The countries that have rarely borrowed, such as Brazil or Mexico, often pay much higher interest rates than those that have much higher debt ratios, like Japan or China.
Intriguing chart by Alpine Macro
Comparable countries bounced post-COVID, but US did not
~1 million Americans have died of OD’s just since 2010; that’s more than the # of Americans that died in all wars America has ever fought in. Source: The Economist Via Dan R Dimicco thru Luke Gromen
US average mortgage rates just surged above 7.5% for the first time in 23 years
There are some reasons why US house prices haven’t crashed: 1. Buyers can’t afford the rates; 2. Sellers would be insane to sell a home with a significantly lower rate to buy another at 7.5%. Market is frozen. The economy is currently experiencing a significant tightening of financial conditions, largely driven by the persisting fragility in the Treasury market. The bill will come due at some point. Source: Crescat Capital, The Wolf of All Streets
1971 vs NOW
The average U.S. annual income in 1971 paid off a house in ~2.5 years, could buy 3 new cars in a year, send 4 kids to Harvard in a year and easily afford food, shelter, necessities and entertainment. Does the older generation understand the difficulties the young face today? Source: Gabor Gurbacs
Very interesting WSJ article: "The Scary Math Behind the World’s Safest Assets. Washington has laid the seeds of a crisis that Wall Street can no longer ignore"
Here's an extract: "Consider that around three-quarters of Treasuries must be rolled over within five years. Say you added just 1 percentage point to the average interest rate in the CBO’s forecast and kept every other number unchanged. That would result in an additional $3.5 trillion in federal debt by 2033. The government’s annual interest bill alone would then be about $2 trillion. For perspective, individual income taxes are set to bring in only $2.5 trillion this year. Compound interest has a way of quickly making a bad situation worse—the sort of vicious spiral that has caused investors to flee countries such as Argentina and Russia. Having the world’s reserve currency and a printing press that allows it to never actually default makes America’s situation far better, though not consequence-free. Just letting rates rise high enough to attract more and more of the world’s savings might work for a while, but not without crushing the stock and housing markets. Or the Fed could step in and buy enough bonds to lower rates, rekindling inflation and depressing real returns on bonds".
Advantage greece... A decade ago, Germany was giving lessons to Greece how to run its economy. Things can quickly change.
Source: Michael A.Arouet
Many are concerned that higher rates will hurt growth, but it turns out that a lot of S&P 500 companies have locked in debt at much lower rates until 2030
Source: Bloomberg, Goldman Sachs
President Joe Biden blasted China’s economic problems as a “ticking time bomb” and referred to Communist Party leaders as “bad folks”
His latest barb against President Xi Jinping’s government even as his administration seeks to improve overall ties with Beijing. In comments that included several major inaccuracies about the world’s second-largest economy, Biden said at a political fundraiser Thursday that China was in “trouble” because its growth has slowed and it had the “highest unemployment rate going.” He also blasted Xi’s signature Belt and Road Initiative as the “debt and noose,” because of the high levels of lending to developing economies associated with the global investment program. Although Biden misrepresented key statistics about China, overall outlook remains grim. This chart by Bloomberg thru Holger Z is a harsh remainder of the amount of leverage in the Chinese economy. As growth slows down alongside deflationary threat, this could become a major issue. Source: Bloomberg
