Return of a U.S. Debt Dollar

Take a (compressed) look at what author and business owner Nathan Martin calls:

The Most Important Chart of the Century!

This chart, based on the latest (March 11, 2010) U.S. Treasury Z1 Flow of Funds report, shows the change in GDP divided by the change in Debt. Or in other words: it illustrates how much extra economic productivity is gained by pumping one extra dollar of debt into our debt backed money system.

As is clear, the economic return of one dollar of 'debt infusion' declined from a positive $ 0.70 in the sixties to a negative $ 0.45 return by the end of 2009!

From a macroeconomic point of view the U.S. economy is fully saturated with debt. Flushing more debt in the U.S. economy will no longer help the economy out. Moreover, it will damage the economic growth!

Interested? Read the full blog of Nathan A. Martin

Links:
- Source: The Most Important Chart of the Century!
- U.S. Treasury Z1 Flow of Funds report (March 11, 2010)

Insolvency and GDP

Global insolvency rises further in 2009 and will stabilize at a high level in 2010.
Those are the main conclusions of the world’s leading credit insurer Euler Hermes.

Euler Hermes is forecasting a 33% rise in corporate insolvencies worldwide in 2009.

In 2008, half the global increase in insolvencies resulted from financial restrictions whereas in 2009 the main factor has been the economic recession. Due to unemployment and weak recovery, business insolvencies will remain at high levels in 2010.

Insolvency growth champions with rocket growth of 75% or more are Spain, Ireland and the Netherlands (as well as the Baltic countries).


Insolvencies have soared by more than 35% in the United States and Northern and Eastern Europe.

Relationship GDP & Insolvency

The relationship between GDP and insolvency is quit interesting.

Corporate insolvency turns out to be different from one country to another.

Although there are differences, the change in insolvencies over time - rather than their absolute numbers - turns out to be strongly related to the change in GDP.




In short one might conclude:

Declining GDP implies inclining insolvencies

Strong local differences
The strong GDP-Insolvency relationship of the Global Insolvency Index (GII) is also - in a slightly different way- visible on zone or country level.


For each of the 33 countries that are analyzed by Euler Hermes, the insolvency index is calculated using a basis of 1997=100.

Next, the GII is calculated as the weighted sum of the national indices.

Each country is weighted according to its share of total aggregate GDP (at current exchange rates).



As actuaries we're all interested in in 'credit spreads'...

Questions:

1. Is there any relationship between 'credit spreads' and 'insolvency rates'?
2. Would insolvency rates influence our business in any way....?

Sources:
- Press release, Euler Hermes Nov. 17, 2009
- Insolvency Outlook Euler, Hermes February 2009