2012年6月16日星期六

The risk of external debt


Economists and journalists are usually foreign debt risks, contrast, domestic debt is not so troublesome. Japan is a real example. Japan has a huge foreign debt, public debt to GDP ratio of more than 200%. Need to be discussed is the high ratio is not a problem, because the Japanese deposit, government bonds are mostly held by the Japanese people; its domestic debt is the problem.
On the contrary, the public debt to GDP ratio (expected to reach the end of this year, 80%) is much lower, Spain, considered by many investors even more unstable. Vulnerability of one of the reasons of the Spanish economy Spanish half of the foreign debt held by foreigners.
At first glance, such reasoning will doubt. In fact, as a single individual living in Spain, I do not mind my borrowing from a Spanish friend or German friends. Why is not the same as the Spanish Government? Why mind the loan from the Spanish or German? The government is essentially a machine of violence or the use of violent means to threaten the machine. The country is a regional monopolist of violence. Violence each. The domestic debt by the tax increase revenue for the national government through the threat of violence. This means that tax by the government, part of the interest generated by the internal debt back to the government. On the contrary, the foreign debt interest rates taxation by foreign governments.
In addition, there are more compelling reasons to explain the importance of the monopoly of violence: the maturity of the loan, regardless of my Spanish friends or my German friends, I can not force them to extend the loan period. The government can not force individuals outside its territory to extend the loan period, was able to force the citizens and institutions within their jurisdiction to extend the loan period. More subtle ways, by giving financiers, banks put pressure on extension bonds.
A mutually beneficial relationship between the Bank and the Government. Government grant of banking privileges to focus on idle funds, and guarantee to help banks out of the woods. Another support for banks, bank liquidity problems through government-controlled central bank for help. In addition, the Government enacted a series of rules and regulations to constrain the banking system. Out of thin air to making money, silver and then to use this power to buy government bonds support the Government in return for this privilege.
Because of this close relationship and the violence of the Government monopoly, the Japanese government can put pressure on its banks to extend its outstanding debt maturity, you can also stop the banks suddenly sell bonds, and even encourage banks to hold more debt. However, the Japanese Government can not force foreigners do not sell the bonds can not force them to hold more bonds. Governments such as the external debt of the Government of Spain, there is risk.
Although the Bank of Spain and the investment fund will not use the Spanish government bonds to the impact of the Spanish market, while foreign institutions could have done so. The Spanish Government can not "persuade or force them to give up, because foreign institutions are not under the jurisdiction by Spain. Government of Spain, the only thing to do (the edge of the national government in fact do so) is to put pressure on the partner countries politicians, these politicians put pressure on domestic banks so that the bonds recorded in the book, and to extend the repayment time.
The external debt of the same threat to the U.S. government. China, Japan and other central banks hold large amounts of U.S. government bonds. Fidelity, as long as other countries' governments, especially the threat of Chinese government bonds into the market, will increase their political bargaining chip.

The trade deficit, then how?

Speaking of monetary stability or continuity of government bonds, the balance of trade (import and export of goods and services balance) is equally important.
Trade surplus (deducting factor income and transfer payments) means that a country's accumulated foreign assets. With the accumulation of foreign assets, strong national currency. Foreign assets can be used in times of crisis to pay damages. Japan is just one example. After an earthquake in March 2011, foreign investors returned to Japan, for the necessary import bills. Japanese citizens to sell dollars and euros to repair damaged home. There is no need to sell domestic assets to foreigners, or else give the yen caused by pressure.
Japanese entrepreneurs surplus is also shown on the balance sheet of the Bank of Japan. Bank of Japan to buy foreign exchange from its exporters. These reserves for a crisis to reduce the public debt or hedge against inflation for the yen in the foreign exchange market. In fact, if the Japanese bank's foreign exchange reserves are included, Japan's public debt whole decline 20 percent (more than one trillion U.S. dollars). In this way, the trade surplus to strengthen the national currency and maintain the stability of the bond.
On the contrary, the trade deficit (deducted from the elements of income or transfer payments) resulting in a net foreign debt. Imported goods than it exports goods. This requires the addition of new debt to make up the difference. These liabilities are usually held the form of government bonds. A country by the annual trade deficit is likely to lead to large external debt, so that the government will produce many of the problems, these problems we have already discussed. The trade balance is also the level of a country's economy competitive indicators and indirect indicators of currency quality. A country's economy more competitive, the government can tax from the real economy to support its currency in circulation, and does not fall into the public debt crisis. Moreover, a country's economy more competitive, the country is unlikely to get rid of the public debt predicament by printing money.
The trade surplus is a sign of competitive contrast, the trade deficit. In fact, the long-term trade deficit is a sign of lack of competitiveness, followed by a high level of public debt, and then even more uncompetitive.
Some countries, such as southern European countries pay a high fixed wage, has been the trade deficit may be uncompetitive. This lack of competitiveness constantly continues, the government requires high expenditures. Southern eurozone governments need to hire people into the large public sector pension huge staff, as well as early retirement schemes, the unemployed grants, or unemployment caused by the lack of flexibility of the labor market consequences would be serious. The consequences of government massive spending is not only the lack of competitiveness, the trade deficit, the government deficit. Therefore, the large trade deficits and government deficits go hand in hand.
Imported goods of the European periphery countries with loans to pay. The trade deficit with the rising government deficit will not continue. Greece and other countries continuing trade deficit is interpreted as lack of political will to reform the labor market and regain competitiveness. Therefore, the persistent trade deficit will lead to heavy selling of currencies and bonds. On this point, Germany's trade surplus in supporting the value of the euro, while the edge of the country's trade deficit weakens the value of the euro.
Overall, the high level of public external debt and trade deficit continued to show that the weakness of the currency of a country. Government would have to debt default or printing money to solve the problem. On the contrary, the low level of public external debt and sustained trade surplus to strengthen a country's currency.



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