Some economies with similar financial problems, often notably the United Kingdom, are arbitrarily excluded. European Union member states are obliged to ensure their debt does not exceed 60 percent of their GDP.

It will be interesting to examine the debt levels of the PIIGS compared with other countries in the European Union (EU). For this I am using Google Public Data Explorer with the Eurostat dataset. First the PIIGS government debt as a percentage of GDP:

PIIGS general government debt as a percentage of GDP (click to enlarge)

Government debt is not supposed to exceed 60% of GDP. The PIIGS all exceed this except for Spain. But what of the EU as a whole? Observe:

PIIGS and EU general government debt as a percentage of GDP (click to enlarge)

The EU weighs in with a hefty 73.6%, worse than Ireland and Spain. Methinks there are more PIIGS in the sty.

PIIGS and EU general government debt over 60% of GDP in 2009 (click to enlarge)

We see that there are 12 EU countries over the 60% limit at the end of 2009. Spain, one of the PIIGS, is lower than them all and hence is not labelled. There are some large non-PIIGS economies in the top 12, namely France, Germany, and the United Kingdom. Notice that Belgium, Hungary, and France are at a higher percentage than PIIGS Portugal. Germany, Malta, the United Kingdom, and Austria also weigh in higher than PIIGS Ireland.

Is it any wonder that the Euro is dropping in value? The whole Eurozone is practically one gigantic PIIGS sty. But the EU is not alone — the U.S. gross debt is 87% of GDP.

Play with the numbers yourself at Google Public Data Explorer. I have set it up to start with the PIIGS economies but you can add in more of the EU countries.

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I hold a 500 billion dinara banknote, worth $6 when first issued

Millions of U.S. citizens are concerned about deficit spending and the possibility of high inflation and even hyperinflation. To illustrate how easily fiat money can become hyperinflated, I have been highlighting the top four countries that have had hyperinflation. They are:

1. Hungary, 207% daily inflation rate in July 1946
2. Zimbabwe, 98% daily inflation rate in November 2008
3. Yugoslavia, 65% daily inflation rate in January 1994
4. Germany, 21% daily inflation rate in October 1923

Note that the inflation rates cited are daily. O my, I am glad I didn’t have to live through hyperinflation. Also observe that these countries are not confined to Europe. China is not listed but if they were they would come in at number 6. Any where fiat currencies are used (that’s basically everywhere) the danger of hyperinflation is forever present.

To complete the gang of four, today I am discussing Yugoslavia.

The 500 billion dinar banknote was introduced on December 23, 1993, and was worth $6. By noon it was worth only $5. By evening its value was less than $3. There was 5,000,000,000,000,000,000 percent inflation from October 1, 1993 to January 24, 1994 (prices doubled every 1.4 days).

From when the 100 dinara coin was struck in 1989 until the 500 billion banknote was issued on December 23, 1993, the currency declined in value 100 billion to one. The note was the largest nominal value ever issued by Yugoslavia. Children’s poet Jovan Jovanovich Amaj adorned the obverse of the bill.

Also see 34 Examples of Hyperinflation.

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1. One Hundred Trillion Dollars
2. One Hundred Million Marks
3. One Hundred Thousand Milpengo

I became acquainted with the power of zero early in life. The power of zero was my financial plan. Very simple really. The nearer my balance approaches zero the slower my spending. Worth repeating, in bold, italicized, and indented:

The nearer my balance approaches zero the slower my spending.

Zero was that grand guardian against excess. The magical cipher to hold one solvent. Admittedly, I did the work. I was the one who was disciplined to keep myself from falling into the abyss of interest payments. There was nothing to it really. Of course with any simple plan there are pragmatic principles present on the periphery. The power of zero is bolstered by these simple truths:

• Borrow only for home, health, and education.
• Debt is worse than the plague.
• Be charitable.
• A bargain is not a bargain if you don’t need it.

Once you absorb this power into your life be careful to always be true to zero. To illustrate: I once went against my own rule of borrowing by getting a loan to take my family to Disney World. I borrowed thousands of dollars that then had to be laboriously paid back over several years, with interest. This is where I learned that once the zero barrier is broken, there is no resistance to further spending. There is only one zero, nothing else has the power of nil. Fortunately I came to my senses, paid back the loan, and got on the positive side of zero again.

