Rising Debt Burden & Falling and Rising Rates


Three links from Seeking Alpha’s Wall Street Breakfast: Must-Know News today really underscore the intractable debt and interest rate problems in irredeemable currency.

Corporate pension deficits soar. The WSJ shines a light on the significant funding gap in corporate pension plans, with the deficit among Russell 3000 companies rising to $441B in 2012 from $392B in 2009 despite the funds adding $1T in assets. The causes of the problems include the Fed’s record low interest rates, Moody’s downgrade of several major banks last summer, and increasing life expectancy.

Firms raise $9.9B in bonds. Low interest rates may be hurting corporate pension funds, but companies continue to exploit the opportunity to issue debt on the cheap, with eight yesterday selling $9.9B in bonds. Pepsi (PEP) led the way by raising $2.5B, followed by UnitedHealth (UNH) with $2.25B and Caterpillar Financial Services (CAT) with $1.1B.

Yields spike in Italian debt auction. The results of the Italian election has immediately hit the government where it hurts, with yields jumping to 1.24% in an auction of €8.75B in 6-month Italian bonds from 0.73% in a sale in January. The bid-to-cover ratio fell to 1.44 from 1.65.

Our take-away: in the dollar system, liabilities remain constant or even rise as assets fall (fail). As the rate of interest falls, corporations borrow ever more. And the endgame is when they arrive at Greece. Italy is now moving towards Greece.

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