# Western World Debt - How much more can it be expanded before it needs a large correction



## Codogly (23 Mar 2020)

Just wondering peoples thoughts on adding the latest round of western world debt to fight the Covid 19 impact ?
I'm not suggesting that their any other real choice open to central banks and governments but the PINK ELEPHAN in the room is the assumption the this debt will always be managed ... is it possible that a universal write/off of x% will happen at some stage ? 
If so who would the big losers be :  Investment funds / Pensions ...!!!


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## Trackman (23 Mar 2020)

I believe it's an inevitability that a synchronised default is on the horizon, although I cant see western central bankers allowing a currency crises to unfold. 

The synchronisation of a managed default could only be brought about at a time of war or crises such as Covid 19. 

Who loses in all this will be determined by the central banks. Many people believe that the 2008 debt crises was never resolved and we're still dealing with the aftermath. 

Printing money to infinity on this scale will go down in history.


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## NoRegretsCoyote (23 Mar 2020)

For every debtor there is a creditor.

No one ever talks about the world having too much assets.


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## Purple (24 Mar 2020)

NoRegretsCoyote said:


> For every debtor there is a creditor.
> 
> No one ever talks about the world having too much assets.


I agree but at one stage tulip bulbs were a valuable asset.


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## NoRegretsCoyote (24 Mar 2020)

Debt today is serviced by households with incomes, governments with tax revenues or firms with cashflows.

Could they be *over*-indebted compared to their ability to repay? Of course. 

But it's not remotely comparable to a speculative equity bubble.


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## Trackman (24 Mar 2020)

Does anyone believe Ireland can ever pay its sovereign debt back?


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## Protocol (24 Mar 2020)

By running 5bn surpluses each year for, say, ten years, and with reasonable growth in GNI*, we should be able to get the public debt down to 50% of GNI*.


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## Codogly (24 Mar 2020)

Thanks for all the replies ... but question still remains " Who's the Debtor "...!!!

Who has purchased all these billions of low yield bonds ...?

Is it the western worlds Pension Fund ...?


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## NoRegretsCoyote (24 Mar 2020)

Trackman said:


> Does anyone believe Ireland can ever pay its sovereign debt back?



Countries almost never repay their sovereign debt, they just roll it over.

The UK has had sovereign debt for 200 years and people keep buying it.



Protocol said:


> By running 5bn surpluses each year for, say, ten years, and with reasonable growth in GNI*, we should be able to get the public debt down to 50% of GNI*.



But what would be the point? Money is basically free to borrow at the moment. Why not spend it on a Metro for Dublin or new hospitals?


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## cremeegg (24 Mar 2020)

I think people focus on the debt issue exclusively from an accountancy perspective. And I say that as an accountant.

Looked at from a broader perspective, the world cannot owe itself.

The debt could be eliminated by central banks buying and cancelling debt, effectively printing money.

I owe AIB €100. The ECB gives AIB €100, Now I owe the ECB €100. Finally the ECB forgives my debt. Who loses.

Well obviously everyone else who holds a Euro is worse off, as the number of Euros has risen, but they would be very much worse off if the economy stopped. It also has the possible upside that people lose in direct proportion to their wealth (ability to bear the loss).

This would have an inflationary impact certainly, but well managed it should be possible. There are certainly worse scenarios.


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## NoRegretsCoyote (24 Mar 2020)

cremeegg said:


> I think people focus on the debt issue exclusively from an accountancy perspective. And I say that as an accountant.



I was once on a training course with accountants. They were horrified - horrified - to find out that state pension schemes are under-funded.

"But when the time comes they'll just raise taxes to pay the pensions" - I said.

This just didn't compute to people who come from a world where everything has to balance.


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## BilliamD75 (24 Mar 2020)

Codogly said:


> Thanks for all the replies ... but question still remains " Who's the Debtor "...!!!
> 
> Who has purchased all these billions of low yield bonds ...?
> 
> Is it the western worlds Pension Fund ...?


