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Greek Debt Crisis: Lehman 2.0?
As if Greece did not already have enough problems. The market was already jolted by the Goldman SEC case. Then, it was the cloud of volcanic ash from Iceland postponed a key meeting with European Union (EU) and International Monetary Fund (IMF) officials on aid for the country.
When the Officials from the EU and IMF finally launched a two-week talk on a Greek rescue package this Wednesday, it failed to calm the bond markets.
Slow Talk, Bond Rout & Downgrade
To make matters even worse, on Thursday, the European Union revised upward its estimate of Greece's 2009 deficit to 13.6% of gross domestic product (GDP) and may be revised to as high as 14.1%. On that news, ratings agency Moody's downgraded Greece's credit rating, the second time in five months.
With a string of bad news, a bond market rout eventually pushed two-year Greek government bond yields above 10% and forced 10-year yields near 9% on Thursday.
Credit default swaps on Greece’s five-year bonds also surged to a record high of 577. (Chart 1) Meanwhile, the Greek curve remains steeply inverted with two-year yield higher than the 5-year bond, which indicates that the market sees significant near-term risks.
Temporary Liquidity Relief
At these levels, it is virtually impossible for the debt-strapped nation to meet its funding needs on the open market. This sharp jump in borrowing costs ultimately forced Greek government to formally request the joint EU-IMF rescue plan on Friday.
After two months of intense debate among European governments and market speculations, the joint IMF-EU Greek rescue package has finally been decided earlier this month. The size of the rescue package reportedly amounts to about €45bn ($60bn, £40bn), of which less than a third will come from the IMF. 
The heavily indebted Greece needs to borrow some €54 billion this year and must refinance around €20 billion in April and May. Simple math could tell you this €45-billion bailout only helps avert a temporary liquidity crisis and would sustain Greece through this year at best.
Solvency Risk Remains
Calculations by The Economist suggest that even on optimistic assumptions, Greece will run up an extra €67 billion of debt by 2014, when its debt will peak at a scary 149% of GDP. (Table 1)
Greece underlying problems--flat growth, high debt load and interest costs--could take years to resolve. Additional rescue program(s) of at least an equivalent sum--or more--might be needed again in the next few years, depending on the progress of their austerity measures.
This means resorting to a “debt restructure” to defer loans or pay back less than it owed, could still be a distinct possibility.
No Way Out?
The proposed spending cuts and revenue raising measures have met with fierce resistance by the public workers. Economists such as Martin Feldstein argue in favor of exchange rate devaluation, hence an exit of the euro zone.
A steep devaluation of the currency to improve competitiveness would help achieve a recovery; however, being a member of the euro monetary union, Greece does not have this luxury. Furthermore, currency devaluation, even if feasible, would reduce the country’s buying power costing the country in the long run.
Another option - Greece could leave the EU and create a new national currency. The problem is that a potential bank run and the subsequent collapse of the domestic banking system would precede Greece’s exit of the EU, not to mention the chaos ensued converting bonds, etc. from euro into the new currency.
“A Second Lehman”
According to estimates by The Economist, foreign banks’ exposure to Greece, Portugal and Spain combined comes to €1.2 trillion. European banks have lent most of this. German banks alone account for almost a fifth of the total. (Table 2)
Realizing failure to act risks a financial meltdown, German finance minister Wolfgang Chasuble pleaded with his people and told Der Spiegel that
"We cannot allow the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers…Greece's debts are all in euros, but it isn't clear who holds how much of those debts. The consequences of a national bankruptcy would be incalculable."
From Greece to Euro Zone
Worries about Greece’s widening deficit and has contributed to a 7.2% slide in the euro this year and sent ominous ripples across a stagnant European economy.
The proposed pact would cost EU members--almost all of them facing onerous debts already—additional €30bn ($40bn, £26bn) of debt. More bailouts could be expected with other highly indebted PIIGS nations waiting in the wing.
This no doubt will damage the euro's prestige, and will inevitably increase their debt burden, and further weaken the euro. Eventually, Greece might still default and the entire euro zone will likely face higher interest spread, and so the vicious debt & risk cycle would commence again.
Greece Does Matter
Jim O'Neill, head of global economic research at Goldman Sachs, argues that the Greek debt crisis does not really matter very much in the global scheme of things.
Nevertheless, the involvement of the IMF essentially shifts the Greece debt burden beyond the EU and to its members. The United States, Japan and the EU are among the top funding nations of IMF’s lending capacity.
