Friday, April 29, 2016

Debt, Debt, Debt
Scotiabank's Guy Haselmann emphasizes debt undermines growth .. pointing out the research from Reinhart & Rogoff shows that when sovereign debt is 90% or more of GDP, you get a big economic slowdown from the debt  - "The government debt-to GDP level of 104% in the U.S. does not even include gargantuan unfunded entitlement liabilities which many argue will reach levels greater than $100 trillion in the next 10 years. It could be argued that a U.S. growth rate of 2% might be the best case scenario for many years .. Low interest rates attempt to buy time. The idea is to bring consumption forward until the economy heals on its own as capital projects are completed .. The end result is ever-higher debt that borrows more and more from the future. Unfortunately, it borrows from the future without making the future any brighter through solutions to root causes of economic ailments .. High debt typically inflicts future financial stress. The burden magnifies if interest rates rise, or if the debt burden either cannot be rolled over or can only be refinanced at wider spreads." .. however his view remains bullish on U.S. Treasury bonds because of the global shortage of high-quality, risk-free, & positive-yielding collateral - "I still expect long-maturity Treasury yields to fall to all-time low levels in 2016. Other financial assets will not perform so well."

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