Month: November 2009

Multimedia Graphic & Article (US Debt)

It’s been like watching a slow motion train wreak build momentum these past eight years. And now we’re past the event horizon. Click the graphic and read the article for details. Also see Krugman’s 2009-11-22 article: “The Phantom Menace” and this time-lapse map showing the unemployment rate from January 2007 to September 2009.

PAYBACK TIME
Wave of Debt Payments Facing U.S. Government
By Edmund L. Andrews
2009-11-23
NY Times

WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true. But that happy situation, aided by ultralow interest rates, may not last much longer. Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

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FT: “Mother of All Carry Trades Faces Bust”

I consider this a must read article. It’s basically analogous to Roubini’s February 2008 article “The Twelve Steps to Financial Disaster,” which I posted back then (you can download the PDF from the first link here).

Excerpt: So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

“Mother of all carry trades faces an inevitable bust”
By Nouriel Roubini
2009-11-1
Financial Times (original)

Since March there has been a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – a narrowing of high-yield and high-grade credit spreads, and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply , while government bond yields have gently increased but stayed low and stable.

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