estimates are that the remittance flows into India have gone up 20-25 % when compared to the same period last year. NRIs are making the most of better interest rates in India."
Private sector banks like Kotak Mahindra Bank and Federal Banks have witnessed over 40% and 30% surge in remittances respectively from the year ago period. According to World Bank estimates, India received $55 billion in remittances in 2010 and Gulf region accounts for almost half of that.
UAE, with two million Indians alone contributed around $6 billion last year. This year, remittances from Gulf are likely to break last year record. "We are also seeing trend where by NRIs are retiring the mortgage loans in India by remitting more out of own funds or out of overseas borrowings. Coupled with the weak rupee they enjoy the interest differential as well, since interest rates are low overseas as compared to India," said, Sudhir Kumar Shetty, chief operating officer, global operations, UAE Exchange, whose global remittance volumes in 2010 were $17 billion. "During the last couple of weeks, we have witnessed a 30% increase in remittance. These are from people who send money for investments rather than domestic commitments," adds Shetty.
"I took a personal loan of 300,000 dirhams (Rs 42 lakh) from a local bank in Dubai at 8% interest rate and bought a flat in Noida. Indian banks were asking me to pay 12% interest rate along with processing fees. The best part is that I don't have to keep the house mortgaged and I will repay the loan in 5 years. Besides, I save interest of 4% annually, translating to overall saving of Rs 13.5 lakhs," said S Pathak, who works with a local media firm based in Dubai.
Although official figures are not available, banking sources say that many Indian are seeking fresh personal loans and office advances in UAE to invest in India.
"I took a personal loan of 300,000 dirhams (Rs 42 lakh) from a local bank in Dubai at 8% interest rate and bought a flat in Noida. Indian banks were asking me to pay 12% interest rate along with processing fees. The best part is that I don't have to keep the house mortgaged and I will repay the loan in 5 years. Besides, I save interest of 4% annually, translating to overall saving of Rs 13.5 lakhs," said S Pathak, who works with a local media firm based in Dubai.
Although official figures are not available, banking sources say that many Indian are seeking fresh personal loans and office advances in UAE to invest in India.
