The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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From: regli	2/24/2005 12:43:34 AM
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Interesting Analysis by Peter Warburton From Kitco: ... Bizarro_Greenspan (Peter Warburton) ID#260332: Copyright © 2002 Bizarro_Greenspan/Kitco Inc. All rights reserved "Who has been buying the bonds? According to the Bank for International Settlements in Basel, a net $3.6 trillion of debt instruments were issued in 1999. It is naïve to suppose that these new issues are matched by a voluntary flow of global savings, garnered by pension funds, insurance companies, mutual funds, savings institutions and banks. The numbers simply don’t add up. The World Bank’s estimate of global GNP for 1999 is $29.2trn at current prices and exchange rates. Applying the gross saving rate for the OECD of 22%, yields an estimate of gross global saving of $6.4trn per annum, of which roughly two-thirds is deployed directly in the form of investment in physical assets. Of the remaining $2.2trn, some will be diverted to equities and property investments. How is it possible to finance $3.6trn of net bond purchases? Even allowing for potential asset switching in favour of bonds, the annual absorption of between $2.5trn and $4trn of net bond issues for the past 5 years is a mystery. It is solved only by the assumption of colossal financial leverage using money market borrowing. In other words, the absorption of colossal bond issuance is contingent on the availability of credit to financial institutions, not on the supply of savings. Ultimately, it is the commercial and investment banks that sponsor the bond market through the extension of credit facilities to their customers in the financial sector."

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