Link Between Banking Crises and Sovereign Debt Crises; U.S. Rents Surging; China Impact Limited

November 13, 2012



Ricky Sander is short French and Spanish debt, long options on U.S. rates, cautious on economy ~ II Mag

"Banking crises and surges in public debt help to “predict” sovereign debt crises." ~ Reinhart and Rogoff (2011) ~ IMF (pdf)

  • World War I and Great Depression debt were largely resolved through outright default and restructuring.
  • War II debts were often resolved through financial repression and is likely to play a big role exit strategy from the current buildup ~ R&R

A large real GDP decline forecasts debt crises ~ Levy-Yeyati and Panizza (2011) – #Japan, #France

Global economic slowdown and protests in China hurt exports in Japan, where economy is now down 3.5% year-on-year ~ BBC

Adaptation of Exter’s Pyramid ~ Wiki, Kitco



Rent up nationwide 3.3%, according to Bloomberg, but @federalreserve says there’s no #inflation – prices that matter I, II


Government bonds have returned 31 percent since mid-2007, with reinvested interest based on the Bank of America Merrill Lynch index, while the MSCI All-Country World Index of stocks has lost 4.2 percent with dividends


The Spillover Effects of a Downturn in China’s Real Estate Investment ~ IMF (pdf) ~ IMF (pdf)

  • A 1% point slowdown in investment in China is associated with a reduction of global growth of just under 0.1%.

Not much really, other studies show less than ten percent of S&P revenues come from China. The impact on financial markets could be more different, something along the lines of the Russia default (~ 20%)

Investors are monitoring China’s seven-day REPO rate for an early crisis warning indicator from banking-sector liquidity ~ Bloomberg

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