All countries have debt shit up to their knees.
In January 2015 the US national debt was nearly 102 percent of the GDP. If you are wondering why I am mentioning this, in contrast in 1994 the national debt was 70 percent of the GDP.
Generally, Government debt, as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields.
This completely ignores the actual ‘capacity’ to repay the debt. The GDP is the gross domestic product and the Governments ‘capacity’ to repay the debt is reliant on tax revenue earned from the GDP.
The problem with these bond investors that their Country measurement of ‘capacity’ is dead wrong.
The governments do not have access to all the national income, only the share it collects in taxes.
Looked at properly, the debt problem is much worse.
Therefore when you look at these charts from Trading Economics, then one should apply the average tax collectible (for the US tax revenue go here http://www.usgovernmentrevenue.com/current_revenue) as a means of ascertaining capacity of each country to repay their debt.
The US tax revenue is listed at 33 percent of GDP. Their current loans are nearly 102 percent of GDP…. do the math…. Then have a look at your Country’s GDP in the Trading Economics’ search engine, then Google your Countries revenue…. You will be surprised at the outcome.
My jaw dropped on Japan, then I had to pinch myself and remember that the majority of Japan’s debt is internal. They are also the largest holder / arbitraged in USD Bonds .. http://rt.com/business/250149-japan-debt-holder-us/
Any increase on the interest rates by the US Fed Reserve therefore, can bankrupt a lot of countries overnight. This is why Yellen is preaching patience, she is fully aware of the decision to increase rates.
This deferral cannot last, as not only are there US domestic matters to consider with costs of operations of the Government and a bubble in Equities courtesy of the low rates…..there are no more ‘weapons’ available at the Fed Reserves disposal, to counter future economic shocks. All these matters that they need to considered between now and September 2015.
So any increase in interest rates will increase Country risk exponentially, as their individual ‘capacity’ to repay will be tested. Further an increase in the rates (as mentioned in prior articles) will strengthen the dollar against all currencies (with exception to those currencies that are pegged to the dollar, they will be forced to review that decision).
All Governments throughout history have defaulted.
The IMF and World Bank have also warned the US to get their house into order and wipe off some of the shit.
Let me make this very clear.
When a Government is in ‘financial decline’ the politicians look after themselves. As with Greece they strip pension reserves, find all available cash assets from all tiers of Governments, issue IOU’s instead of cash/transfers and it is only a matter of time before they declare a bank holiday.
Civil unrest and / or revolution usually follow.
When a Government is in crisis, then so are the Banks.
Preserve that cash at all costs.