Tito's Blog

Economist and FT on Private Deleverage vs Public Borrowing

Martin Wolf explains why extra government borrowing will be met by increased private (mostly corporate) savings, à-la Japanese lost decade. In general it makes a lot of sense, even though it makes two strong assumptions:

1. the somewhat paradoxical net flow of capital from developing to mature countries via reserve accumulation and currency manipulation will continue indefinitely
2. dollars and pounds will still be considered a safe heaven

On private corporation deleverage, The Economist has a good article on this week print edition (“Show us the money”) on increased cash generation by US and UK companies, due to lower investments.

Tax Revenues And Expenses Per Average U.S. Worker

Average US worker pays $14,460 in tax; government spends $16,897.

To begin with the revenue side, the average employed worker paid $12,748 to the Federal government in the fiscal year ending September 2009. The company he or she works for chipped in $1,712/worker in the form of corporate income taxes. So that works out to $14,460 per employed person in Federal government revenue. In case you are curious about total per capita, every man, woman and child in America pays just over $6,000 in taxes annually.

So, against that $14,460 per employed tax payer, how much does the government spend on their behalf? Let’s step through the most well-known programs for the 2009 fiscal year.

• Social Security: $4,180 per worker
• Medicare: $3,745 per worker
• Medicaid: $1,892 per worker
• Educational Programs: $1,436 per worker
• Defense Vendors: $2,935 per worker
• Federal Salaries: $1,341 per worker
• Unemployment Benefits: $894 per worker
• Food Stamps: $384 per worker

Source: Nicholas Colas at BNY ConvergEx

The Math Of Debt Sustainability

I’ve been playing around on a simple google spreadsheet on debt sustainability. The math of an indebted country with little GDP growth and a primary (i.e. before interest payments) deficit is rough and will ultimately lead to a debt spiral. Interesting how people forget about the exponential dynamics of interests and debt.

A €1.5 Trillion Portfolio Of European Periphery Debt

Managing that portfolio is Maria Cannata’s job, the public officer in charge of selling Italian government bonds on the market.

Possible reasons for optimism on Italian treasuries:

• A woman is in charge of selling our bonds, Maria Cannata
• Italian Treasury has €25 billion in cash deposited in a bank account
• Average maturity of debt is 7.1 years

Let’s hope for the best, June and August 2010 are the worst months in terms of redemption of Italian government bonds, with over €45 billion coming due.