Received from the Daily Reckoning.com and written in part by Eric Fry

“The signs of credit distress are increasing.

One of the most telling forms is the direction of LIBOR interest rates. LIBOR stands for “London Interbank Offered Rate.” It is the rate at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank lending market).

In most circumstances, LIBOR rates track short-term Treasury rates. But in the midst of crisis conditions, LIBOR rates tend to spike, while Treasury rates fall. That’s exactly what happened during the credit crisis of 2008.

During the last few weeks, LIBOR rates have been on the rise once again. They have not risen high enough to sound a distress signal, but they have risen high enough to raise an eyebrow.

Let’s call it an early warning sign.

This warning sign is still flashing amber. Since our warning in early September, LIBOR rates have continued their steady upward climb, which indicates that credit stresses are increasing.

Meanwhile, government bond yields in the PIIGS nations of Portugal, Italy, Ireland, Greece and Spain are also surging higher — another clear sign of distress.”

I’ve been told that LIBOR is also referred to as the London Inter Bank Overnight Rate. The rate which banks loan each other funds.

Here is how LIBOR is described by Wikipedia; The LIBOR rate is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate (LIBOR, /ˈlaɪbɔr/) Banks borrow money for one day, one month, two months, six months, one year etc. and they pay interest to their lenders based on certain rates. The LIBOR figure is an average of these rates. Many financial institutions, mortgage lenders and credit card agencies track the rate, which is produced daily at 11 a.m. to fix their own interest rates which are typically higher than the LIBOR rate. As such it is a benchmark for finance all around the world.

I hope the above currency trading information was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Received from Project-Syndicate.org and written by Nouriel Roubini

NEW YORK – The eurozone crisis seems to be reaching its climax, with Greece on the verge of default and an inglorious exit from the monetary union, and now Italy on the verge of losing market access. But the eurozone’s problems are much deeper. They are structural, and they severely affect at least four other economies: Ireland, Portugal, Cyprus, and Spain.

For the last decade, the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) were the eurozone’s consumers of first and last resort, spending more than their income and running ever-larger current-account deficits. Meanwhile, the eurozone core (Germany, the Netherlands, Austria, and France) comprised the producers of first and last resort, spending below their incomes and running ever-larger current-account surpluses.

These external imbalances were also driven by the euro’s strength since 2002, and by the divergence in real exchange rates and competitiveness within the eurozone. Unit labor costs fell in Germany and other parts of the core (as wage growth lagged that of productivity), leading to a real depreciation and rising current-account surpluses, while the reverse occurred in the PIIGS (and Cyprus), leading to real appreciation and widening current-account deficits. In Ireland and Spain, private savings collapsed, and a housing bubble fueled excessive consumption, while in Greece, Portugal, Cyprus, and Italy, it was excessive fiscal deficits that exacerbated external imbalances.

The resulting build-up of private and public debt in over-spending countries became unmanageable when housing bubbles burst (Ireland and Spain) and current-account deficits, fiscal gaps, or both became unsustainable throughout the eurozone’s periphery. Moreover, the peripheral countries’ large current-account deficits, fueled as they were by excessive consumption, were accompanied by economic stagnation and loss of competitiveness.

So, now what?

Symmetrical reflation is the best option for restoring growth and competitiveness on the eurozone’s periphery while undertaking necessary austerity measures and structural reforms. This implies significant easing of monetary policy by the European Central Bank; provision of unlimited lender-of-last-resort support to illiquid but potentially solvent economies; a sharp depreciation of the euro, which would turn current-account deficits into surpluses; and fiscal stimulus in the core if the periphery is forced into austerity.

Unfortunately, Germany and the ECB oppose this option, owing to the prospect of a temporary dose of modestly higher inflation in the core relative to the periphery.

The bitter medicine that Germany and the ECB want to impose on the periphery – the second option – is recessionary deflation: fiscal austerity, structural reforms to boost productivity growth and reduce unit labor costs, and real depreciation via price adjustment, as opposed to nominal exchange-rate adjustment.

