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A Greek [Default/Bailout]: Flowcharting The Dominoes
It appears that in the 11th hour, Europe is still unable to decide just what the proper approach to rescuing Greece is. The Sunday Times has just released information that a plan to be published by Brussels on Tuesday, titled "Urgent measures to be taken by May 15, 2010" will demand dramatic Greek austerity measures, such as cutting "average nominal wages, including in central government, local governments, state agencies and other public institutions" and proposes new luxury goods and self-employed taxes. Yet the kicker is that "Richer eurozone countries such as Germany and France would be expected to bail out Greece in the worst-case scenario, to prevent a disastrous crash in the value of the single currency" - not very surprisingly, this is precisely the Plan B that Almunia yesterday swore up and down that the EU was not, repeat not, considering. Moral Hazard has indeed gone global. Yet even with this bureaucratic memorandum on the table, it seems certain that the EU will not actually act before Greek deterioration escalates out of control. Here are the near term catalysts that will likely make the cost of inactivity very high. Think full Dick Fuld stature when screaming upright.
But before presenting a timeline of near-term events, here is a simplified flow-chart of how bond, and CDS, investors should handicap Greece's near-term future, courtesy of Barclays.
As the chart highlights, the critical junction occurs once the market digests the forthcoming fiscal adjustment: should the market deem that insufficient, the immediate options are two: an EU bailout and an IMF bailout. We remind readers that the IMF has already pointed out that it would be willing to provide critical assistance to the Mediterranean country. In either case, Barclays expects that the "bailout" manifest itself via a bridge financing which would "buy time for another round of fiscal adjustment attempts." Logically, if the bridge ends up going nowhere, then the country will have to evaluate how to deal with a potential default scenario.
Of course, this flow chart will not occur in limbo and will be determined by a variety of internal and external stimuli.
Much has been made recently over Greece's €8 billion bond issuance. Yet in the near-term the country faces substantial bond maturities, which will have to be tackled ahead of their April and May refi dates. The chart below presents the key GGB maturities through the end of 2011.
If bond (and CDS) investors realize they have the potential to force issuance at even wider spreads than the recently auctioned €8Bn, look for upcoming GGB spreads to be materially wider than anything consider reasonable for a eurozone member.
As has been pointed out repeatedly in the past, Greece is the 13th largest GDP in Europe, implying even a default would likely not have dramatic consequences over the greater European economy.
The greatest procedural stumbling block is that the country has a euro-based currency, implying monetary policy in Greece can not be detached from what Brussels thinks is the proper approach for other European countries. This is precisely the reason why rumors of the drachma's reappearance have become so loud recently.
Yet while a Greek default in isolation would not be devastating, the proverbial snowball effect may lead to a much more dramatic climax. Where Europe is weakest is among some of the key Greek banking and trade partners, namely Bulgaria, Serbia, Macedonia. Furthermore, fiscal concerns will also implicate more "developed" countries such as Hungary and the Baltic states. Combine the two avenues, and you get a fully-blown continental crisis, which could reach to the very top in the GDP pyramid - Germany.
The conclusion is that of all countries, Bulgaria is by far the most exposed to a collapse in the Greek banking system and trade deterioration, with Serbia, Romania and Turkey following.
And while Almunia will likely have no problem in throwing Bulgaria and other poorer countries to the wolves, what is certainly keeping him up at night, aside from acid reflux as a result of just too many Davos functions, is the implication for other comparable fiscal debacles. This is where the rest of the PIIGS come into play.
The contagion threat from a "fiscal fear" standpoint is thus most acute at the more advanced recent EU inductees: Hungary, Latvia, Lithuania and Poland.
It is unfortunate that so far the EU has bet the house on a slowly-developing situation, in which cash and CDS traders exhibit a world of patience. Which they won't: as the last two weeks have shown, when Greek CDS exploded by over 100 bps, the EU's ability to control the situation is quickly evaporating. Furthermore, should CDS sellers commence to cover their long exposure in greater numbers, thereby minimizing further losses, the spreads for the abovementioned "contagion" countries have a likelihood of surging substantially more than to date. This will be magnified if existing GGB holders, who have so far withheld a desire to bail on their positions en masse, finally capitulate, as the yield impact will be much larger in the materially greater (in notional terms) cash market. The bottom line - the EU will soon have to move away from empty rhetoric to decisive action; should it wait any longer, the market, just like in the Lehman bankruptcy, may very well take any optionality away from the Brussels bureaucrats, and result in a fragmented, bankrupt, sick and contagious EU hinterland, whose disease will slowly but surely make its way to the heart of Europe. (Alternatively, CDS on Bulgaria, Hungary and the Baltics may still be relatively cheap, although Germany's may be by far the cheapest).
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Tyler .. get some sleep lol
The sun never sets on Tyler Durden.
Outstanding piece. The breadth of topics covered here at ZH is amazing.
Zerohedge is without doubt one of the best financial sources of information anywhere.
Extend and pretend until terminal velocity is stopped by the ground.
Raising the debt ceiling on the American side of the pond gave us another few seconds.
Well, I think that the statement that the EU will not act until the Greek deterioration escalates out of control is the single point in the article you really need to consider.
The method of operation here, globally, across all financial environments, is to talk a lot of sh*t while the ship is sinking and to do nothing. Talk about the lifeboats but don't actually move to put any in the water. The purpose of this is to stall for time so that when the whole ship goes down lifeboats and all with all men aboard they can be satisfied. A job well done. Not one person got off the boat alive.
That was the intended outcome.
If you think I think this is a grand conspiracy by some really evil people against mankind, you'd be right.
If you think I'm crazy you'd be wrong. Like an innocent child, you simply haven't enough experience with the dark side of life to understand who and what is running your world.
-MobBarley
+kazillion. This.
Spot on Mr. MobBarley.
