Tag Archives: debt to GDP ratio

Bank run in Spain

Bank runs are contagious because panic is contagious.
Yesterday, I did a post on bank runs in Greece: almost $1.27 billion has been withdrawn from Greek banks in the last 10 days.
Today, it’s Spain’s turn.
Over the past week, €1bn ($1.3 billion) has been withdrawn from just one bank in Spain — the part-nationalized Bankia.

The Financial Times isn’t calling it a bank-run because that’s a scary word. But that’s what it is.
Alexandra Stevenson reports for the Financial Times, May 17, 2012:
“Shares in Bankia, the Spanish bank that was part-nationalised last week, plunged by more than a quarter on Thursday morning, after a report that customers had withdrawn €1bn from the bank over the past week.
Shares fell 27 per cent to €1.21 after El Mundo, a national Spanish newspaper, reported customers had withdrawn the sum, citing information from a recent board meeting.”
From Reuters:
“The government on May 9 took over Bankia, the country’s fourth-largest lender, in an attempt to dispel concerns over the bank’s ability to deal with losses related to the 2008 property crash.
Uncertainty over the final cost of Spain’s banking reforms has stoked investor fears that an expensive international bail-out could be on the cards, adding to concerns about the survival of the euro zone.
The amount of money the report said customers have withdrawn from Bankia, which holds around 10 percent of Spanish deposits, is equivalent to around 1 percent of the lender’s retail and corporate deposits.
[…] One source close to the bank said money had been leaving Bankia even before the nationalization. “I think that’s why the government stepped in to nationalize it so quickly,” the source said.”
On April 3, 2012, Reuters reported that Spain’s public debt has increased to its highest level since the 1990s, and that the country’s debt-to-GDP (gross domestic product) ratio is expected to soar to 79.8% in 2012, from 68.5% just last year.
In comparison, Greece’s debt-to-GDP ratio is 120%. That means Greece’s national debt of $1.3 trillion is 120% of its GDP.
Lest you think America is hunky dory, our national debt now exceeds our GDP, which economists consider a danger sign. The last time I saw a report, which was in February 2012, the ratio of our debt to GDP was 101%. As a point of comparison, although the ratio increased to 41% at the end of the 1980s, it decreased to a “mere” 31% by 2001, then increased to 62% by the end of fiscal year 2010.
In other words, in less than two years (we’re not yet at the end of fiscal year 2012), Obama and the useless Congress had expanded America’s debt to GDP ratio from 62% to 101%!
~Eowyn

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Bank runs in Greece as country spirals out of control

Yesterday, May 15, 2012, CNBC reported that Greek depositors withdrew 700 million euros ($900 million) from the nation’s local banks recently.
That’s a straight quote from Greek President Karolos Papoulias, who was citing a conversation he had with Greek Central Bank Governor George Provopoulos. Papoulias admits, “the strength of banks is very weak right now.”
Turns out the $900 million figure is too low.
Tyler Durden of ZeroHedge reports that Papoulias announced this morning that almost $1.27 billion has been pulled from Greek banks in the last 10 days. Papoulias said he had been warned by the central bank and finance ministry that the country faced “the risk of a collapse of the banking system if withdrawals of deposits from banks continue due to the insecurity of the citizens generated by the political situation”.
Durden writes that if Greece defaults on its $1.3 trillion debt, “forget the drivel that you read in the press because it will not just be the sovereign debt but the municipal debt, the derivatives, the bank debt, the corporate debt and all of the obligations of the country that will fall into the sinkhole of no return.”
Attempts to form a government in Greece collapsed yesterday, jolting financial markets at the prospect that leftists opposed to the terms of an EU bailout could sweep to victory in a June election and nudge the euro zone crisis into a dangerous new phase.
Meanwhile, Spain is going down the toilet. This morning the Prime Minister of Spain said that “Spain faces the serious risk of being shut out of the markets.” ZeroHedge sees that comment as the precursor to Spain turning to the European Union and the IMF for help: “In Spain we are faced with bare bones arithmetic where the country cannot bailout its Regional debt and its back debt because they do not have the capital to do either; much less both.”
Take a look at this graph, showing the jobless rate in Spain to be worse than Greece’s (click graph to enlarge):

Greece’s $1.3 trillion debt may seem puny compared to the United States’ $16 trillion national debt, but Greece is a small country. A more meaningful statistic is its debt to GDP (Gross Domestic Product) ratio, which is 120%. That means Greece’s national debt of $1.3 trillion is 120% of its GDP.
Lest you think America is hunky dory, our nationa debt now exceeds our GDP, which economists consider a danger sign. The last time I saw a report, which was in February 2012, the ratio of our debt to GDP was 101%. As a point of comparison, although the ratio increased to 41% at the end of the 1980s, it decreased to a “mere” 31% by 2001, then increased to 62% by the end of fiscal year 2010.
In other words, in less than two years (we’re not yet at the end of fiscal year 2012), Obama and the useless Congress had expanded America’s debt to GDP ratio from 62% to 101%!
~Eowyn

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Japan admits "We are worse than Greece"

While the world was fixated on the European Union’s bailout of bankrupt Greece, across the ocean on the other side of the world is an even bigger fiscal disaster.
Tyler Durden of ZeroHedge writes on March 13, 2012, that according to a Bloomberg report, a Japanese Ministry of Finance official said that “Japan is fiscally worse than Greece.”
At a recent conference in Tokyo, Yasushi Kinoshita disclosed Japan’s 2011 fiscal deficit was up to 10% of the country’s GDP, and its debt-to-GDP ratio has soared to over 230%.
Durden observes that since a large amount of Japanese government bonds are held domestically, this means the Japanese financial system is much more vulnerable to fiscal shocks – especially oil and other energy pricesthan Europe.
It wasn’t that long ago — in the 1980s — when Japan was touted as the East Asian Miracle that would surpass the United States to become Number One. But just when some Japanese were crowing that Japan could “say no” to America and would no longer be content with being America’s kobun, its economic bubble burst, casting the country into a recession that spanned the 1990s, from which it is still struggling to emerge.
As the world’s 3rd largest economy (by nominal GDP), 4th largest exporter and 4th largest importer, Japan’s worse-than-Greece fiscal woes are sure to have global repercussions.
~Eowyn

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