Government Debt Ring of Fire: The US is out, Norway is in? | Hacker News Reader

Government Debt Ring of Fire: The US is out, Norway is in?

pimco.com

39 pointscwan25 comments

Gross is spot on with Canada being an ideal country for investments. I think AUS needs to be thrown in too. Both countries have regulated oligopolies in their banking sectors, reducing competition and in turn risk for blow up. Both countries are much better in terms of government spending debt to GDP too. And they are endowed with natural resources that will be essential for supplying the materials necessary for building China, India, and other developing nations.

Couldn't agree more. I definitely like Australia over Canada because their government seems much more conservative in its spending habits (as indicated on the graph in the article) and their physical proximity to China and India give them a cost advantage in transporting commodities to fuel the growth.

I am Australian and am wary of investing in Australia, despite the many wonderful things about the economy over the last few years. The currency is at all time highs, meaning if you are a foreigner you are paying a historically high price for whatever you buy. The domestic economy is skewed toward resources largely funded by Chinese stimulus/speculation, which could turn on a dime. House prices are stratospheric and almost any rise in interest rates or unemployment (which are again at historic lows and have one way to go) will put the brakes on housing very quickly, leading to serious issues in the banking system and onward from there.

I am trying to persuade my parents to sell their house in Australia (which they no longer live in), diversify into beaten down currencies like the USD, and try to buy into a different asset class at the bottom, somewhere else. Possibly even US land or similar, if America takes its medicine.

I am Canadian and am wary of investing in the stock market in Canada because the behaviour of our government is simply to follow in the footsteps of the previous Bush administration in the United States. The government deficit has recently gone back up to levels it was at in the 80's and 90's. The domestic economy is skewed toward scamming investors into buying resources that may or may not be accessible. Following the US lead, housing prices somewhat collapsed and are mostly flat now. Unemployment numbers are unreliable as the numbers do not really reflect the numbers of people out of work. The city of Vancouver for instance has about 1200 homeless people but homeless people are not counted amongst the unemployed.

Our banking system is similar to the United States where the government borrows money as debt. In Canada, the government borrows debt money from private Canadian chartered banks that create the money virtually out of thin air. With the beauty of compound interest the government has paid out over $1.5 trillion dollars in interest alone. Most of our deficit and spending goes towards merely making payments on the interest to the private banks. Every government in the world could pay off their debt in an instant by creating debt free money out of thin air. The Bank of Canada has this power, but the Canadian government chooses to create money as debt.

I find it telling that both Canadians and Australians (on this board at least) are hesitant to invest in their own countries; which seem to outsiders as stable economies . The global economic crisis has truly reduced confidence everywhere.

Beware of PIMCO pubs-- they push their book.

Also, consider these comments:

You will note that missing from the chart is the $5.5 trillion in mortgages that the Uncle Sam has on their books, having followed Gross’ suggestion that the government make the GSE backing explicit instead of implicit.

Essentially, Gross is complaining that (amongst other factors) the government listened to him...

I'm not sure how much you should trust their numbers, because this:

>25% of homeowners are underwater

is probably not true. In the US less than 2/3 of houses even have mortgages and most of them are not in areas that dropped in value significantly (my house's appraisal went up slightly last year, after going down about a third of that 3 years before that). And from what I have read, most countries have a smaller percentage of home mortgages than the US does.

(This is from memory from general reading - that's why I wrote probably - I didn't feel like digging for the specific numbers.)

And just think, 10 years ago we were sitting on the X axis as far as current deficits and somewhere in between 25-50% for overall debt as a percentage of GDP.. we were solidly in the green zone.

And 10 years ago a US 10 year T bill was paying around 6%

Why is anyone buying our T bills now when we are a worse credit risk and they are paying <4%

and they are paying <4%

Try <0%

http://www.zerohedge.com/article/flight-capital-back-1-month...

That is for 1 month T-Bills. For 10 year T-Bills it is around 3.75%

It's not a big deal, but the bills are a year or less, and the longest is fetching an awesome 0.3 percent

http://www.bloomberg.com/markets/rates/index.html

5 hours later, they dropped 7 basis points. Unreal.

Because most of the other major developed world sources of government debt are probably in worse shape than we are.

Yep, risk premium -- people go to the dollar in times of stress.

As long as we actually maintain our position as the world's most stable economy, that is. Doubling our debt in the last decade didn't help. What did we see from that again?

Tax cuts in capitol gains, lowering the tax rate on income over $250k/year, and yet another protectorate to add to our collection.

You mean to tell me you didn't benefit from those tax cuts?

> Tax cuts in capitol gains, lowering the tax rate on income over $250k/year,

And the tax system became more progressive. The share of taxes paid by the top 1, 5, and 10% went up.

> You mean to tell me you didn't benefit from those tax cuts?

Now half of US workers don't pay federal income tax. It's hard to cut their taxes more. (Yes, the poor pay SS, and it's a greater percentage of their income, but they get it back with interest. The rich don't break even on SS.)

Is that good?

What fraction of the tax burden should fall on each income cohort?

No, it didn't, the distribution of wealth just intensified. More $, more taxes.

The % of income paid as taxes by those people went down. As a matter of fact, people in the top tax brackets typically pay a lower % of their income in taxes than their secretaries.

EDIT: Also, where does this persistent myth that "half of all people pay no federal income taxes" come from? They do pay federal income tax. When I had summer jobs I paid income tax beyond FICA. When I made small money right out of college I paid income tax beyond FICA. I'm guessing it's the same story for you, as well. Poor memory?

> The % of income paid as taxes by those people went down.

How about some actual data? Note that tax rates aren't the whole story.

And, even if it was true, that doesn't tell us what fraction of the tax revenues that they're paying.

Do you really think that it's good when most people don't have much, if any, skin in the game? (As CA is discovering, collecting the bulk of your revenue from a small number of people makes tax revenues very volatile.)

> As a matter of fact, people in the top tax brackets typically pay a lower % of their income in taxes than their secretaries.

Nope. They pay higher rates on their earned income and they pay higher rates on the investment income. You're "confusing" the two.

And, their deductions are phased out.

> Also, where does this persistent myth that "half of all people pay no federal income taxes" come from?

The IRS. http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521...

The relevant data is formatted better in http://www.taxfoundation.org/news/show/250.html

> When I made small money right out of college I paid income tax beyond FICA.

You may have had it deducted fromyour paycheck, but unless you were someone's dependent, you could have gotten it refunded.

Capital gains is taxed at a lower rate than your first 50k of income. Because of the lack of FICA if nothing else. 15% is lower than most people are paying on their income.

Same with the top tax brackets. Your 2nd million dollars will be taxed at around 35% if my memory is correct. If you're making 50k, you're paying more than 35% of your income in taxes. (fed + fica + medicare)

From each according to his ability, to each according to his need. Karl Marx

Well, according to supply-side economics, it reduced the deficit. That helped all of us!

> Tax cuts in capitol gains

Didn't Obama promise that during the SOTU last night. If so, what's your objection to Bush actually doing so?

where on earth do you get your title from? the us is in the ring; norway is nowhere near it.

Pimco's "Ring of Fire" describes the risk of various sovereign securities. Those in the ring are considered to be getting riskier while those outside of the ring are moving in the other direction. Therefore they imply Norway is becoming more attractive by being outside the ring while the US is less so inside the ring (though to keep the title short, it does mix metaphors a bit).

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