When EU Monetary Affairs Commissioner Joaquin Almunia denied in Davos saying "there had been no special plan formulated by the European Commission, only standard regular discussions on the fiscal imbalances of Greece and other countries" and "No Greece will not default. In the euro area, the default does not exist." He reminded me of BS Bernanke when he said circa 2006 “House price increases largely reflect strong economic fundamentals, including robust growth in jobs and incomes, low mortgage rates, steady rates of household formation, and factors that limit the expansion of housing supply in some areas.” Or this little gem circa 2005 “unquestionably, housing prices are up quite a bit; I think it's important to note that fundamentals are also very strong. We've got a growing economy, jobs, incomes. We've got very low mortgage rates. We've got demographics supporting housing growth. We've got restricted supply in some places. So it's certainly understandable that prices would go up some. I don't know whether prices are exactly where they should be, but I think it's fair to say that much of what's happened is supported by the strength of the economy” WRONG
They are both puppets being controlled by the same marionette(s).
Marionettes... ahh, you mean the string pullers Rothschild, Morgans, Warburgs...
www.save-a-patriot.org/files/view/whofed.html
This is non sense!
The treaty of the European union,had foreseen the case when an overspending member would be tempted to draw checks on other members accounts.
The answer,members are not joint and several in debts.
Again a case where legislators may think well,speculators may not, CB and peripherals execution failed.
Markets and associates are shaking the wrong trees,there are much richer crops on other countries risks.
Moody SP Fitch will be soon again on the bench.
I like your ideas and thoughts. by chat greetigns..
Elementary my dear Watson!!
When in troubles try to steer bigger problems elsewhere.
Greece's Prime Minister Papandreou talks with Jordan's Queen Rania at the World Economic Forum in Davos.
From the photo at this link, Papandreou is reaching out to Queen Rania and he has the solution to the Greek debt crisis almost in hand.
http://www.telegraph.co.uk/finance/comment/alistair-osborne/7105916/Gree...
The Europeans haven't faced real crisis in 65 years, and they've never faced a real crisis collectively, as a union.
Expect half-measures, delays and timidness. European policymakers and 'leaders' are privileged careerists and only nominally accountable to citizens. It will take years if not decades for European bureaucracy to effectively 'respond' to any crisis.
Credit The Big Lebowski..."Sometimes you eat the bar, and sometimes, well, he eats you"
TD on fire last few days; tomahawk dunking from the 3-point line.
Thanks for the effort, sir. yet another tremendous piece.
Ty "Tomahawk" Durden
EU so far successfully applied rapid tightening tactics to several East European nations - Estonia, Latvia, Hungary - with and without loans from IMF. And they have been very tough, no money , no help if tightening not done.
I wonder if that is possible in old corrupt "historically great" nations like Greece and Spain as well.
Iceland seems to be destined to default this year. A small nation, but can trigger large scale uncertainty about European national debt and thus, further defaults.
I guess gold will be an asset of choice soon, during 2010.
EU so far successfully applied rapid tightening tactics to several East European nations - Estonia, Latvia, Hungary - with and without loans from IMF. And they have been very tough, no money , no help if tightening not done.
I wonder if that is possible in old corrupt "historically great" nations like Greece and Spain as well.
Iceland seems to be destined to default this year. A small nation, but can trigger large scale uncertainty about European national debt and thus, further defaults.
I guess gold will be an asset of choice soon, during 2010.
The situation is quite simple: Pan-European socialist economic/political model does not work and ready to collapse.
As for East European nations - Estonia, Latvia, Hungary, etc., they are former communist countries where governments do not give shit about people and populous is still under suppressed communist mentality. Just look at Russia, Ukraine, etc., where governments do whatever they like and people take it.
Consequently, Pan-European Union is about to go down creating new European landscape. There is no need to be afraid of changes regardless of "systemic" or not. Utopian dreams just could not last for too long.
PS
Please do not expect French do bail out anybody. They care only about themselves.
Is it a bird? Is it an aeroplane? No, it's an outlier !
Being french, I can tell you that what you describe is pretty much the reality.
The guys in brussels are far away, in another galaxy.
Arrogant and eventually totally dumb... they are going to talk endlessly.
That's the curse of UE : it wasn't able to work at 6. So imagine at 27...
We are talking about the Greek issue since almost one year and a half... Even the dumbest bloggers on Internet was aware of the Greek Risk. What have they done during this time ?
Nothing.
Just wishfull thinking, like all the other clowns : "it's going to be okay... the crisis will end soon" blablabla.
Instead of :
-assessing the situation
-and taking actions
You will never see the Greek gvt, a bunch of corrupted third world people, ordering cut in expenses. Never. Their brain is just not wired for such a concept.
And they are too afraid from the "streets".
The rest of the population is as dumb as them... with hot blood, and a strong leftist mania (after the repression of the right wing generals).
They will start to strike, to riot (like they did in the past), leading to the total paralysis of the gvt.
So the case is obviously closed : Greece will be bailed out.
But too late and not with a "shock and awe" style, that could boost the effects. No instead... decisions will be taken too late, and on a scale always smaller compared to the scale events.
However... you can be sure that they will try the US way : aka deception and lies. If the ECB, France or Germany have to buy greek debts undercover... they will do it. Before the cover up blows up. Eventually.
Cultural globalization has really gone world wide; except for the hot-headedness everything's the same in the U.S. and private industry is as dumbstruck with their own genius as are the bureaucrats. Here though, instead of hot-heads protesting every measure to right the ship, if it hurts them a bit, we have sheep that willingly watch the whole thing go down. Take your pick.
It's truly a decline in culture: integrity, decency, compassion have all gone out the window replaced by faux-religion in lieu of spirituality. All we're missing is patriotism to be whipped up to see the whole thing explode in a III try.
SS
Merci bien pour votre réponse.