The Greece crisis has let to increasing scrutiny of sovereign debt, and could be a small-scale sketch of other large nations, including the United States, which carry increasing levels of debt.
All this could all end horribly, if governments refuse to cut spending and markets refuse to fund that spending.
China To The Rescue?
In the meantime, IMF data shows that China and emerging markets have accumulated $4.8 trillion (£3.1bn) in foreign reserves. Roughly $1.7 trillion is invested in euro zone bonds. These bond holders with rising powers could play a deciding role on how Europe's drama unfolds.
So, before long, we may see new Chinese pagodas sprouting in the Mediterranean when the EU and IMF could no longer bankroll Greece, et. al.
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As to devaluation as the panacea, let's be straight on this: You might feel good because you still get all those wonderful government benefits, but they remain denominated in a currency that buys less and less on the world market and ultimately at home. You end up more poor in the end than if you had simply taken the haircut up front.
Every major comentator/professional-economist who has tossed this out as a viable way forward has exposed him or herself as little more than a shill for the political class and its hopium.
Kick them out of the Euro. Do it Now!
Well, Greece is still a valuable sink of consumption. Everything they do not consume because of being expelled from EU might go anywhere, including places you do not want.
IMF implication does not target the list of countries given in the OP.
IMF funds come from loans countries give by borrowing.
Once again, in the end, the guy who valorizes with its wealth this sequence of loans is the guy who might be in deep troubles.
Neither the US, Japan, the EU put their own wealth on front to fund the IMF. What they provide is an entry key to wealth of other countries.
This explains how Greece is on the train of the IMF credit expansion.
There is something deeply dishonest about the common people blaming the rich and the government for the problems. The flip side of that position results in the black market and lack of tax revenues. This economic problem stems from the entitlement character flaw I have seen in the Mediterranean area for as long as I can remember. Until that is fixed.... we are back to how things were prior to the Euro.
You probably can do better. The US is a story of entitlement since the beginning.
A really great summary by Doug Noland at Prudent Bear:
Deficits and Private-Sector CreditThe small cap Russell 2000 index has gained 18.6% so far this year, slightly ahead of the S&P400 Mid-Cap's rise of 16.9%. The S&P 500 Homebuilding index has surged 38.6%, and the Morgan Stanley Cyclical Index has advanced 16.5%. The Morgan Stanley Retail Index has jumped 28.0%, trading today to a new record high.
The bullish contingent is these days increasingly confident that there is much more to the recovery than a mere stimulus-induced "sugar high." The marketplace now comfortably disregards bearish developments - and becomes further emboldened by "market resiliency". The market this week brushed aside issues with Greece, China, Goldman and financial reform.
Complacency abounds, in true Bubble fashion. The U.S. stock market dismisses that there could be meaningful ramifications from the unfolding Greek debt crisis. Chinese authorities' recent determination to restrict mortgage Credit barely garners a headline. And while the Goldman allegations generate great interest and discussion, few believe they will have much general market impact. Financial reform, well, it's an afterthought when the market is open. Market participants are enamored with the notion that the securities markets and real economy are now conjoined in the initial phase of a big bull cycle.
Count me a subscriber of the "sugar high" thesis. The combination of double-digit (to GDP) deficits, protracted near-zero rates, and the Fed's unprecedented Trillion-plus monetization has worked wonders. Government stimulus stabilized the Credit system, asset prices, system incomes and economic output. The bulls today believe that a new expansionary cycle has commenced, and fundamentals and prospects couldn't be much more encouraging from their point of view. Surging stock prices have the optimists disregarding the possibility of a systemic addiction to massive government spending, ultra-low rates, and overabundant marketplace liquidity. Potential issues in the area of risk intermediation are not on the radar screen.
Yet, the sustainability of this recovery will be determined by private sector Credit - eventually. The markets assume private Credit growth will snap back after its long recuperation - as it always has in the past. But, mostly, analysts expend little energy pondering this issue. Deficits of about 10% of GDP, rapid expansion of government-backed Credit (MBS, "build America bonds," student loans, bank deposits, etc.), and near-zero rates have created a recovery backdrop where minimal private-sector growth has sufficed. This won't always be the case.
Greek Credit default protection began December at 176 bps. Not many months ago there was little fear of a debt Crisis and no worry of default. Yet here we are today with Greece 2-year debt yielding 11% and annual default protection priced at about 600 bps. Markets fear insolvency and debt restructuring.
