Mini séance plénière au Parlement européen

Les députés du Parlement européen se réunissent en mini séance plénière à Bruxelles aujourd’hui de 15h00 à 20h00. Toutes les sessions de plénières du Parlement européen sont disponibles en cliquant sur l’onglet EPTV sur le site du Parlement européen en haut à droite. Actuellement une discussion sur les réformes à adopter pour lutter contre le terrorisme suite aux attentats contre Charlie Hebdo à Paris.

Risques opérationnels, risques de marché, risques de crédit…

A l’occasion d’un passage à Paris, j’ai eu l’opportunité de rencontrer un analyste travaillant dans une entreprise de conseil destinée aux grands comptes et banques d’investissement …

Ce dernier m’a remis des documents, dont certains confidentiels, sur la réglementation bancaire avec des informations notamment sur les réglementations du comité de Bäle et de la banque des règlements internationaux.

Je ne suis pas autorisé à les divulguer.

Les risques se composent de 3 catégories : les risques opérationnels, risques de marché et risques de crédit. Les risques opérationnels sont liés à des catastrophes naturelles, ou des interventions humaines regrettables, les risques de marché liés à des fluctuations de prix innatendues, les risques de crédit à la défaillance d’un débiteur.

International Man newsletter, an interesting weekly newsletter, and an example of article

I remember exactly how I discovered International Man. I was reading the economist weekly print magazine and heard about this online publication within one of their article. I subscribed to the international man newsletter and since then, I got every week my mail with a weird article inside. I know now for sure that business and rich people dealing with several countries need to have two citizenship and two passport rather than only one, how to acquire a new citizenship, especially from republic of dominique for an important amount of money without even being living on the country. I don’t even have to go there to get the nationality. Having two passports, rely on two law systems with differences from the US tax system, getting low fee while getting cash through an ATM, avoid taxes, prepare your company for taxes evasion, all this kind of stuff International man is dealing with.

There is a long article about the USA government debts I found very interesting, quite enough to be shared on my website 😉

The overleveraging of the US federal, state, and local governments, some corporations, and consumers is well known.

This has long been the case, and most people are bored by the topic. If debt is a problem, it has been manageable for so long that it no longer seems like a problem. US government debt has become an abstraction; it has no more meaning to the average investor than the prospect of a comet smacking into the earth in the next hundred millennia.

Many financial commentators believe that debt doesn’t matter. We still hear ridiculous sound bites, like “We owe it to ourselves”, that trivialize the topic. Actually, some people owe it to other people. There will be big transfers of wealth depending on what happens. More exactly, since Americans don’t save any more that dishonest phrase about how we owe it to ourselves isn’t even true in a manner of speaking; we owe most of it to the Chinese and Japanese.

Another chestnut is “We’ll grow out of it.” That’s impossible unless real growth is greater than the interest on the debt, which is questionable. And at this point, government deficits are likely to balloon, not contract. Even with artificially low interest rates.

One way of putting an annual deficit of, say, $700 billion into perspective is to compare it to the value of all publicly traded stocks in the US, which are worth roughly $20 trillion. The current US government debt of $18 trillion is rapidly approaching the stock value of all public corporations—and that’s true even with stocks at bubble-like highs. If the annual deficit continues at the $700 billion rate—in fact it is likely to accelerate—the government will borrow the equivalent of the entire equity capital base of the country, which has taken more than 200 years to accumulate, in only 29 years.

You should keep all this in the context of the nature of debt; it can be insidious.

The only way a society (or an individual) can grow in wealth is by producing more than it consumes; the difference is called “saving.” It creates capital, making possible future investments or future consumption. Conversely, “borrowing” involves consuming more than is produced; it’s the process of living out of capital or mortgaging future production. Saving increases one’s future standard of living; debt reduces it.

If you were to borrow a million dollars today, you could artificially enhance your standard of living for the next decade. But, when you have to repay that money, you will sustain a very real decline in your standard of living. Even worse, since the interest clock continues ticking, the decline will be greater than the earlier gain. If you don’t repay your debt, your creditor (and possibly his creditors, and theirs in turn) will suffer a similar drop. Until that moment comes, debt can look like the key to prosperity, even though it’s more commonly the forerunner of disaster.

Of course, debt is not in itself necessarily a bad thing. Not all debt is for consumption; it can be used to finance capital goods, intended to produce further wealth. But most US debt today finances consumption—home mortgages, car loans, student loans, and credit card debt among other things.

Government Debt

It took the US government from 1791 to 1916 (125 years) to accumulate $1 billion in debt. World War I took it to $24 billion in 1920; World War II raised it to $270 billion in 1946. Another 24 years were needed to add another $100 billion, for a total of $370 billion in 1970. The debt almost tripled in the following decade, with debt crossing the trillion-dollar mark in October 1981. Only four and half years later the debt had doubled to $2 trillion in April 1986; four years more added another trillion by 1990; and then in only 34 months it reached $4.2 trillion in February 1993. The exponential growth continued unabated. US government debt stood at $18 trillion in early 2015. Off-balance-sheet borrowing and the buildup of massive contingent liabilities aren’t included. That may add another $50 trillion or so.

In 1964—the year Lyndon Johnson was elected—US federal debt stood at $316 billion, and interest on it was $10.7 billion, which was equal to 14.8% of personal and corporate tax revenues. When Reagan left office in 1989, the debt stood at $3.2 trillion, and interest was $214 billion, taking 43% of tax revenues. When Bush left office in 1993, the debt stood at $4.2 trillion and interest at $293 billion, consuming 52% of personal and corporate income taxes.

As of fiscal-year 2013, there was $16.8 trillion in federal debt and $416 billion in interest payments, which consumed about 15% of tax revenues. When interest rates rise again, even to their historical average, the US government will find most of its tax revenue is going just to pay interest. There will be little left over for the military and domestic transfer payments.

When the government borrows just to pay interest, a tipping point will be reached. It will have no flexibility at all, and that will be the end of the game.

In principle, an unsustainable amount of government debt should be a matter of concern only to the government (which is not at all the same thing as society at large) and to those who foolishly lent them money. But the government is in a position to extract tax revenues from its subjects, or to inflate the currency to keep the ball rolling. Its debt indirectly, therefore, becomes everyone’s burden.

The consequences of all this are grim, but the timing is hard to predict. Perhaps the government can somehow borrow amounts that no one previously thought possible. But its creditors will look for repayment. Either the creditors are going to walk away unhappy (in the case of default), or the holders of all dollars are going to be stuck with worthless paper (in the case of hyperinflation), or the taxpayers’ pockets will be looted (the longer things muddle along), or most likely a combination of all three will happen. This will not be a happy story for all but a few of us.

Excessive debt causes massive distortions in the economy. These distortions are a speculator’s best friend and should give us the opportunity pick up distressed assets for pennies on the dollar.

Of course, the US isn’t the only country with a debt problem or other crisis. There’s always a bottom-of-the-barrel crisis market somewhere in the world. These contrarian opportunities—hidden in crises— have historically generated large investment returns.

Each month Doug Casey and Nick Giambruno do all the heaving lifting for you and scour the globe for the best crisis investing opportunities in the Crisis Speculator publication.