This contribution comes from Marc Chandler of Brown Brothers Harriman, one of my favourite currency strategists. His latest missive highlights the huge amount of debt being issued by sovereigns. It is not just the United States.:
Much of the supply angst on Wall Street appears aimed at the US Treasury, which due to the [...]

The following is a translation of an article by Dr. Artur P. Schmidt, a well-known economist and economic journalist in Switzerland. Schmidt is also a keynote-speaker, who speaks regularly about new media, technology, future trends and knowledge creation.

Recently, he warned that Switzerland faces potential bankruptcy if it does not act to stem losses by its banks and in Swiss Francs in Eastern Europe.

Now he turns to the United States. While I do not agree with everything he writes (I see Glass-Steagall as less important than lack of regulatory oversight), the general tone and overall analysis is spot on regarding interest rates, bailouts and savings. He also has some interesting words to say about how the inflationary policy in Washington is making other nations pay for debts incurred in America.

I should warn you that this analysis at the end of this missive is ‘leftist’ in tone — quite a bit more than what you have seen me write. However, given the huge disparity in income that has built up over the last 35 years in the United States, Schmidt’s analysis does have merit. For my take on similar issues of wealth distribution, see my post, “A populist interpretation of the latest Boom-Bust cycle.”

From the Financial Post:
American Express Co., the largest U.S. credit-card company by purchases, is paying some cardholders US$300 each to close accounts so the lender can reduce the risk of defaults as the recession deepens.
People who got the offer to “simplify” their finances must pay off their entire credit-card balance by April 30, according to [...]

Jim Leng, the new Chairman of troubled mining giant Rio Tinto has quit abruptly despite having been employed by the company for only one month. This does not bode well as the company’s mountainous debt is at the core of why Leng is leaving the firm.

Bloomberg quotes Leng as saying “there has been a difference of opinion over which option the company should pursue.” Rio has “‘a financial issue to resolve in terms of its debt and repayment. I am hopeful that my resignation will enable the board to reach a consensual decision.”

U.S. consumer spending contracted more than anticipated in December 2008, declining by 1.0%. However, this number is a look into the past and does little to help predict how spending will trend going forward.

Recently, I posted a video of Peter Schiff making the argument for small government and resisting stimulus. As I see much to like in Peter Schiff’s views, I sympathisize with the broad themes of his message. However, I do not feel he is realistic about what is politically feasible or understands the negative consequences of a ‘let them eat cake’ approach to governance.

Nevertheless, I would have to admit I sounded a lot like Schiff a few months ago and that I have ‘evolved’ away from his viewpoint. Reader Stephen rightly asks “Does ‘Depression Economics’ Change the Rules?” So, the questions I ask myself in this evolution are the following:

Just months ago, Rio Tinto was a behemoth swaggering from the huge run up in commodity prices. This is a company that had revenue of nearly $30 billion and net income of nearly $8 billion in 2007. It was worth over $160 billion by May as the commodities boom took shape.

They were everywhere: building projects in Saudi Arabia, resisting a takeover by BHP Billiton and operating across the globe. Most of that is history now, except for the debt.

You have probably never heard of Glencore. Well you have heard of its founder Marc Rich, the man infamously pardoned by President Clinton before he left office. And I suspect that you will soon hear a lot more about the company as well.

Glencore is a metals production and trading company based in Switzerland. It is one of the largest privately-owned companies in the world and a very large employer in Switzerland. The problem is that commodities prices have been absolutely decimated. So, the secretive Swiss company’s credit default swaps are trading at huge premiums, something we alluded to last month.

The obvious question is: why is that? Unfortunately, the answer is: nobody knows. But rumors of financial problems are mounting.

My Austrian School background has been useful as a lens through which to view the credit bubble and crash. Central to this view is the precept that easy money is the problem and not the solution. However, as the crash has unfolded, I find myself parting ways with the Austrians. I have always felt the Austrians are more useful for their economic framework. But they leave me underwhelmed when it comes to solutions for when problems occur. Their “Let them eat cake” approach comes dangerously close to Andrew Mellon’s draconian Depression era prescription and is more likely to end in a deflationary spiral and a worsening of the problem.

And so it is today. If we are to find our way out of this crisis — the worst in three quarters of a century — it will not be the ideas of Ludwig von Mises or Murray Rothbard which will guide us. It is more the work of John Maynard Keynes and his followers that is likely to offer useful prescriptions. As much as I would like to look to the Austrian School in this crisis, I cannot. These are the confessions of a former Austrian Economist.

The Tribune was simply over-leveraged with a balance sheet made for this age of debt, leverage and bubbles. Note the lack of equity and the enormous debt load. Why would anyone, especially someone as savvy as Sam Zell load up a declining business with this much debt? Was it greed, hubris? It seems inexplicable to me.