FUN WITH FIGURES – If any economic number clearly demonstrates the perilous waters now being entered by the United States government, it is the US National Debt data.  This past Friday, the US Treasury reported that for the first time in history, the US National Debt exceeded fifteen trillion dollars!  However, it is not only the magnitude of the number that is of great concern, but of even greater importance is the rate of change in that figure.

Here is the raw data. 

The US National Debt first exceeded five trillion dollars in 1996; two hundred and seven years after America became an official nation.

 

The US National Debt first exceeded ten trillion dollars in September, 2008 – just twelve years later!

The US National Debt first exceeded fifteen trillion dollars in November, 2011 – just three years and two months later!

If that trend doesn’t scare the devil out of our readers, it is hard to imagine what might overcome their financial complacency.  And, in our opinion, the dice may be already loaded toward even greater acceleration in the future as any increase in interest rates will result in massive increases in terms of interest on that debt down the road – all of which will be added to future debt and deficit numbers.

When we take note of the above comment, it becomes apparent that the most perilous danger of all to government finances is interest rates going forward.  Given the mammoth quantities of government debt already in existence, plus the ongoing floods of new debt, the potentially horrendous consequences of rising interest rate levels can be clearly understood.

With that in mind, we find an article in this morning’s financial press to be of great concern.  As readers must know, one of the headline-grabbing events in the financial world has been the recent steep rise in interest rates being paid by many European nations, a fact which has led to increasing concerns regarding the future stability of countries such as Greece, Italy and Spain, among others.  In fact, the rate on Spanish government short term debt has now soared above the five percent level for the first time in the history of the Eurocurrency.

And now, in the latest development, mighty Germany, regarded as by far the soundest economy in Europe, has now found that fewer investors are standing in line for their low-interest government paper and pressure is beginning to build toward higher interest rates in that nation as well.  It has just been reported that a low-interest government debt auction has failed to attract sufficient numbers of buyers and a portion of that auction when unsold.  As the Wall Street Journal reported this morning, “...The German government was able to sell only 3.644 billion Euros out of their six billion Euros 10-year bond auction for an average yield of 1.98%.  Observers said the result was the worst in recent memory for a government-bond sale...Investors are worried the crisis has now spread to Germany itself.”

News of this German debt auction failure has infected quotes on the Euro (see chart) which has now fallen to its lowest level since early October and which now threatens to plunge through support in the 1.32 area.

One of the measures used to calculate the stability of debt issuance is known as “credit-default swaps” and the cost of such protection is now clearly on the rise, reflecting growing concern about the safety of such investments.  The news on that front is negative as well and the Wall Street Journal article concluded that, “...The cost of insuring European debt against default using credit-default swaps also moved higher in early trading Wednesday, with even bonds from core countries such as Germany now costing more to insure.  Italian, Spanish and French debt insurance costs shot up to record highs.”  At TMR, we find it most interesting that France is now being discussed more and more frequently in comparison with Italy and Spain who are obviously far along the path toward ominous difficulties.

As we have noted in this space previously, one of the only believable solutions to the escalating problems would be a period of rapid, non-inflationary growth in the world’s economic sectors, particularly including Europe, but that appears to be far from the actual case.  Figures from the Eurozone nations showed an average growth rate of only 0.2% during the Third Quarter 2011 and an economic information service, Markit, reported that their surveys showed further slowing during the past three months and, perhaps even worse, the contraction is now spreading beyond the most obviously troubled nations.  They conclude that the Eurozone economies are now shrinking at a rate of 0.6% and Germany and France are now contracting along with many other nations.

If such troubling news were confined to Europe alone, that would itself be a matter of serious concern, but a Reuters News Service report this morning is headlined “China factory sector shrinks most in 32 months.”  The article noted that concerns raised by such numbers are, “...reviving worries that China may be slipping toward a hard landing and may be fuelling fears of a global recession.”  Conita Hung, head of equity research at Delta Asia Financial Group, was quoted by Reuters as stating, “...Worse is yet to come.  Companies involved in shipping, exports and even banking and finance will be affected.”

Perhaps concerns regarding China’s future growth are the reason that base metals have performed so poorly during the past few months, as can be exemplified by the price chart of copper, which has declined during recent months from above $4.40 per pound to near $3.25 this morning – and copper is hardly the only base metal encountering heavy selling of late as indicated by the following table. 

The rate of acceleration of these simultaneous economic crises appears to be increasing and it promises to be most interesting to follow developments over the coming days, weeks and months.

Financial markets this morning are continuing to reflect growing concern that events might be escaping the control of monetary authorities and both the Dow Industrials and the Canadian TSX Index are off sharply by 170 and 220 points respectively as of 7:45 AM PST.  Precious metals are also down and, as noted, base metals are selling off steeply.  Not surprisingly, mining share indexes are also in decline, having fallen so far by about three to four percent, thereby exacerbating the recent declines we have noted in many junior shares.

In other markets, the US Dollar is up sharply, Crude Oil is down by about $2.00 per barrel and long term interest rates remain close to unchanged for the session.

All quotes US$ unless otherwise indicated.

Next Melman Minute scheduled for Friday, November 25 when we plan to examine some of the reasons for recent relatively poor performances among many mining shares and whether the door is now opening toward special rebound opportunities.

TO OUR AMERICAN READERS – Please accept our best wishes for a happy and meaningful Thanksgiving Day Holiday.