No, there is naught like the power of zero.

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Weimar Republic 100 million mark banknote

The 100 million mark banknote I am holding was mere pocket change compared to the value of the banknotes yet to be issued in 1923. In early 1921 German currency was trading at 60 marks to the U.S. dollar. By November 1921 there were 330 marks to the dollar. A year later a dollar bought 8,000 marks. In December 1923 the exchange rate was 4,200,000,000,000 marks to the U.S. dollar.

The Wiemar Republic did not have the worst hyperinflation in history — Hungary holds that “honor”. Zimbabwe was the second worst offender, followed by Yugoslavia, and then Germany. Greece and China round up the top six hyperinflators of all time.

The highest denomination in Germany was a 100,000,000,000,000 mark banknote issued in 1923. Workers were paid three times a day and wives would meet them to rush to the store to pay 200 billion marks for a loaf of bread.

The hyperinflation was caused by the government issuing massive amounts of new money. This caused prices to rise. Germans with money saved had it wiped out, making them destitute. The German government essentially monetized its debt, much like the U.S. is doing of late. Germany failed to raise its interest rate sufficiently, just as in the U.S. at present.

The main force in the 1920s which gave the nightmare German inflation its momentum was the relentless decrease in the real value of currency in circulation.

Just like in the United States in 2010.

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1. One Hundred Thousand Milpengo
2. 500 Billion Dinara
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Hungarian 100,000 Milpengo banknote

I recently wrote that I was concerned about the increased deficit spending by the Obama Administration. I showed what happened to Zimbabwe when the government failed to control their currency and their spending. Although hyperinflation destroyed their currency and their citizens lives, the worst offender of all time was Hungary.

Above is a 100,000 Milpengo banknote if I am reading it correctly. A Milpego is a million pengos. So this note is a 100 billion pengo banknote. However this is small change. The largest denomination banknote in history was in circulation in Hungary in 1946. It was for 100 quintillion pengo or 100,000,000,000,000,000,000 pengo.

Hungary had the highest monthly inflation rate ever — 41,900,000,000,000,000% in July, 1946. Prices doubled every 13.5 hours.

When I show friends this banknote and the Zimbabwe note, handling them brings home the fragility of our own Federal Reserve Notes. They know that our printing presses are bigger and faster than any that Zimbabwe or Hungary ever ran. Their economies were destroyed by hyperinflation.

And the same fate could befall us.

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1. One Hundred Trillion Dollars
2. 500 Billion Dinara
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When announced, the note I hold was worth 30 US dollars but would quickly lose value

Recently I have been concerned about the increased deficit spending by the Obama Administration. The risk of inflation, even hyperinflation, seems to be in our future. With a little study I was surprised to learn scores of countries have experienced hyperinflation.

In November 2008, Zimbabwe had a monthly inflation rate of 79,600,000,000% and an annual rate of 89,700,000,000,000,000,000,000%. The daily inflation rate was 98% and prices doubled every 24.7 hours.

Even these horrendous numbers do not equal those of Hungary in 1946 that had an daily inflation rate of 195% with prices doubling every 15.6 hours. Other notable hyperinflators were Yugoslavia in 1994 with prices doubling every 1.4 days, Germany in 1923 doubling prices every 3.7 days, Greece every 4.5 days (1944), and China every 5.6 days (1949).

One would hope that we are not headed for the same fate as Zimbabwe. Perhaps this November, by voting out of office members of Congress that are the worst spenders, we can strengthen the dollar and make it worthy of reserve status.

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Start saving for the "rainy day"

There is a crunch in the American economy and times are hard now. How is it possible to survive in this financial crisis? It is about time that you start saving for the “rainy day”.

Every family has an individual lifestyle to maintain. Here are a few tips, which can help you to save money, without compromising on the living standards.

1. Do not waste food. Serve leftovers the next day. This will help in resisting the temptations of eating out.
2. Tired of wearing the same old clothes? Instead of buying new ones, swap your wardrobe with close friends. This will freshen up your wardrobe to an extent.
3. In case of errands, plan an efficient route so that all your tasks are done and you save money on gas too.
4. Looking for some entertainment? Swap DVDs with friends or rent a movie. You can also go for a bargain matinee show.
5. Prioritize your debts, if any. Pay off bills promptly. This will help you to maintain a positive credit score. Not paying off debts on time would hamper your credit scores. In the long run, if you ever accumulate debt, it will become difficult for you to consolidate debt with a bad credit record.
6. Try to increase your incomes by pursuing your hobbies, or renting your garage.