The U.S. Treasury borrows these days for three months at 15 bps and for two years at 1.02%. No one dares contemplate how dramatically the world would change if fear injected itself into the equation. While there is certainly more recognition of the structural debt issues confronting our government borrowers (local, state and federal), there is no concern for short-term funding issues. There was an important aspect of the Wall Street/mortgage finance Bubble that receives little attention: The explosion of Credit provided an enormous boost to governmental receipts. Especially in the case of federal debt ratios, boom-related revenues reduced borrowing requirements and distorted debt-to-GDP ratios.
At about 70% of GDP, outstanding Treasury debt is not on the surface overly alarming. Obviously, if one throws in GSE liabilities and the massive future spending obligations related to social security, healthcare, pensions, etc., things are much worse. Yet it is conventional wisdom that the U.S. has the luxury of several years to get its fiscal house in order. And there is today great faith that economic recovery will, as it always does, lead a revival of government receipts and ensure rapidly declining deficits. Count me skeptical. The previous Bubble helped disguise underlying structural debt issues at the state, local and federal levels. Going forward it's payback time.
First of all, economic recovery on its own won't rectify the federal deficit problem. Instead, the expansion of private-sector Credit will prove the key. Economic recovery is thus far having little impact on deficits specifically because the current expansion is financed chiefly through government borrowing and spending. It is the expansion of private-sector debt that creates government receipts that are not offset by rising expenditures - thus reducing fiscal deficits. The optimists take it for granted that this recovery will work as they always do - that fretting over U.S. structural debt problems is premature by a number years.
There are important factors unique to this cycle that I believe make it improbable that private-sector Credit will expand sufficiently to promote federal government debt relief. First, in the post-housing mania environment, it will take years for a substantial rebound in private mortgage Credit growth - and perhaps decades to return to 2005's and 2006's $1.4 Trillion annual expansions. The demand for borrowings is much reduced, while Credit standards have tightened meaningfully from the manic years.
Moreover, it was the historic expansion of mortgage Credit over the past decade that so inflated system Credit and, in the process, altered the underlying structure of the U.S. "Bubble economy." The inflation of asset prices, incomes, corporate cash flows, and government receipts fashioned a system acutely dependent on robust Credit creation. The entire system became dependent on enormous, uninterrupted and risky Credit expansion. Today, the private-sector Credit mechanism suffers from severe post-Bubble impairment. At the same time, massive Federal government intervention has sustained the Bubble economic structure with its outsized Credit appetite.
In the current stock market frenzy, the economy's structure and the prospects for private-sector Credit hardly seem relevant. The underlying fragility of private-sector Credit is masked. The markets are buoyant, while economic recovery gains momentum. Apparently, there's no reason to focus on Greek debt woes, China's vulnerable Bubble, Goldman's and Wall Street's trust issues, or the uncertainties associated with financial reform - not with corporate earnings surging and many stocks in virtual melt-up. Expectations have adjusted sharply higher, with most now believing the markets are discounting quite favorable economic prospects. I would instead hold the view that reflated securities markets are again nurturing financial and economic vulnerability.
Recent issues in Greece, China, Wall Street and Washington should not be dismissed. Importantly, this confluence of developments holds the potential to further restrict the capacity and stability of private-sector Credit. The Greek debt crisis appears to have created dislocation in the Credit default swaps marketplace. This will likely increase market volatility, along with heightened susceptibility for market yields to lurch higher, while perhaps hurting liquidity in government debt markets generally. This may not be an issue for Treasuries today, but it could foster debt market vulnerability going forward and make the inevitable bear market even more challenging.
The SEC's allegations against Goldman increase the odds of meaningful financial reform. Risk-taking by the major financial institutions will be further reigned in; trust in contemporary Wall Street finance will be further shaken. There will be more intense efforts to crack down on over-the-counter derivatives and push derivative trading to the exchanges. None of this would seem to have a major impact today - but I view these developments supporting my expectation for restrained private-sector Credit growth going forward.
Over the years, I've emphasized the prominent role "Wall Street alchemy" played in fueling Credit Bubble excess. The Street's astounding capacity to transform risky loans into perceived safe and liquid securities was absolutely fundamental to the Credit Bubble. The OTC derivatives markets - including collateralized debt obligations, asset-backed securities, Credit default swaps, auction-rate securities, etc. - were critical for the intermediation of risky, high-yielding loans into "money"-like securities. This brand of risk intermediation and distortion was instrumental to the historic boom and bust - and this week it returned to the regulation spotlight.
