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Brett Arends' ROI
April 8, 2011, 12:00 a.m. EDT
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The truth about hedge funds
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Putting the squeeze on dividends
By Brett Arends
LONDON (MarketWatch) "” It's easy to watch this economic Duck Soup unfolding and think the debt crisis is entirely limited to penny-ante Freedonias in Europe.
Greece. Ireland. Now Portugal.
But do the math.
The national debts that finally drove Portugal to seek a bailout this week amounted, at the gross level, to 87% of gross domestic product, according to International Monetary Fund data.
Reuters People walk past closed shops in downtown Lisbon last month.
The same figure for the United States of America? Try 99%.
The massive budget deficit that finally broke Portugal in the bond market: 8.6% of GDP.
America's 2010 deficit? About 8.9%.
So maybe the question isn't whether the next country in line is Italy or Spain. It's whether it's closer to home.
Andrew Roberts, European bond-market strategist for the Royal Bank of Scotland here, said the countries of the world are quickly dividing into two camps: "the fiscally responsible and the fiscally incontinent." The bond markets, he added, are starting to punish those in the second camp: "The world's turning away from profligacy and toward responsibility."
I know a lot of people will respond by scoffing. "A Portuguese can't happen to us," they'll say. "We're America! We're No. 1!"
But that's no help. Quite the reverse, it's a problem. We're No. 1 in debts and in current account deficits. And no one can bail out America, because the economy is too big.
Airlines have raised ticket prices six times this year and then put the brakes on hikes recently. But WSJ's Scott McCartney says airfares could take off again, especially as oil prices remain above $100 a barrel.
America's gross national debts, at $11.5 trillion, are 32% bigger than the entire debts owed by all the countries of the euro zone, from Austria to Spain.
America's net national debts "” that's after shutting your eyes to the money owed to Social Security "” are 62% greater than all of the euro zone's.
Truth is, the three European countries that have folded their cards so far this crisis "” Greece, Ireland and Portugal "” are tiny. Their economies are tiny. Their debts, while big in relation to their economies, are also tiny in the grand scheme of things. If you added up the entire gross debts of Greece, Ireland and Portugal, they'd only come to about half of America's budget deficit just for 2011.
A financial crisis in Spain, or especially in Italy, would be of a different magnitude.
Yet the really big debt mountains aren't in Europe. They're in Japan, where the gross debts are now 230% of GDP, as well as in the United States.
At least Japanese households and companies are sitting on mountains of cash, which may help mitigate the country's fiscal disaster. In America we have no such cushion.
Given the size of the fiscal dangers, it is hardly inspiring to see the kind of childish finger-pointing in Washington, D.C. ahead of the possible government shutdown.
Sooner or later, America will put its fiscal house in order or the bond markets will do it for us.
Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for the Wall Street Journal.
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money," has just been published by John Wiley & Co.
Natural disasters, soaring commodity prices and ongoing economic crises are likely to keep a lid on dividends despite solid first quarter results.
8:41 p.m. April 7, 2011
"Is America the next Portugal? http://on.mktw.net/gf7KHk" 11:48 p.m. EDT, April 7, 2011 from MKTWArends
"The truth about hedge funds http://on.mktw.net/fdx311" 12:02 a.m. EDT, April 6, 2011 from MKTWArends
"Is Ireland really going bust? http://on.mktw.net/e5cXGm" 11:36 p.m. EDT, April 4, 2011 from MKTWArends
"Ponzi scheme hits mystery hedge funds http://on.mktw.net/i8iZju" 12:00 a.m. EDT, March 29, 2011 from MKTWArends
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