There are various ways of saving money. All you need is the knowledge about what and how you are spending on. Once you know that, you will know where to cut your expenses as well. Saving money requires determination as you need to change some old habits, and also reconsideration of your priorities. Once you start saving, it is going to act as a boost. You would want your savings to grow and thus would start saving more.

Photo Credit: argo_72

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The Top Twelve Central Banks Gold Reserve Holdings

With China and India acquiring gold it is interesting to see that the United States still holds almost eight times the gold that China does and more than fourteen times India’s reserves.

Of note is that the United States has 78% of its foreign reserves in gold. Of the countries listed below only Greece (91.6%), Portugal (90.3%), and the Slovak Republic (83.3) have higher rates. However, China has only 1.8% of its foreign reserves in gold. India is looking a little better at 6%.

Only the top 50 countries by gold reserves are listed below. Of course the IMF and a few others are not countries but they do own substantial holdings.

Click on the column headers to sort.

Not all countries are listed.

Notes

1. 1 tonne = 1.10231131 short tons.
2. Percentage share in gold of total foreign reserves.
3. 1 short ton = 29,167 troy ounces. Worth is calculated at $1,200 per troy ounce.

Sources

“International Financial Statistics,” International Monetary Fund, 2009.
“Gold reserve“, Wikipedia.

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Too Little Money

When I was raising a family occasionally the bank would call and tell my wife that our account was overdrawn but if she would make a deposit that day there would be no fee. Those were the days when you each had a checkbook and tried to keep the register balanced. When the bank statement arrived each month you would reconcile it and discover your true balance. It is much easier these days because you can check balances online. So no more overdrafts. It was never a case of too little money but just poor timing.

A few years ago I became debt free and began putting surplus funds into rewards checking accounts. This earned me an interest rate of between 4% and 6%. Once in a while I would change banks to earn a better rate but leave the old accounts open to move funds back again if rates improved at the old bank or worsened at the new bank.

Just Poor Timing

On the 5th. I moved a sum from an Arkansas bank, leaving just $1.00 in the account to keep it open. I have a company that automatically charges one of my credit cards $3.31 a month, billed on the 4th. Naturally I set up my Arkansas rewards checking account to pay this bill so that it would count as a transaction. On the 6th. the $3.31 was posted, leaving me $2.21 negative and triggering a $25 overdraft fee. On the 8th. I remember the automatic payment and transfer $30 back to the bank account which will probably not arrive until the 10th. or 11th. Not a case of too little money but just poor timing.

So far in summary:

4th Nov: $3.31 billed by company.
6th Nov: $3.31 posted in bank account.
6th Nov: -$27.21 new balance ($1.00 – $3.31 – $25.00).
8th Nov: $30 transferred to cover.
10th Nov: Overdraft cleared.

Back-of-the-envelope calculation:

6th to 10th = 5 days.
$25 / $2.31 = 11.31.
365 days / 5 days = 73.
11.31 x 73 = 825.63 = 82,563% APR.

There you have it. Even people who think they are reasonably competent money managers (me) can make a slip. It isn’t the bank’s fault, it was me who miscalculated. It wasn’t a case of too little money but just poor timing.

I think I want to own a bank.

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But there is still the outstanding debt of trillions of dollars. Congress in a display of unparalleled common sense tackles this by treating the debt as if it was a 30 year mortgage. In my scenario (sadly imaginary) Congress is able to secure a 3% fixed interest rate for 30 years. In the table below is the schedule of payments. If you cannot see the table click here. I have included other rates of interest in the event that you think 3% is unrealistic.

The dollar amount of the debt is obtained from Treasury Direct’s Debt to the Penny, which I have rounded to the nearest billion dollars. The date in the top right-hand corner is the day the debt reading was taken. The highlighted figures are the yearly amounts paid (the sum of 12 monthly payments), depending on the interest rate. All dollar amounts are in billions. So for $12,345 billion, which is $12 trillion, just add nine zeros like so: $12,345,000,000,000.

I will periodically update the debt reading. The sooner we start paying our mortgage the better. Default is not an option. Refinance now while interest rates are low!

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