"However... you can be sure that they will try the US way : aka deception and lies."
Hey! Easy now! While there are plenty Americans that can wear that shoe - and I'm all for revisting the days of the guillotine (the only real justice for this crisis) - I wouldn't throw stones in glass houses.
That slime that you refer to is a human issue not exclusively American. Cmon now. "Ca ca can't we all just get along?"
Mr. Frenchy,
The EU inactivity on the Hellenic issue is not any different than any other country at the moment, "Extend and Pretend."
Furthermore, the French are also willing participants of the same even though they claim that they have better manners than the Greeks or the Italians the Irish etc.
Calling the Greeks 3rd world is as arrogant as it gets.
The Greeks said "Ochi" to the Nazis and when the French were asked to fight back they said "Pourquoi."
You had to wait for the USA to bail your asses out.
Shut up.
Cut spending, that is easier, and more useful. Reduce government.
"Expect half-measures, delays and timidness. European policymakers and 'leaders' are privileged careerists and only nominally accountable to citizens". Not that the ones who are accountable to their citizens are any better. The whole world politicians have become self centered. Gone are the days of real "civil"servants. Corruption runs deep almost in every part of the world. I still remeber the days where you can point to at least some people whom you could say"those are honest people",who happens to also be politicians...
I predicted a year ago that Eastern Europe would bring about the second leg of the crisis when I read that Western European banks had insane loan portfolios extended to those countries. For example I recall Austria's banks having loans to Eastern Europe equalling 120% of Austria's GDP.
And the loans are primarily mortgages to people in formerly communist nations with no history of knowing how well they'll perform. And in most countries the mortgages are in Euros, which means that weakening in the Eastern European countries currency automatically triggers waves of defaults that then cause further weakening and property price crashes and general economic mayhem.
You couldn't design a system more unstable and likely to tip into a spiral of crisis if you tried.
Greece isn't part of Eastern Europe...idiot!
Yeah, it's further South, where all the hicks live.
(insert sarcasm here)
That seems pretty arbitrary - it is one of the easternmost parts of Europe. There are countries in "Eastern Europe" that are west of Greece, like Croatia.
http://z.about.com/d/goeasteurope/1/0/w/-/-/-/revised-eastern-europe-map...
Another one that hasn't read the article.
All these loans are recourse. You should know it by now. There is no "strategic default" as an option... like in US.
Except, of course, this has nothing to do with Eastern Europe and everything to do with Greece. But you could still make it as CNBC analyst.
Have you read the article?
It states that the Greek banking system's links into emerging (Eastern) Europe is probably more systemically important.
While its flattering to have a CNBC staffer say I could make it as an analyst with your fine company, I'm afraid other commitments prevent me taking up your kind offer
The price level there is too high and wages most go down on the international level, while the budget cuts needed for these countries to remain solvent during a deflationary depression enforced on them by Germany via the Euro are so staggering that no modern democracy will be able to handle. As the riots in Greece have shown, any government in the world that will try to make public spending cuts in double digit percentage points will not survive. Not to talk about the fact that will need to lower the minimum wage during a depression, an action never done by any government.
http://israelfinancialexpert.blogspot.com/2010/01/euro-crisis-budget-cuts-are-doomed-to.html
Correct. The Greek government is weak and corrupt; it will never have the cojones to do any real cutting,and may well increase expenditures on the sly, and the notion of collecting significantly more tax revenue is delusional.
Tyler,
Your data shows that Greece needs approx. 25 billion euros to roll over 2010 debt.
This is not a significant sum, especially when combined with the fact that Greece represents 2-3% of total European GDP.
The EU will bail out Greece and this woud be the equivalent of the US bailing out a small or mid-sized state.
This is not Europe's "California moment."
To be frank, speculators are whipping this issue for the sake of a quick buck, but as your BarCap chart shows for the majority of outcomes, Greek bond spreads will most likely decline, going forward.
Milton Friedman predicted that the Euro would be unlikely to last much beyond 10 years. His argument was premised on the fact that, unlike the United States, where a common currency is backed by Federal taxation and a central treasury, the Euro has no such central support.
Each member state has sovereign control of its own fiscal policy and is free to issue its own bonds to cover deficit spending. Interest rates however, are set centrally for the Euro as a whole.
The aim of the Euro's founders was that countries would only be allowed to join if they met the rigid membership criteria demanded. The purpose of this stipulation was to ensure that the economies of the new members "converged" with those of the existing membership, so that economically, they would be marching in step, thus allowing central interest rate policy to be set at a level that was appropriate across the Euro area as a whole.
Inevitably politics and fudge got in the way of principles. Not only were countries allowed to join who only momentarily, if at all, met the “convergence” criteria. (Italy, Greece, Portugal) but also the economies of the Euro area were marching in anything but step. Interest rates were set at an appropriate level for Germany and the Benelux countries, but at far too low a rate for so called PIGS. (Portugal, Greece, Ireland & Spain.)
During the glory years these unrealistically low interest rates caused a debt explosion in the PIGS largely on the back of a soaring property market, just as Friedman predicted. The collapse saw the deficit spending of most Euro member governments soar, making a mockery of the “Stability and Growth Pact” which limited government deficits to 2% of GDP, and now countries such as Greece are at levels 6 times that.
Poor old German taxpayers. Having paid for the reunification of East and West Germany, it looks like they will be on the hook for the weaker Euro member deficits as well, as there is too much political capital at stake to allow the Euro to break up at present. It comes down to national characteristics. The Euro masters will calculate that the German taxpayer is less likely to riot than the Greek one whilst the Greek economy is weaned off the debt habit.
So there are a million ticks on the dog that is Germany.
The ticks are killing that dog.
They only way Germany can survive is with a dramatically devalued Euro.
Not hard to see how this ends ...
Or it could kill the ticks.
Same difference, though...
