Saturday, March 27, 2010

Global Currencies, Sovereign Debt, and Interest Rates

IMF issues grim warning to nations on state of public debt – The IMF said the average ratio of debt to
gross domestic product in advanced economies was expected this year to reach the level that prevailed in
1950. Even assuming that fiscal stimulus programs are withdrawn in the next few years, that ratio is
projected to rise to 110 percent by the end of 2014, from 75 percent at the end of 2007. The IMF estimates
that discretionary spending accounts for just 1.% of GDP; nations would have to take other steps to cut back
on entitlement spending and raising taxes. NYT
Eurozone rescue package involves both Euro states and the IMF - In the event of “very serious
difficulties”, Greece would receive coordinated bilateral loans from Eurozone countries as well as the IMF.
Euro countries would kick in 2/3 of the funding w/1/3 coming from the IMF. Trichet, who made some
disparaging comments initially on Thurs (Trichet’s comment re the IMF’s involvement being “very bad” was
one of the reasons US equities sold off so hard from their highs), came around to the deal. Trichet said he
was “entirely content” w/the joint EU-IMF deal and was “extraordinarily happy that the government of the
Euro area was able to find a workable solution”. Trichet added: "I am confident that the mechanism decided
today will normally not need to be activated and that Greece will progressively regain the confidence of the
market.” Any decision by the eurozone countries to lend money to Greece would have to be unanimous. FT
USA paying higher yields on TSYs than some US corporations – The debt sold by such companies as
Berkshire, J&J, and Procter have seen yields lower than TSYs of comparable maturities in recent weeks.
Analysts say this is a “slap upside the head” for the gov’t as they should see realize that risk is beginning to
creep into their credit profile. Bloomberg
Little to safeguard UK's AAA rating - Bond vigilantes and rating agencies gave a frosty reception to the
Budget, warning that Alistair Darling has done little to restore faith in UK finances or safeguard its AAA
rating. London Telegraph

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