Thursday, February 25, 2010

The Circle Of Debt

Creative Destruction and Government Dinosaurs

As I sit to write to you on a Thursday, I feel at a double disadvantage. Some weeks are more “interesting” than others, and this may well be one of them. Given the backdrop, there could be some wild new headline roiling the world by the time you read this.
The second disadvantage is a feeling of mental exhaustion. On the whole, the past few weeks have been nuttier than any we’ve seen since the Lehman/AIG days of Fall 2008.
Thanks to its stark simplicity, the above chart from Dylan Grice at Societe Generale cuts through the clutter. It shows the difference between “official” net debt and total liabilities for a number of Western governments.
The red bar is the official debt (shown as a percentage of GDP). The gray bar is what you get when all the “off-balance sheet” stuff is thrown in. Our governments are lumbering dinosaurs, and the meteor of sovereign debt risk is coming.