With every­one watch­ing debt rollovers in Europe, let's instead take a look at the total global debt rollover and debt issuance problem.

Bloomberg reports World’s Biggest Economies Face $7.6T Debt

Gov­ern­ments of the world’s lead­ing economies have more than $7.6 tril­lion of debt matur­ing this year, with most fac­ing a rise in bor­row­ing costs.

Led by Japan’s $3 tril­lion and the U.S.’s $2.8 tril­lion, the amount com­ing due for the Group of Seven nations and Brazil, Rus­sia, India and China is up from $7.4 tril­lion at this time last year, accord­ing to data com­piled by Bloomberg.

The amount need­ing to be refi­nanced rises to more than $8 tril­lion when inter­est pay­ments are included. Com­ing after a year in which Stan­dard & Poor’s cut the U.S.’s rat­ing to AA+ from AAA and put 15 Euro­pean nations on notice for pos­si­ble down­grades, the com­pe­ti­tion to find buy­ers is heat­ing up.

2012 Debt Rollovers and Inter­est Payments

Japan's Prob­lem

Remark­ably, rolling over US debt is unlikely to be a prob­lem. The same can­not be said for Japan. Because of demo­graph­ics, pen­sion plans will be net sell­ers of Japan­ese bonds. Unless bal­ance of trade or tax rev­enues increase enough in 2012 Japan will not be able to roll this debt over at 1%. A rise to 3% would con­sume nearly all of Japan­ese revenues.

Europe's Prob­lem

The ECB elected to kick the can down the road with a 3-year long-term refi­nance oper­a­tion (LTRO).

For exam­ple, please con­sider Span­ish banks use ECB cash to cover matur­ing debt-sources

MADRID, Dec 22 (Reuters) — Span­ish banks will use the major­ity of the cheap long-term cash from the Euro­pean Cen­tral Bank to cover steep 2012 debt matu­ri­ties, mar­ket and bank­ing sources said on Thursday.

Spain's banks face a mas­sive spike in their fund­ing needs next year with around 130 bil­lion euros ($170 bil­lion) of debt com­ing to matu­rity. Many banks took on 3-year, government-guaranteed debt in 2008, mak­ing up a large part of borrowing.

"The banks that have taken part in the auc­tion have pri­mar­ily done so to finance the hefty matu­ri­ties that fall next year, mostly in the first half," said one sav­ings bank source.

Also con­sider Italy banks almost halfway to 2012 fund­ing needs

MILAN, Dec 22 (Reuters) — Italy's banks are almost halfway towards meet­ing their fund­ing needs for 2012 after they tapped 116 bil­lion euros of cheap long-term cash from the Euro­pean Cen­tral Bank on Wednesday.

The ECB's first ever offer of three-year loans on Wednes­day drew heavy demand of 489 bil­lion euros from 523 banks, rais­ing hopes a credit crunch can be avoided and that the money could be used to buy Ital­ian and Span­ish bonds.

The ECB will fol­low up with another sim­i­lar oper­a­tion in Feb­ru­ary in a move designed to directly help banks which need to raise capital.

A study by local bro­ker Inter­monte said 42–44 per­cent of total Ital­ian bank fund­ing and 75–80 per­cent of whole­sale fund­ing for next year had been raised on Wednesday.

The euro zone banks also have about 920 bil­lion euros of liq­uid­ity exist­ing with the ECB which indi­cates Ital­ian banks could have some 230 billion.

On top of this are funds the banks can raise through the wide range of cash oper­a­tions offered by the ECB.

Dol­lar Swaps Soar

That "wide range of cash options" no doubt includes the fact that Euro­pean banks can bor­row money from the Fed at a cheaper rate than US banks can. Please con­sider Demand for Dol­lars from Fed's Dis­count Win­dow Swells in Europe by 12,735% After Fed Cut Rates on Dol­lar Swap Lines

There is con­sid­er­able debate as to whether Euro­pean banks are using cash from the ECB to pur­chase sov­er­eign debt and cap­i­tal­ize on mas­sive spreads but Ital­ian banks deny the charge as noted by this clip from Reuters:

There is spec­u­la­tion that some banks will use the ECB funds not to boost the real econ­omy but for carry trades on invest­ment in high-yielding gov­ern­ment bonds. "We intend to sup­port the real econ­omy as far as is pos­si­ble given the stiff ties imposed by EBA," the CEO of UBI Banca Vic­tor Mas­siah told Reuters."

There is also debate as to whether or not the LTRO can stop con­ta­gion. For a detailed dis­cus­sion, please con­sider Euro­pean Bank-to-Bank Lend­ing Mis­trust Hits Sec­ond Con­sec­u­tive High; ECB's LTRO Won't Stop Col­lat­eral Con­ta­gion.

For now, mas­sive Fed dol­lar swaps cou­pled with the ECB's first ever 3-year LTRO have tem­porar­ily calmed Euro­pean debt mar­kets, how long that lasts remains to be seen.

Mike "Mish" Shed­lock
http://globaleconomicanalysis.blogspot.com

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