Milton Friedman substantive predictions that the Euro would be unlikely to last much beyond 10 years are about to become true.
As Soviet and Chinese experience has shown very clearly, from time to time, socialism needs tanks in the streets to rejuvenate and revitalize its well-being.
Bailing out Greece will just postpone and exacerbate the overall European situation.
Forget Greece. What about California. A default in the making
Well, while Greece in a smallish cut (one of 1000 per se), California is a HUGE event and a far higher percentage of USA's financial situation than Greece is to the EU.
Cali is just fine. Didn't you hear that they're getting $2 Billion in Fed money for a high speed choo-choo. Think of all the jobs that will create. Think of all that ripple effect into the larger Cali economy. It will "save or create" the universe as we know it, or create a newer, better parallel universe. Oops, the total project is $42.6 Billion, and we all know these types of projects ALWAYS com ein under budget, and always are self-sustaining. Once up and running, this choo-choo won't need any taxpayer subsidizing, right? http://www.mercurynews.com/crime-courts/ci_14281245
We're screwed.
Napa Valley Wine Train stimulus project! Without competitive bidding, a $54 million federal contract that provides a new railroad bridge and other structures for the famed Napa Valley Wine Train is one of the biggest federal stimulus contracts in California.
"About a dozen times each week during peak season, the train carries tourists on a five-hour round-trip from Napa to St. Helena aboard restored dining cars. A champagne dinner on the Vista Dome car costs $129 per person. More than 100,000 people ride the Wine Train each year."
The $54 million to build a flood wall at the wine train depot, elevate the tracks and move them 33 feet, and raise four bridges is part of a larger flood control project. "The total price has ballooned from $250 million to more than $400 million. The price tag might have been significantly lower but for the Wine Train, a private rail line established by the late Vincent DeDomenico, the wealthy creator of Rice-A-Roni..."The Wine Train's rail bridge in downtown Napa was too narrow for the wider river channel proposed, so it's being replaced. A new floodwall will also be built to protect the train's Napa station. Tracks are being relocated as well."
"The added expense of accommodating the Wine Train was politically necessary, said Chris Malan, manager of the Living Rivers Council environmental group and a proponent of the tax measure. Without the support of the politically influential DeDomenico, the tax measure would never have passed, she said."
http://www.pressdemocrat.com/article/20100131/ARTICLES/100129372/1033?
Using taxpayers money to bail people who made risky bets by building in Napa Valley floodplain. Sound familiar?
Build in a floodplain; then, rather than keep new development outside the floodplain, build even more development in the floodplain. Invite more and more residential and business development into the floodplain, as if there is no danger, no risk. Sound familiar? Sound like the California/Wall Street mortgage/CDO fraud?
Get taxpayers to spend to spend millions$ on flood control projects that encourage more development in the floodplain and allow developers to lure more and more people and investment in the floodplain. Sound familiar? Sound like the California/Wall Street mortgage/CDO Ponzi crimes?
Then when a flood overwhelms the piecemeal and under-designed flood controls, and destroys residential and commercial infrastructure, demand that the taxpayers bailout them again. And again. And again. Each time rebuilding and increasing the infrastructure and lives at risks. Sound familiar? Sound like increasing systematic risk?
And every time the taxpayer bails out the gamblers on floodplain development, the gamblers double-down their bets and continue building in the floodplain because they know the government will bail them out. Sound familiar? Sound like moral hazard?
http://www.pressdemocrat.com/article/20100131/ARTICLES/100129372/1033
http://www.cnn.com/2010/US/01/28/kaye.wine.train/index.html?hpt=C1
http://www.sfgate.com/cgi-bin/blogs/green/detail?entry_id=56267
Maybe we'll see this soon.
xxx Times has just released information that a plan to be published by Washington on Tuesday, titled "Urgent measures to be taken by May 15, 2010" will demand dramatic California austerity measures, such as cutting "average nominal wages, including in central government, local governments, state agencies and other public institutions"
That plan should be a real hoot. A demand for austerity measures in Kalifornia crafted by Uncle Sugar's minions in Washington, D.C.
Doesn't get much weirder than that.
Get ready for more stories like this: http://www.jsonline.com/business/83179737.html
http://fistfulofeuros.net/afoe/economics-and-demography/greek-bailout-ne...
The PIIGS (Portugal, Italy, Ireland, Greece, Spain) will be cut loose--
it's only a matter of time....
maybe after the UK default.
could take 5 years for this particular slow-motion train wreck
or it could be in 2011.
tough to say
When for example Mr. Bruderle, a german minister, said yesterday in Davos, that in no way there will be a Greece bailout, he says that only to contain the anger of the German taxpayer, who would indirectly bailout Greece.
We have reached a point where anybody knows Greece will be bailouted, but nobody wants to take the responsability.So the IMF will "officially" bailout Greece, as they did it for Hungary, Latvia, Iceland etc.
It seems to me when you listen to a politician, what he means is exactly the opposite from what he says (this includes also Obamania, Benron and Co).
where's the China bailout in that picture??
"... this is precisely the Plan B that Almunia yesterday swore up and down that the EU was not, repeat not, considering. Moral Hazard has indeed gone global."
Agreed and we all now 100% know not to belive anything these banksters, politicians, etc say. You can forget about the Euro and other currencies as some may not survive, many are actively being devalued and gold is showing the truth about FIAT currencies.
Of course all of this is nothing new yet am simply reiterating the obvious.
Got gold?
Moral Hazard was invented in Southern Europe.
I think Greece is a red herring. There are more important problems in the U.S., and when I say more important, more is an understatement. A major swing in America’s political mood will be one of the most decisive in my opinion. On the tangible side, the California debt an example of but many state debt problems. I won’t bother to mention municipal, commercial real estate, and the like. The financial time bomb is in the U.S. (and GB to a lesser extent) as I think world stock markets adeptly pointed out on Friday (I recognize that a day does not a trend make however).