As I've attempted to explain over the years, risk intermediation invariably becomes a central issue inherent to protracted Credit Bubbles and their resulting Bubble Economies. The amount of Credit necessary to sustain the Bubbles rises each year. And each passing year requires an increasing (exponentially-rising) amount of riskier Credit. Our government's massive injection of Credit/purchasing power coupled with interest rate and market liquidity intervention sustained the existing economic structure. As they say, "that's the good news."
For the private-sector Credit mechanism to supplant government Credit will require an enormous expansion of risky loans. These risky Credits must then either be held directly by the financial sector or intermediated and sold into the marketplace. Admittedly, this may not be much of an issue today - with government Credit expansion and monetary stimulus abounding. But there is no escaping the harsh reality that acute Credit vulnerability is only held at bay by Trillion dollar deficits and ultra-loose financial conditions. I am skeptical of notions of shrinking deficits and a graceful Fed exit.
The unfolding Greek debt crisis, China Bubble vulnerability, and more intense scrutiny of Wall Street risk intermediation now work in confluence to increase the probability for a negative surprise in our risk markets. Sure, the equities bulls have become intoxicated by some incredible stock and sector performance. But equity market reflation must be approaching the point of unnerving the bond market. And it can't help sentiment that, as reported today by CNBC's Steve Liesman, a rising number of FOMC members support a timely sale of assets and a removal of the Fed's extraordinary liquidity measures. More bearish fundamentals for the private-sector Credit mechanism gladly ignored by a stock market Bubble.
Heh, I'm trying to feel better. Maybe the CDS are securing the profit in some arcane method. My best real cash flow provider is to buy cigarettes before taxe go up.
Max Keiser.. got it wrong.
Greece is a failed socialist state that hasn't been able to make harsh reforms when these were necessary in the last decade.
He likes to point out that Germany and France are beneficiaries of a lower Euro. Yes and no. Oil and other resources are imported to these countries at a higher dollar / lower Euro. A new Mercedes doesn't grow on a farm, Max.
The Greek need to swallow the fucking pill that the Germans and French had to swallow over the last decade.
Socialism sucks. It's a lie and the sooner people accept the tough medicine, the better.
No need to involve Goldman Sachs and standard run of the mill government corruption. It's always been there and won't go away.
Gosh, we could also propose Max for Greek President. That would help them / not.
Max, get some meds.
Prime Minister of Greece a Bilderberger?
Extraordinary!!!
Well there is only one thing left...resistance is useless
http://www.youtube.com/watch?v=ojydNb3Lrrs&feature=fvw
A buddy of mine sent me this:
Leo, you seem worried all of a sudden. Cheer up! When they devalue all the currentseas, your solar stocks will shoot up in nominal value! It will look great on paper.
"We cannot allow the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers…Greece's debts are all in euros, but it isn't clear who holds how much of those debts. The consequences of a national bankruptcy would be incalculable."
Cannot allow? As if you ultimately have any choice. And what would be so bad about "a second Lehman Brothers" anyway? As in Lehman, a Greek sovereign default would result in the control of capital being transferred from fools to those able to manage it. The net consequences would be incalculably good.
Thanks, Leo. That was a fantastic video. Max is great. They didn't know what to make of him.
Some people can't handle the truth.
Max is a lunatic but.... I kind of trust him. There is something attractive about his rants.
In your article you say:
Another option - Greece could leave the EU and create a new national currency. The problem is that a potential bank run and the subsequent collapse of the domestic banking system would precede Greece’s exit of the EU, not to mention the chaos ensued converting bonds, etc. from euro into the new currency.
I don't get it. If Greece exits the Eurozone and rolls out the drachma, (BTW: already printed), then why pay on the bonds? No need for conversions. Default and start over fresh with no debt period.
Yes! purchacing power of ipods ipads and other gadgets will fall. That's a good thing. The new drachma will bring tourism and exports will increase.
already printed?....
Kudlow this week end simply dismissed the significance of Greece at 2% of EU so it has been deemed irrelevant.
Did you see the dude on his Friday night show? Gawd! He needs to get back on some drugs -- downers. He dismissed Greece and only wanted to focus on his "V-shaped recovery" theme. The guy is a bundle of nerves. He serves my purpose of being a contrary indicator. His nervousness is the perfect tell that it's all going to crap at the first chance. Yeah, I know, we've had some reasons for that to happen already but TPTB aren't thru ringing out the last dollar yet. Betcha there are some trailing stops as tight as a G-string -- and I ain't talking musical instruments here.
Looks like I'd better follow a chinese language training course...
What do you guys think is the most popular: Cantonees or Mandarin?