To answer your question, the ecb is the only entity buying negative yielding bonds in the eurozone, the ecb were mandated to purchase 40% of government bonds however in a recent statement the bond market is open ended,
There are no bids from the private sector (excluding mandated pension funds) as in these crazy times private capital would require at least 15%for risk purposes, the ecb is in a very difficult position going forward, it cannot raise interest rates to cover the spread on the bonds regardless of inflation without blowing government budgets to pieces.(the rates are on the rise in the interbank markets) It will need a bailout from the eurozone member states to cover the spread on the bonds going forward which may be difficult to receive or as purple  said it may retire the bonds when due again needing political agreement for this to happen, 
In these crazy times everything is on the table, there is talk of helicopter( m.f) money to be given to the citizens of the eurozone (debtors) through m.m.t,


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## Protocol (24 Mar 2020)

The ECB is the only buyer of negative yielding Govt bonds?

Is that true?


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## RedOnion (24 Mar 2020)

Protocol said:


> The ECB is the only buyer of negative yielding Govt bonds?
> 
> Is that true?


Of course it's not true! It's completely made up.

Have you looked at the posters history?


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## BilliamD75 (24 Mar 2020)

RedOnion said:


> Of course it's not true! It's completely made up.
> 
> Have you looked at the posters history?


Would you buy government debt at a negative yield if you were in the private sector, just asking?


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## RedOnion (24 Mar 2020)

BilliamD75 said:


> Would you buy government debt at a negative yield if you were in the private sector, just asking?


Yes. I have done in the past.

I know people working in the private sector that are buying negative yield bonds because it's their best available return. 

If you knew what you were looking for, and spent 5 minutes on Google you'd easily find public records of PLCs that have purchased negative yielding bonds.

But that neither adds to not takes away from the fact that you just made something up, and stated it as fact.


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## BilliamD75 (24 Mar 2020)

Your statement does not hold water, you may have bought short dated paper however any board of a plc would be sacked by the shareholders for a guaranteed loss in the bond markets and locking up capital over the long term, why is it that the ecb holds over 2.5 trillion of government bonds bought in the last few years and continues to do so, you do your google search and I will stick to the numbers,


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## RedOnion (24 Mar 2020)

BilliamD75 said:


> I will stick to the numbers


You mean you'll stick to making things up?

Your statement:


BilliamD75 said:


> the ecb is the only entity buying negative yielding bonds in the eurozone


Is a complete fabrication.

Or can you link to any reputable source that backs this up?

Your statement:


BilliamD75 said:


> private capital would require at least 15%for risk purposes


Is a completely made up number.

And then you start changing terminology to say my statement doesn't hold water?


BilliamD75 said:


> Your statement does not hold water, you may have bought short dated paper however any board of a plc would be sacked by the shareholders for a guaranteed loss in the bond markets and locking up capital over the long term,


Was a reply to your question:


BilliamD75 said:


> Would you buy government debt at a negative yield


Nothing about whether it short or long dated.

Stop making stuff up and posting it as fact!


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## NoRegretsCoyote (24 Mar 2020)

BilliamD75 said:


> any board of a plc would be sacked by the shareholders for a guaranteed loss in the bond markets and locking up capital over the long term



Good to know that insurance companies aren't holding any risk-free German government bonds as part of their portfolios these days. It's all just punters who are afraid to put them into bank deposits, right?


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## BilliamD75 (24 Mar 2020)

Hmm, properly run plcs would keep the money in cash reserves than buying negative bonds, you provide the links, the last link I provided, he was called a crackpot when he is clearly a pioneer, with your kind of thinking buying negative bonds thank goodness I have taken my money out, at least paddy Power will give you a gamble, I have answered codogly questions about who is buying negative bonds, the ecb 2,5 trillion and counting however according to you that is false, you just want to have a go,


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## RedOnion (24 Mar 2020)

BilliamD75 said:


> properly run plcs would keep the money in cash reserves than buying negative bonds


Physical cash??? You think a properly run plc should keep physical cash? Because bank deposits are paying negative interest.



BilliamD75 said:


> I have answered codogly questions about who is buying negative bonds


No you haven't. You made up an answer.


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## Itchy (24 Mar 2020)

BilliamD75 said:


> To answer your question, the ecb is the *only *entity buying negative yielding bonds in the eurozone,



Fake news!



