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Tuesday, January 03, 2012 3:09 PM

World’s Biggest Economies Face $7.6T Debt Led by Japan $3 trillion, U.S. $2.8 trillion; Rollover Problems in Japan and Europe

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With everyone watching debt rollovers in Europe, let's instead take a look at the total global debt rollover and debt issuance problem.

Bloomberg reports World’s Biggest Economies Face $7.6T Debt

Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.

Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg.

The amount needing to be refinanced rises to more than $8 trillion when interest payments are included. Coming after a year in which Standard & Poor’s cut the U.S.’s rating to AA+ from AAA and put 15 European nations on notice for possible downgrades, the competition to find buyers is heating up.
2012 Debt Rollovers and Interest Payments

Country2012 Bond, Bill Redemptions ($)Coupon Payments
Japan3000 billion117 billion
U.S.2783 billion212 billion
Italy428 billion72 billion
France367 billion54 billion
Germany285 billion45 billion
Canada221 billion14 billion
Brazil169 billion31 billion
U.K.165 billion67 billion
China121 billion41 billion
India57 billion39 billion
Russia13 billion9 billion

Japan's Problem

Remarkably, rolling over US debt is unlikely to be a problem. The same cannot be said for Japan. Because of demographics, pension plans will be net sellers of Japanese bonds. Unless balance of trade or tax revenues increase enough in 2012 Japan will not be able to roll this debt over at 1%. A rise to 3% would consume nearly all of Japanese revenues.

Europe's Problem

The ECB elected to kick the can down the road with a 3-year long-term refinance operation (LTRO).

For example, please consider Spanish banks use ECB cash to cover maturing debt-sources
MADRID, Dec 22 (Reuters) - Spanish banks will use the majority of the cheap long-term cash from the European Central Bank to cover steep 2012 debt maturities, market and banking sources said on Thursday.

Spain's banks face a massive spike in their funding needs next year with around 130 billion euros ($170 billion) of debt coming to maturity. Many banks took on 3-year, government-guaranteed debt in 2008, making up a large part of borrowing.

"The banks that have taken part in the auction have primarily done so to finance the hefty maturities that fall next year, mostly in the first half," said one savings bank source.
Also consider Italy banks almost halfway to 2012 funding needs
MILAN, Dec 22 (Reuters) - Italy's banks are almost halfway towards meeting their funding needs for 2012 after they tapped 116 billion euros of cheap long-term cash from the European Central Bank on Wednesday.

The ECB's first ever offer of three-year loans on Wednesday drew heavy demand of 489 billion euros from 523 banks, raising hopes a credit crunch can be avoided and that the money could be used to buy Italian and Spanish bonds.

The ECB will follow up with another similar operation in February in a move designed to directly help banks which need to raise capital.

A study by local broker Intermonte said 42-44 percent of total Italian bank funding and 75-80 percent of wholesale funding for next year had been raised on Wednesday.

The euro zone banks also have about 920 billion euros of liquidity existing with the ECB which indicates Italian banks could have some 230 billion.

On top of this are funds the banks can raise through the wide range of cash operations offered by the ECB.
Dollar Swaps Soar

That "wide range of cash options" no doubt includes the fact that European banks can borrow money from the Fed at a cheaper rate than US banks can. Please consider Demand for Dollars from Fed's Discount Window Swells in Europe by 12,735% After Fed Cut Rates on Dollar Swap Lines

There is considerable debate as to whether European banks are using cash from the ECB to purchase sovereign debt and capitalize on massive spreads but Italian banks deny the charge as noted by this clip from Reuters:

There is speculation that some banks will use the ECB funds not to boost the real economy but for carry trades on investment in high-yielding government bonds. "We intend to support the real economy as far as is possible given the stiff ties imposed by EBA," the CEO of UBI Banca Victor Massiah told Reuters."

There is also debate as to whether or not the LTRO can stop contagion. For a detailed discussion, please consider European Bank-to-Bank Lending Mistrust Hits Second Consecutive High; ECB's LTRO Won't Stop Collateral Contagion.

For now, massive Fed dollar swaps coupled with the ECB's first ever 3-year LTRO have temporarily calmed European debt markets, how long that lasts remains to be seen.

Mike "Mish" Shedlock
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