The problems with this option are many. Fiscal austerity, while necessary, means a deeper recession in the short term. Even structural reform reduces output in the short run, because it requires firing workers, shutting down money-losing firms, and gradually reallocating labor and capital to emerging new industries. So, to prevent a spiral of ever-deepening recession, the periphery needs real depreciation to improve its external deficit. But even if prices and wages were to fall by 30% over the next few years (which would most likely be socially and politically unsustainable), the real value of debt would increase sharply, worsening the insolvency of governments and private debtors.

In short, the eurozone’s periphery is now subject to the paradox of thrift: increasing savings too much, too fast leads to renewed recession and makes debts even more unsustainable. And that paradox is now affecting even the core.

If the peripheral countries remain mired in a deflationary trap of high debt, falling output, weak competitiveness, and structural external deficits, eventually they will be tempted by a third option: default and exit from the eurozone. This would enable them to revive economic growth and competitiveness through a depreciation of new national currencies.

Of course, such a disorderly eurozone break-up would be as severe a shock as the collapse of Lehman Brothers in 2008, if not worse. Avoiding it would compel the eurozone’s core economies to embrace the fourth and final option: bribing the periphery to remain in a low-growth uncompetitive state. This would require accepting massive losses on public and private debt, as well as enormous transfer payments that boost the periphery’s income while its output stagnates.

Italy has done something similar for decades, with its northern regions subsidizing the poorer Mezzogiorno. But such permanent fiscal transfers are politically impossible in the eurozone, where Germans are Germans and Greeks are Greeks.

That also means that Germany and the ECB have less power than they seem to believe. Unless they abandon asymmetric adjustment (recessionary deflation), which concentrates all of the pain in the periphery, in favor of a more symmetrical approach (austerity and structural reforms on the periphery, combined with eurozone-wide reflation), the monetary union’s slow-developing train wreck will accelerate as peripheral countries default and exit.

The recent chaos in Greece and Italy may be the first step in this process. Clearly, the eurozone’s muddle-through approach no longer works. Unless the eurozone moves toward greater economic, fiscal, and political integration (on a path consistent with short-term restoration of growth, competitiveness, and debt sustainability, which are needed to resolve unsustainable debt and reduce chronic fiscal and external deficits), recessionary deflation will certainly lead to a disorderly break-up.

With Italy too big to fail, too big to save, and now at the point of no return, the endgame for the eurozone has begun. Sequential, coercive restructurings of debt will come first, and then exits from the monetary union that will eventually lead to the eurozone’s disintegration.

Nouriel Roubini is Chairman of Roubini Global Economics, Professor of Economics at the Stern School of Business, New York University, and co-author of the book Crisis Economics.

I hope the above currency trading article was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

Received from Currency Cross Trader.

The Singapore dollar is the Asian version of the Swiss franc, but with one big advantage. Singapore’s central bank, the Monetary Authority, has not been intervening to prevent the currency from strengthening.

Just like the Swiss franc, the Singapore dollar is also backed by an incredible financial firepower. As Sean Hyman, Editor of Currency Cross Trader, has written here before, Singapore is already set up to be the world’s next Wall Street.

One of the best ways to measure that power is by looking at foreign currency reserves. The larger the reserves are, the safer the economy. There has been a tremendous growth in Singapore’s reserves over the last decade. That’s what makes the Singapore dollar a safe-haven currency.

It’s not easy to trade currencies from Asia. It’s impossible for retail investors to trade currencies such as the Chinese yuan, the Indonesia rupiah, and the South Korean won.

And most Asian currency pairs that are available to retail traders, like you and me, don’t move much. The Hong Kong dollar and Thai baht, for example, don’t move much because their central banks keep them on a tight leash.

The Singapore dollar is the exception. The MAS is much more flexible. The currency tends to fluctuate more than the other Asian currencies, so it’s the best Asian currency to trade.

I hope the above currency trading article was of help to you.

Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.

The below figures were sent to me from Investopedia.com

Japan has $6,327 billion worth of currency in circulation, according to the CIA World Factbook
, as of December 31, 2010. This is based on M1 money which includes notes, coins and demand deposits denominated in national currency. The currency was then converted into U.S. dollars at the December 31, 2010 rate.