Schezwan
Couldn't resist.
Greece could default on its external sovereign debt yet remain in the Euro zone , it would be easier for it to raise debt once its current debt is marked to zero.
If the core European countries remain relatively stable this would be a de facto transfer of wealth from the core to the periphery - this would also strengthen the euro in the long term as the remaining euros within the system would be of higher value.
The Euro is different.
No serious talks of cutting expenses or raising revenues. Just more loans. Sounds like elevated rates will be hanging around.
The big question is does this finally trigger the higher rates contagion around the world?
PIIGS...then other Euro defecit countries...then US and others.
Greece is just the sovereign equivalent of 'extend and pretend'. There is no way these Euro welfare states can stay solvent in the long run. 2011 marks the highwater mark of the EU labor force. After then its all down hill demographically. More retirees, fewer workers, huge debt loads, lower growth rates. Unless the EU figures out someway to get Cameroon street peddlers to be the backbone of Glaxo and other illegal immigrants to hammer together BMWs and Ferraris its all over now, baby blue.
We're no different in the USA save we are at least getting some immigration from East and South Asia. Our underclass is no longer affordable and armies of Honduran leaf blowers and Guatemalan weed eaters will not support a generation of retirees expecting 2k per month from social security!
I wanted to say that. Name a western government that is actually doing something proactive with their debt problem. None are because none can. Every government will stick with the convenient Keynesian lie until their entitlements system reaches insolvency. Pretending that they can grow their way out of debt is much more palatable than the horrible alternative of belt-tightening. That would throw an entire generation of politicians out of office. I know politicians and bureaucrats well enough to know they'd watch the nation burn to nothing rather than lose power.
ok .. if this is a trigger lets put down some known facts. (Taken from http://georgewashington2.blogspot.com/ )
The derivatives market is currently at around $600 trillion or so (in gross notional value).
In contrast, the size of the worldwide bond market (total debt outstanding) as of 2009 was an estimated $82.2 trillion.
And the CIA Fact Book puts the world economy at $58.07 trillion in 2009 (at official exchange rates).
Right. Greece debt may or not be collateral held at the ECB in exchange for access to unlimited supply of Euros. I mean does the ECB finance governments indirectly (monetize their debt) or not?
Point being, this is writing on the wall. Greek borrowing costs have gone up by 8% per annum (short and long dates). If you have 600 trillion in global derivatives and the p/l changes by that much, you need 50 trillion to collateralise it. Hence you would need pretty much all the bonds on issue to do this. Let's assume that only half can be collateralised cos stuffy investors dont play with the big banks, and then assume that around 1/4 of that is already collateralising the p/l of swaps, WHAT IS THE RISE IN GLOBAL RATES THAT CAN EVER BE TOLERATED BEFORE THE SWAP MARKEY BECOMES A BLACK TULIP!
ISDA doent publish haircut details or duration of swap details, neither has the worlds debt market been broken down this way. But the swaps market represents the off course betting on a horse race that never ends, with bets being paid out part way in the race on the far side of the track.
I am guessing that 80% of the outstanding debt is US, Japanese and European Government debt. I am guessing that three quarters can never be used for collateral. I am guessing that cash or AAA, AA bonds wont work in current ISDA's.
I am guessing that of the 600 trillion in swaps on issue, 60% are netted.
That leaves 360 trillion of swaps and 16 trillion of bonds. That means a move in prices of c.4% will require the use of all the available bonds on issue. For a duration of bond markets of what, 5 years, this means a yield movement of 0.8% from here in the overall level of market and its ummm..well game over?
Do greeks sub-contract to the Israelis for the manufacture of Uzzi's or are they just good for beta, gamma, delta, epsilon and the founders of democracy (with temporary military juntas)?
The ECB certainly buys its governments' debt, at generous prices. The ECB buys everyone's debt. The ECB will continue to buy everyone's debt, especially that of governments for whom default is not an issue. (Such governments may get an additional 5% haircut.)
EDIT: corrected stupid haircut mistake
I've thought about these issues (haircuts, swaps, general apocalyptica) quite a bit about this myself in some posts.
Prime dealers are treated differently regarding collateralization; a crisis may require them to post collateral consistent with other players like hedge funds. Thus collateral demands may be more onerous than you estimate.
At the same time, I see collateral quality including government paper receiving steeper haircuts than in the past. Thus, again, collateral demands may be even more than you estimate.
*sigh*
I'm not making you feel any better am I?