Greece and neighboring countries are small potatoes in GDP terms, but extremely important in long term “resettlement” terms. Northern Europe looks to the south much like Chicago looks to Florida. Without the EU, Germany would be just a “Room with a View” of the south; with the EU, it’s now like buying in your own country. Southern Europe is a permanent “buying opportunity” for the north. If there’s any place on earth with a “permanent bid”, it’s southern Europe (that’s not to say the bidder will reject better prices, just that there is fierce competition for that bid). The long term positives far outweigh the short term, and relatively small, negatives.
I think that if you’re looking for a problem in Europe, you need to focus on the Core, and then compare that with GB (not a Euro zone member) or the U.S to get an accurate handle on the probabilities for blow-ups in each respective zone. What I’m reading and seeing in the press in the U.S. these last few days and weeks has me thinking a 1-2-3 knockout punch in the form of a confluence of negative factors is in store for the U.S. in the not too distant future, and that many are underestimating or even overlooking that eventuality, or even simply being distracted from it.
TO: HIGHREV
You're correct
US is insolvent, so are many states and municipalities in US and the PIIGS and UK.
so it's hard to predict what's going down..or when...but it won't be pretty.
I bet on major international conflict as diversionary tactic
this is the normal response by an elite "in extremis"
there will be regime change because our political system has failed to work in the new international political economy.
it won't be a collapse like Louis XVI or a friendly takeover like the Stuarts to William III
I hope not like the Tsars or Mexican Revolution, but it's possible.
probably more like the end of the Roman Republic and Caesar Augustus.
In these circumstances, think "outside the box", using common sense and history
...Civil disorder, national security, financial system at risk...
Goldman Sachs retains the Blackwater (Xe Services) private militia and installs a friendly regime with suspension of civil law and declaration of martial law....this is a likely outcome....say David Rubenstein as the consensus President appointed by GS et al.
In milder terms Harvard Political Economist Michael Frieden published a paper which laid it all out, published by CFR...everybody knows what time it is..
Pros, I generally concur with your comments, but we're going to have to diverge on this one.
Review the conundrum facing the original 13 colonies. Almost every (knowledgeable) person has read Paine, but how many have taken the time to peruse the counter-arguments made during the Revolutionary period? What were the chief criticisms made against independence? Answer: the 13 colonies were chartered at different periods, by different monarchs, for different purposes. Some were geared towards pure speculation (eg Virginia cotton), while others aimed at more balanced approach of emigration & commerce (eg Massachusetts).
About the only thing they had in common is that they had NOTHING in common. So the challenge that presented itself to the Framers was how to go about forging a cohesive whole. It is often said the the USA is an idea; eliminate the idea (individualism) and what do you have left?If there isn't a common goal/sacrifice, does Texas care a whit for the pansies in California?
That's why I believe in times of economic/political instability, the respective sovereign states will simply revert to their natural constituencies, which is self-sufficiency.
People who have read my posts know I focus on 'tells'. The first tell is the incipient political movement that will begin the slow end to monetization & ongoing fiscal deficit outrages. I believe the recent MA vote is this tell. The second tell will be the movement of the individual states to take control of their own respective problems. I believe this tell will be the issuance of state scrip.
The first step has already been taken; it will lead to even more change Nov '10. But while the election itself won't be sufficient to make any meaningful real changes like eliminating the Fed, etc, it will inadvertently lead to bringing the whole money printing exercise to an end. (Which will ultimately bring about the end of the Fed, IRS, social security, etc.) The second step may begin before the end of the first stage - California already experimented with IOUs last year, but it was only a test run. Full blown control of state currency is on the scorecard - regardless of what the Constitution says. I mean, the fed.gov has already demonstrated utter contempt for this "dead letter", so there's nothing stopping the states from doing the same thing.
Once we have the states in control, say good-bye to any collective federal power other than the military. We are going to follow the same slow crack up as the USSR. One day there simply won't be any there, there. That means no police power, no surveillance, etc. However, it will mean the rise of new criminal gangs that won't look like GS employees.
+1
And you don't have to be part of the Tea Party to say it.
The Mexican cartels are juuuust out of view from the American public - their products are everywhere to be seen. Once the veneer of civilization wears too thin in the not-too-distant future we will see Juarez-style kidnapping and assassinations in many parts of the US.
And if you think your NE or NW city is safe, think again. You think our lowest paid, foreign service workers are happy with the way their families are treated?
http://www.npr.org/news/graphics/2009/mar/mexico_cartel/index.html
Mejor practicar su espanol ahora que mas tarde.
Highrev: You are right on the money. The US and UK are on the brink while Nero fiddles. In the US, there are several states about to go bankrupt, not just California. In addition, people are underestimating the effect of the Scott Brown Mass. victory, which is devestating for the plutocrats who planned to utilize the current administration's agenda to extract additional wealth from the people via national health care and Cap 'n' Trade. With that agenda now in jeopardy, or at least the plutocrats preferred versions of it, look for things to get particularly dicey. The big NY banks, which are a proxy for the plutocrats, are finding their ability to make *money" diminished as the populist rage increases. One thing Bernanke can not control is that there are no willing borrowers, and that the people have had enough of the bs.
In the end, diminishing cash flows and increasing debt issuance will simply collapse everything. Cash flows do matter, and accounting gimmickry can only work for so long. People say, this is a "black swan", and is unlikely to happen. In fact, it is not only likely to happen; it is our destiny because our corrupt and fractured system can only produce that result in the end.
We will be having quite a conversation within 2 years, fellow ZH'ers. Just sit back and watch.
TPTB sure blew it when they put some women up against Brown who didn't even know who Curt Schilling was.