BilliamD75 said:


> Would you buy government debt at a negative yield if you were in the private sector, just asking?



You misunderstand the concept of a negative yield. A negative yield doe NOT mean a guaranteed loss or nor does it mean negative income. For example, they are used to hedge FX positions. You are also focusing on yield rather than security (i.e. credit risk) - and thats what your plc board will fire you for!


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## BilliamD75 (25 Mar 2020)

RedOnion said:


> Physical cash??? You think a properly run plc should keep physical cash? Because bank deposits are paying negative interest.
> 
> 
> No you haven't. You made up an answer.


Ryanair said recently that they have 4 billion cash reserves available I will ask where they keep it for you, if the ecb are not buying provide the aam readers who are,


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## BilliamD75 (25 Mar 2020)

Itchy said:


> Fake news!
> 
> 
> 
> You misunderstand the concept of a negative yield. A negative yield doe NOT mean a guaranteed loss or nor does it mean negative income. For example, they are used to hedge FX positions. You are also focusing on yield rather than security (i.e. credit risk) - and thats what your plc board will fire you for!


A negative yield is a guaranteed loss, the underlying value of the bond allowing for inflation may rise or fall and so does the income you cannot have it both ways, the ecb position on the bonds is loss making and if it continues it will need a bailout as the underlying  value of the bond is at risk. 
Fake news hmm then you provide a link to who is buying the negative bonds, I said in a post last year that we were heading into an economic storm which we are in and that the ecb was at the wheel which it is, I clearly know what I am talking about, I will stick to my source and continue to do well while others are buying guaranteed loss making bonds, I tried to be objective to understand other peoples opinions and give advice but wow this is not a place for me,


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## RedOnion (25 Mar 2020)

BilliamD75 said:


> I tried to be objective


Thanks for giving me a good laugh!



BilliamD75 said:


> and give advice


Please don't give advice based on made up 'information'


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## Itchy (25 Mar 2020)

BilliamD75 said:


> A negative yield is a guaranteed loss, the underlying value of the bond allowing for inflation may rise or fall and so does the income you cannot have it both ways, the ecb position on the bonds is loss making and if it continues it will need a bailout as the underlying  value of the bond is at risk.
> Fake news hmm then you provide a link to who is buying the negative bonds, I said in a post last year that we were heading into an economic storm which we are in and that the ecb was at the wheel which it is, I clearly know what I am talking about, I will stick to my source and continue to do well while others are buying guaranteed loss making bonds, I tried to be objective to understand other peoples opinions and give advice but wow this is not a place for me,



On the 19th of March the NTMA sold €0.5 billion @ -0.39%. They report that they received €1.245 billion of bids for those bonds 2.5x the nominal. Can you explain why the ECB as the ONLY purchaser of negative debt would make bids that cover the issue 2.5 times over? 





__





						Ireland sells €500m of Treasury Bills by auction
					

18 July 2013 – The National Treasury Management Agency (NTMA) has today completed an auction of Irish Treasury Bills, selling the target amount of €500 million.  Total bids received amounted to €1.818 billion which was 3.6 times the amount on offer. The Treasury Bills, which have a maturity of…




					www.ntma.ie


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## RedOnion (25 Mar 2020)

Itchy said:


> Can you explain why the ECB as the ONLY purchaser of negative debt would make bids that cover the issue 2.5 times over?


Of course he can't explain.

This is a poster who previously stated that private sector should be putting their cash on deposit with the FED to avoid negative Interest rates.

There's no such thing as currency risk...


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## EmmDee (17 Apr 2020)

Ryanair (or any company) reporting "cash reserves" are not keeping these in bank accounts. Any corporate lodging anything other than operationally required cash flow will be charged 0.5% minimum. Cash reserves include cash equivalents - short term paper, money market funds etc.