In a removed and abstract sort of way, it is highly entertaining to watch the extended death-throes of our current worldwide, corrupt and patently unsustainable debt and fiat currency-based financial system. The lengths to which the former "Masters of the Universe" are willing to go to keep the dying patient alive with more transfusions of the same poisoned blood that killed it in the first place are most amusing in their Kafka-esque absurdity. Future historians will no doubt marvel in awe at the incredible insanity and injustice of our era.
You speak truth, akak!
And what's really funny is that we are like a dog who watches another dog get run over by a car, and then walk out into the street ourselves.
Is that grill getting larger?
But as usual the Investment banks will come to the party and offer the "solution".
Privatize the profitable assets to us and you can keep the loss making end.
Greece loses control of its Sovereign wealth producing Assets to feed the bonuses to the banks through the same channels they always have. The Greek people watch helplessly as the things that they paid for over decades through taxes and excises go like the family silver off to the highest bidder. You don't need an army navy and air force to steal a country you just have to be an Investment banker/ pusher of debt. When their hooked on the stuff you slowly allow them to wast away until only the skeleton remains and their is nothing of value left in the carcass.
Sovereign debt is an addictive drug of choice to all Governments but to go 'Cold turkey' is just untenable. The Pushers are already salivating and dividing up the spoils as you speak, now they have them sweating for another hit of the OPM drug. The term "bailout" is so handy a term in reality it is just more debt, more of the drug - nothing has changed, give me my hit sugar daddy, I promise I'll quit, promise daddy, I'll clean up my act, I'll get motivated to improve my lot in life......... Argh ...... Thats better ... sweet dreams are made of these - Eurythmics/Maryilyn Manson
I'm gonna use you and abuse you.
I'm gonna know what's inside.
Gonna use you and abuse you.
I'm gonna know what's inside you.
http://www.youtube.com/watch?v=52bh36j023Y
"Greece loses control of its Sovereign wealth producing Assets"
And what that migth be? Olive oil and ouzo? Or the distractions of Mykonos?
I live there and i feel disgrace for my compatriots, who have no sense of the historic density of the soil they're plodding upon. They fully deserve what's coming to them.
They have long time ago surrendered their national identity and their traditional way of life that was based on old gnomics such as 'αγαθ? κ?ποις κτ?νται' (= goods are obtained by hard work) to the deceptively easy way of living by producing nothing and consuming always more by pilling on more debt. Now its time to pay and the debt vultures will "wast away until only the skeleton remains and their is nothing of value left in the carcass."
Chasuble indeed :)
They will be bailed out, and soon. This dance was part of the story board, to keep everyone distracted from the fact that all countries will be bailed out, and then bailed out. If they announced that the ship was sinking no matter what, we would go straight into the greatest depression. This way, they bide their time while their police states become fully functional. Two years until the most catastrophic collapse anyone could even imagine. Peak oil will be in full effect at the same time. It's going to be ugly. Get ready.
Investment recommendations (In the realm of pobabilities, I kinda of agree with you)?
Superpails from Emergency Essentials is a good start. It's a commodity play, only you take delivery right away. I am sure others will recomend gold and silver, but first make sure you have a good supply of brass and lead.
Interesting take on the effects of peak oil by Jeff Rubin. Essentially think local:
http://www.youtube.com/watch?v=wYuLjGQQ-jg
Arkadaba - Thanks for that link. Eye-opening and though-provoking!
Just read "The Long Emergency" by Kunstler and learn it all at once. Peak oil is real, there are no substitutes for crude oil, and the story of 20th -21st century civilization is the story of oil.
Take the hit now and let them convert back to the Drachma - there are other EU members not using the Euro - there are too many unions and not enough people paying taxes to make the Greek Budget ever balance. The Germans will (rightfully) kick Merkel out of power if she throws money away on this project. They also know if they do that Greece is just the first in a line several nations long.
Does anyone believe the Greek public sector will accept a 20% wage cut? That Greeks nearing the retirement age of 36 will agree to wait another 10 years for their pensions? That the population will suddenly cease tax avoidance or that the public sector will crack down on tax cheats?
The very wealthy have already moved their money out of Greece. Why should the thrifty Germans pay for the spendthrift Greeks?
This is like a bad horror movie, one where the ending is clear from the beginning but the movie is so tawdry and badly done that one is completely mesmerized by it.
"Greeks nearing the retirement age of 36"
Thanks for that chuckle.
Isn't it something like 30 if you are in a hazardous profession, which they define as hairdresser (chemicals) or broadcast-professional (germs on microphone)? (The two examples are real ... they get to retire at 50).