So let me get this straight..Hellenic Telecom ( the Greek ex telco monopoly) has to now pay a "vig" of 12% for any new money. The Brazillians are also paying around 12% and my illiterate neighbors here in SoCal are paying less than 4% for property that is at least 10% underwater. All while their bankrupt state will be happy to find new money at less than 6%. And you mean to tell me that the problems lie with those lying cheats in the Greek gov't? No wonder asians are gobbling up those brazilians.
In general the greeks were always quick buck scam artists. The norm can be found in past Greek gov'ts and their tax cheating citizenry but one can also be find examples in the states. Just look at adelphia and Rigas, read about Alexi Giannoulis dad, or go to corner diner and ask the owner if he ever paid taxes. So this should come as no surprise.
But the big head scratcher to me is all this mispriced debt--> thats the real train wreck waiting to happen
We got this line of black swans waiting to honk.
Who will be the lucky winner?
And when one flies, won't they all go?
"...nothing stirred, save for the swans, which rose in unison."
terminal phase of interest based mechanism... They all go the same way down through time... Value transfer precludes sanity in designs as people profess they don't know a lead pipe has a glide ratio of 0:0. But they know... Again, as the shadows of our history books show,ignorance is well rewarded -- until its not...
http://www.perfecteconomy.com/pg-amendment.html
terminal phase of interest based mechanism... They all go the same way down through time... Value transfer precludes sanity in designs as people profess they don't know a lead pipe has a glide ratio of 0:0. But they know... Again, as the shadows of our history books show,ignorance is well rewarded -- until its not...
http://www.perfecteconomy.com/pg-amendment.html
very interesting comments
But as you mentionned it Greece is not really the largest EZ economy so far (1/6 germany).
The 2010 GGB maturities are < €10Bn. This is Pocket money for HelicoBen or uncle JeanClaude.
So why so much noise for such a small economy?
Speculation or the very beginning of the true war between banks (the too big to fail vs the too small or to weak to survive)?
I agree Greece is a red herring in the scheme of things. There are much larger defaults approaching fast including the UK and California to name just two which would make Greece look like small fry. Deception in full spin mode.
Also agree on the comment that the European bureaucrats suffer from analysis paralysis and will end up being ineffective.
Got to wonder how the man on the street in Greece reacts to all this.
Remember the riots last year? They ran out of tear gas...
I think the most likely scenario at this point is that Greece will excuse itself com the Euro Currency zone but not entirely from the Union.
They will then reinstate the Drachma, devalue as required and do the necessary economic reforms (haha for the reform).
The risk is that Italy will be inspired and jump out of the € next but will get concessions to stay in. The remaining PIS will stay anyway because they have no significant leverage leaving the currency.
This is entirely my opinion and I'm not trying to convince anyone.
I think you're close as concerning the Drachma. I think it's possible that Greece will stay in the EU, re-issue the Drachma, but the Greek Central Bank will still parley in the Euro with other Euro Central Banks. Somewhat of a two-tier system like the use of silver and gold coins. With the Euro filling in as the gold coin and the Drachma as silver and copper coins, via the old Roman Republic (Empire). Obviously the Drachma would only be honored within Greece, but could be exchanged in other Euro countries.
Of course just one opinion. But as my ole mammy used to say, opinions are like Blankfeins, everybodys got one.
This is pretty much how Turkey operates, with both Turkish Pounds and Euros being freely used everyday in the western coastal resorts.
It is interesting to note that receipts in the mojority of Euro countries still have a conversion to their old national currency printed at the bottom - hedging of bets or a reminder of the inflation instigated by the introduction of the Euro, who knows.
I look at it from a simpler standpoint - the Greek bureaucrats will call the EU's bureaucrats bluff. Why would the Greek bureaucrats commit political suicide by making all the tough cuts (reducing wages, laying off govt workers, etc.) when they know they are Too Big To Fail and will get bailed out? Sure, they'll make a lot of noise but the will delay and give speeches but won't ever make it around to action until the house is fully ablaze. EU will HAVE to come save them. Same thing happening in California. The legislature there is working on big issues such as "too much free parking" is available (from Mish Shedlock). They KNOW they will get bailed out and won't have to take the tough actions. Greece as well as California are toast.
I look at it from a simpler standpoint - the Greek bureaucrats will call the EU's bureaucrats bluff. Why would the Greek bureaucrats commit political suicide by making all the tough cuts (reducing wages, laying off govt workers, etc.) when they know they are Too Big To Fail and will get bailed out? Sure, they'll make a lot of noise but the will delay and give speeches but won't ever make it around to action until the house is fully ablaze. EU will HAVE to come save them. Same thing happening in California. The legislature there is working on big issues such as "too much free parking" is available (from Mish Shedlock). They KNOW they will get bailed out and won't have to take the tough actions. Why make the tough choices when you don't have to? Greece as well as California are toast.
Absolutely right !
Some previous posts pointed out that Greece is negligeable compared to CA or PIS states (Portugal,Ireland Spain). I dont share this view because Greece is in miniature symptomatic for a lot of countries.
Take Dubai. Did you notice nobody speaks anymore about their debt problem ? We dont know why but it's likely Benron,EU and IMF gave them a lot of guarantees. I only wonder in which world we live in where almost each has to be bailouted.
Absolutely right, but the assumption that California will be bailed out has become highly questionable with the nearness of the midterm elections--such a bailout would be Highly unpopular, and would end a lot of political careers.
This kind of moral hazard is happening here on the ground at my university. We had some meetings about the budget a while back and I suggested all these austerity measures and further suggested we get ahead of the ball and make all these cuts NOW. I was told that if we handed all those cuts to the admin, that they would say "thanks" and not cut other units. In other words our cuts are to be as mild as possible so that we don't get ripped off of funds we might still be able to get if more money comes in than the worse case.
Don't make the cuts as deep as you can, wait to see if money will come from somewhere else.