1. Japan – $6,327,000,000,000
2. European Union – $5,542,000,000,000
3. China – $4,028,000,000,000
4. United States – $1,957,000,000,000
10. Switzerland – $459,700,000,000
22. Greece – $153,300,000,000

Anthony DiChi,
Your friend in Forex Currency Trading and Forex News.

The below figures were sent to me by Investopedia.com

External debt is a measure of the public and private debt, that is owed to non-residents. This list compiled by the CIA.

1. United States $13,980 billion
2. European Union $13,720 billion
3. United Kingdom $8,981 billion
4. Germany $4,713 billion
5. France $4,698 billion
6. Japan $2,441 billion
7. Ireland $2,253 billion
8. Norway $2,232 billion
9. Italy $2,223 billion
10. Spain $2,166 billion

Now, there is no reason to panic, despite the U.S. taking over the top spot. The foreign holdings of treasuries total about $4,500 billion, so this is not all public debt, by any stretch. Unlike domestically held treasuries, however, the external ones are making interest for non-citizens, making it less likely that the money will be put back into the economy in any way. In the end, external debt just means interest and principle payments are going abroad and adding to another country’s GDP.

How Did We Get Here?
The U.S. has a lot of external debt, true. There are two ways of looking at it, one is the debtor nation view, where the more external debt a nation has, the more likely it is giving away its future, in the form of interest payments to foreigners. The second way is the investment destination view, where so many foreigners are looking to lend and invest in the debts of U.S. citizens, companies and the government, that the low interest loans can be used to build more economic capacity, to produce more capital to pay off these cheap loans.

The truth is that the U.S. is a bit in between the two scenarios. It’s strong GDP numbers make it one of the most attractive investments compared to other struggling nations, but this huge foreign debt load has passed the healthy level and is edging up to dangerous levels. Just because other nations are willing to lend cheap, and the U.S. is willing to spend, doesn’t mean there aren’t long term consequences.

The Bottom Line
Debt is a matter of perspective. The health of a nation is not so different from the health of a business. If a nation is borrowing to build infrastructure that will pay off in the future, then having a lot isn’t necessarily bad. If, however, the money is being poured into areas with little or no return, then the burden on the economy to pay those debts will eventually lead to more economic hardship in the future. A fair assessment would involve tracking what each dollar of private and public debt, goes towards purchasing. Some studies exist on this subject, but it is best left for another day.

Click here to read about 10 Most Indebted Nations

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow

The below figures were sent to me by Investopedia.com

One of the most popular, measures is debt as a percentage of GDP. This tells you how likely it is that a nation is going to be able to pay its bills. In this sense, GDP is income, so the more GDP you have, the more debt you can service.

As far as measuring which nations are struggling, the debt to GDP is an excellent measure. The public debt to GDP listing, compiled in the CIA World Factbook, is reassuring in this sense. It’s top 10, based on 2009-2010 data includes:

1. Zimbabwe 234.10%
2. Japan 197.50%
3. Saint Kitts and Nevis 185.00%
4. Greece 142.80%
5. Lebanon 133.80%
6. Jamaica 126.50%
7. Iceland 126.10%
8. Italy 119.10%
9. Singapore 105.80%
10. Barbados 102.10%

The United States is far down the list at number 32. The U.S. has the highest GDP for a single nation, in other words, excluding the E.U.. The U.S. GDP hasn’t come in under $14,000 billion since it broke that level in 2007, so the debt situation of the U.S. isn’t as bad in this context, when compared to Japan. Japan has a GDP of around $5,459 billion and public debt over $10,000 billion.

The reason that Japan hasn’t folded, is that over half of all Japanese debt is held domestically. This gives Japan the advantage of relatively friendly hands holding its IOUs. There is also another economic advantage that economists see in the Japanese situation: most of the interest payments on the debt, make citizens wealthier and more likely to buy things domestically. This makes some sense, but the theoretical domestic buying boom either hasn’t yet hit its stride in Japan, or the debt situation has grown beyond the point where this beneficial side-effect is noticeable.

Click here to read about 10 Most External Indebted Nations

Anthony DiChi,
Your friend in Forex Currency Trading, FX Information and Forex News at TradeCurrencyNow