ECB may hold €2.5tn of assets. EUR money market funds alone hold €1.5tn EUR bonds and short term paper. Add in pension and other funds, insurance reserves, corporates with large balances. While ECB may be a large holder, they are nowhere near being the only bidder

While a company might look for 15% IRR on internal investments such as a decision on systems, facilities etc (not an unusual number), this is not the same as what a corporate would expect as a return from a market investment. A return that high would imply significant risk which if not the core competence of the firm would be unusual. A corporate treasurer is usually benchmarking against the risk free rate of return - which in EUR at the moment is about -0.5%


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## ant dee (17 Apr 2020)

Itchy said:


> On the 19th of March the NTMA sold €0.5 billion @ -0.39%. They report that they received €1.245 billion of bids for those bonds 2.5x the nominal. Can you explain why the ECB as the ONLY purchaser of negative debt would make bids that cover the issue 2.5 times over?
> 
> 
> 
> ...



This is interesting.
Can someone explain the logic of this please?


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## Itchy (17 Apr 2020)

It’s illogical. The point was, it was a farcical claim to make that the ECB was the only purchaser of negative yielding debt.


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## joe sod (25 Apr 2020)

Itchy said:


> It’s illogical. The point was, it was a farcical claim to make that the ECB was the only purchaser of negative yielding debt.



but as been pointed out before there are alot of forced buyers like the banks and insurance companies, they have been forced by the regulators to keep a proportion of their capital in "safe assets" like government bonds even at negative yields. Therefore rather than lending to the private sector where they could charge more interest they have to lend to the governments. Thats one of the big reasons why the banks share price is in the toilet and this was before the corona virus thing.
There is a whole study of this phenomenon its called "financial repression" whereby governments and central banks the world over are holding interest rates down and printing money. This is because governments are the large creditors so they are inflating away this debt and are effectively stealing from savers.


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## RedOnion (25 Apr 2020)

joe sod said:


> but as been pointed out before


As pointed out before the quoted posted was making stuff up. They were wrong. Plain and simple.



joe sod said:


> Therefore rather than lending to the private sector where they could charge more interest


There's lots of negative yielding corporate debt around. 



joe sod said:


> are effectively stealing from savers


Peter Brown quote?
Any form of inflation where it's greater than the nominal interest rate is "stealing from savers". There's a gibberish logic behind it that appeals to the masses.


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## joe sod (25 Apr 2020)

RedOnion said:


> Peter Brown quote?
> Any form of inflation where it's greater than the nominal interest rate is "stealing from savers". There's a gibberish logic behind it that appeals to the masses.



looks like a stumbled into a hive of bees protecting their honey. It doesn't appeal to "the masses", the masses are not interested in this topic as most are beneficiaries of government spending, in fact at the moment it is probably a good thing as that is where governments are getting the money to pay the Covid payments. But "negative interest rates" are not a natural market phenomenon because inevitably extremely low interest rates should be follwed by higher and rising interest rates not by negative interest rates but this is being "repressed" by the central banks and governments


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## Sarenco (25 Apr 2020)

joe sod said:


> "negative interest rates" are not a natural market phenomenon


I don't know what you mean by "a natural market phenomenon" but we have certainly had negative interest rates in Europe during periods where no QE was taking place.


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## joe sod (30 Apr 2020)

Pascal Donohue made a reference to "bond market vigilantes" last week potentially driving up interest rates on government debt in the future and making it much more difficult for irish governments to raise new debt or roll over existing debt in the future. Its a term I had never heard of before but obviously the government and the treasury are worried about it with all the borrowing they are doing currently to pay for the corona virus shock. I think they sense a big problem coming down the road.


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## DeInfoSeeker (7 May 2020)

Trackman said:


> I believe it's an inevitability that a synchronised default is on the horizon, although I cant see western central bankers allowing a currency crises to unfold.
> 
> The synchronisation of a managed default could only be brought about at a time of war or crises such as Covid 19.
> 
> ...



I claim no expertise at all but to me, a synchronised managed default seems to present the most likely way out of the impasse where two issues co-exist:
1) What can't go on won't go on.
2) An unmanaged default by major players in the first world would be unthinkable.

The way I describe it is that 2008 was a relatively benign tremor worsened by state intervention meaning that moral hazard was allowed go unpunished. This Covid thing is a bigger shock to the system and may develop further but the real earthquake is coming at some impossible to determine time. Debt plus the vast trillions upon tens of trillions in collective unfunded liabilities - every lgarda walking around the streets has been promised over a million in unfunded pensions by this state for example - means it simply must result in some more or less managed depositioning.


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