We are going to hell in a basket of currencies.
My guess... look for the IMF to bail out Greece by the ides of March. Next up on the plank: Bulgaria, Portugal and Argentina. As for California, their constitution requires that debt be paid first, everything else second; I see another bandaid and tax hikes coming there. On the other hand, there are cities which might follow Vallejo into the bankruptcy courthouse; Detroit, Los Angeles, etc:
http://themeanoldinvestor.blogspot.com/2009/11/problem-with-muni-bonds.html
Brussels and the Greek plutocrats know that austerity measures can NOT be implemented in Greece. There will be riots in the streets.
That's why an IMF bailout with it's requisite conditions or a Brussels bailout with an accompanying "tough measures" plan to placate the German public are non-starters.
Look for a "stealth" bailout initially (Trichet knows full well the Bernanke playbook) followed by a return to the drachma while Greece still remains within the EU economic block.
This is plan C that no one wants to talk about.
Yap, but one thing is sure:
The EU construction is a big failure ! Except the politicians on television and the Technocrats in brussels, I never met one chap in Europe who feels as an european citizen and I travel a lot through Europe. There are few common points between a German and a French and this will always be like that.
I don't believe this is true among the young, that was my experience at least. The IIWW scared people a lot out of their national pretensions.
SS
a limey is a limey, a frog is a frog and never the twain shall meet.
Agreed on that but I was taking about the rest of Europe, Continental youth feel solidarity, the English have always been cold to the EU.
SS
Greece’s case serves as a general reminder of fiscal issues and government debt sustainability.
High probability IMO IMF will get the nod. It's the least politically troublesome and the most obfuscatory; the IMF prints up some SDRs, which of course is the same as printing the equivalent USD, Euro, Yen etc, but less transparently so. EU gets to say they took the hard line and were hawkish. It's really not that much money (yet). For me, the only questions are what will Greece give up to the IMF, and how will IMF enforce it?
The comparisons to US states get more compelling as time goes by.
It would seem the logical course, but politically the EU allowing the IMF to operate in a country within the Eurozone raises huge red flags as to the "sovereignty" of the EU project. I cannot see it happening.
stake out a dumpster,, behind a busy pub,, that serves tacos/ Good locations will be at a premium lol
shelter from the wind ,, a good tarp would protect from sun and rain,
and dumpster diving for tasty treats ..
dumpster
3 questions -
1. How long could the IMF hold this thing together by selling its gold?
2. What power would the IMF have without its direct ownership of unencumbered physical gold?
3. How much gold does the IMF really have?
Anyone ??
1. they can print money to infinite (as Benron)
2.IMF is "owned" by the big countries (or the taxpayer if you prefer)
3.Dont know, but since they can print money to infinite, it's irrelevant.
Cheers
thanks xamax.
but how can the IMF print money? based upon what? that's what i don't understand.
Made in the U.S.A.
http://www.nytimes.com/2009/04/03/world/europe/03summit.html
i see -
the US - which is bankrupt - is going to fund the IMF so that the IMF can bail out Greece and save the EU - which is also bankrupt ???
does anyone actually have any real money?
does anyone actually have any real money?
No, and this IMO is the heart of the matter. What is "capital" anymore? What does it mean? If we borrow capital from Chinese savers, there is a "real" component to it; someone worked, made something, and then deferred consumption, lending value into the system. But if the Fed prints tokens and uses them to "buy" Treasuries or MBS, what do we have? Mythical money token-thingies that resemble the real thing but which have no "real" component to them. No one deferred anything, no one made anything, no one saved anything, no work was done, no value transferred. There is no goddamned capital. If these mythical money token-thingies that Bernanke clicks into existence are capital, then we can just click our way to prosperity and on one need ever work again.
But that's impossible, of course. Meanwhile, the CBs and the vested interest old/big money continue to act like it IS real, because the alternative is their loss of privilege and position, and the government continues to act like it IS real, because the alternative is that the voting public learns that government and central banks are incompetent buffoons and thieves, and are not capable of running the economy, that we do not produce enough surplus to fund the welfare/warfare state, that guns and butter is a fucking lie, and then entire command/control edifice collapses of its own weight. All it would take for that to happen would be for the voters to collectively hold their breath for a few moments and stop working. Poof. One giant "Fuck You" coming right up.
No, and that's exactlcy the dramatic issue which is daily highlighted by Tyler and the contributors on ZH in an excellent way (compliments to TD once more !).
If you or me are bankrupt, no bank will give us bucks anymore. Not so the states: they print the money they don't have.According to reliable sources here on ZH, the real debt to GDP of America is not the official 90%, but north to 350% if you include social security liabilities and medicare.Europe and Japan are probably not much better. Only somebody will have to pay this debt one day, except you solve it through inflation, which would be my best guess.
The answer is right there in the article:
New means new. Fresh off the press and all that.
http://www.nytimes.com/2009/04/03/world/europe/03summit.html?_r=1
IMF is an arm of US Treasury
Though there wasn't a Plan B? :)
Thought there wasn't a Plan B? :)
Guys, you are inconsistent. On the one hand you all claim that governments manipulate, and then with your next breath you all persuade yourselves that government(s) will allow any free market function that threatens anything significant.
Greece will not be allowed to threaten anything. There will be talk and denial, and behind the scenes will be the European bond market's equivalent of HFT. Those bonds will get bid up tonight and S&P futures similarly, as has been so every Sunday night for months.
You guys need to have courage in your convictions. If you are confident there is manipulation, then be confident there is manipulation.
I think the end game here is an IMF bailout.. the Greek people will throw a fit for a few days after the austerity measures are announced, but in the end they have no choice. This won't happen until the Greek economy hits cold pavement (10% rates on the 10yr bond).
I've lived in the country for a few years working for Siemens. If you think the "Greek people will throw a fit for a few days" and then it's back to business as usual, you don't understand Greek history and culture.
what will they do?
http://www.youtube.com/watch?v=_5VRhmgUNtM
Homes says:
It's quiet, now.
I hear the clicking of the wall clock.
In the distance,
a dog is barking frantically.
Warning us.
Something very bad is coming
"Greece is the 13th largest GDP in Europe"
15th when Norway and Switzerland are included in the comparison, 16th if Turkey is also included.
Iceland is by far the European country closest to some kind of default.
"Greece is the 13th largest GDP in Europe"
15th when Norway and Switzerland are included in the comparison.
Iceland is by far the European country closest to some kind of default.
I come from greece.
Our governments were corrupted for decades.Everything you heard about Greek economics it is probably true,but don't rush to accuse the Greek people.You,wherever you are from,don't have more democracy then we do (and we have not).
All this debt became votes.
What is happening now,I think is part of a process which takes place in every country.It's time for the lenders to collect real things as a return for fake things.
Some of us took the bate.The scary part of the story is that,it didn't had to be all of us.
The paid votes became more debt.
An interessant article was published by Ambrose Evans Pritchard in the Telegraph : "ECB prepares legal grounds for euro rupture as Greece festers".
http://www.telegraph.co.uk/finance/comment/7012297/ECB-prepares-legal-gr...
BUT this article has been censored (the link points to an "404 Error" wich that means the page has been delated).
Fortunately, there is a copy still available to reading, in the GATA site, see :
http://www.gata.org/node/8246
Further more, i have been searching for any buzz around this ghost article but i found nothing.
Pretty amazing.
Does anyone can explain me why this disparition has occured.
PS : Sorry for my english... I'm french.
Gérer le flux d'information est de première importance. Je suggère que, lorsque vous constatez une bits particulièrement intéressante des données que vous enregistrez une capture d'écran plutôt que simplement le lien. Bonne chance et meilleurs vœux.
thanks for link. i like ambrose
What if Germany unilaterally secedes from the EU, and re-establishes the DM leaving the Euro to tank?
I'd supplement my PM holdings with DM,
Germany controls the ECB. If they say "raise rates" the bankers say "how high".
They have no reason to re-establish the mark. Other countries use their currency, not the other way around.
Here's what Europe will do about Greece - nothing. Each day they will do nothing and let things get a little bit worse, and when this is over Greece will be on fire but the Euro will still stand. Then the Greek people will know Europe is solid but not their government.
I believe that Germany is in a much weaker postion then people realise since its economy is geared towards the production of high value consumer items that people can do without if they choose.
This mercantile state is also dependent on the Pigs and others paying for those mercs and BMWs which is very dependent on banks providing consumer credit which they will not provide for a long, long time.
As this crisis evolves Germany will have less and less savings unless they again change the nature of their manufacturing base.
Also there is a hell of a lot of worthless paper still not marked to market on German banks balance sheets and when they explode the present postion will look like a pleasant dream
Yes, but with the resurrection of the DM suggested above, I believe the Germans could, in marked contrast to everyone else, summon the political will to maintain a strong currency. At least, if anyone could, they could.
The situation at the Landesbanks will tell the tale of Germany's capacity, or lack of to drop the hammer on the problem. This is one of the primary constraints and a key to Germany's stance. Germany wishes their Landesbanks were as sound as Citi.
Thanks for the Stop Making Sense link Miles... haven't seen any of that movie for a long time... one of the great live concert films :-)
Never noticed the "Ian Curtis (Joy Division)" in David Burne's quirky movements before... wonder if he was ever exposed to them?
Gotta get the texture where one can... Perhaps his exposure had been to either Ian Curtis or even the epic Windy O Williams during his formative years. One thing is as certain as it can be, the Greeks know how to play with matches
The CDS market will push the default scenario faster than the
EU bureaucratic politicians can extend and pretend. My guess is this week we see Greece bankrupt in the CDS market. This time next week the IMF announces the rescue plan. Two days later huge riots in Greece telling the IMF to go to hell. Then the PIIGS contagion will have begun!!!
IMF bailout? The associated austerity measures would ignite a springtime of riots across Europe, beginning in Greece and quickly spreading to college campuses and youth enclaves across the continent. It'll be 1968 all over again, complete with Baader-Meinhof, Jr.-banker kidnappings.
Germany? Greece needs 54 billion Euros of financing this year. A pint of blood for Germany, perhaps, but how many pints of blood to how many waiting patients can Germany produce, especially if the "patients" are no longer buying Merc's and BMW's? And is Germany---particularly its banks---on such solid ground? What's DB's leverage ratio? How's its book?
Greece may be a small problem relative to AIG or California, but its implications are as large or larger. It could well be the Arch Duke Ferdinand of the coming maelstrom.
Yes, chindit13. It's a new century. It's about time for the first European cataclysm of the 21st Century to begin.
Archduke Ferdinand in 1914. Greece in 2010. Close enough.
there's january.
[Moral Hazard has indeed gone global.]
I said that here on Friday and got a ration of sh*t for it.
Times change, that fast.
Based on nothing but what I have seen in US in the past two years, if its a choice between letting irresponsible folks default or bailing them out, bailout always wins.
Bear Stearns? Lehman?
And which "book" is bigger? Greece? Iceland? Bear Stearns? Lehman?
I feel like they will bail out for a long while, kick the can as far as you can and all, but at some point, it has got to fall.
good pt, guess it comes down to who has the most friends in high places, hard to know without knowing insiders...
USA is different. It's a hierarchy of states, where the biggest state bails out the smaller ones, which bail out their smaller ones and so on.
In Europe the nation-states bail out their regions and cities (look up Dexia bank). They don't bail out each other. That would be like Nevada bailing out California.
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I am looking forward for your next post, I will try to get the hang of it!
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