Grice: "What Is The Difference Between Greece And Rest Of The OECD? Only That It Is Small Enough To Be Bailed Out"

Tyler Durden's picture

We all know what is going on in Greece. Here is Dylan's eloquent summary:

Greece misrepresented the true state of its finances, it has enormous off-balance sheet liabilities, it is expected to run a double-digit budget deficit to GDP this year, it has a heavy bond issuance schedule this year – it was bound to have a crisis at  some point wasn’t it? But what’s the difference between Greece and the rest of the OECD? Only that it is small enough to be bailed out ….

Greece, as we have long been claiming, is just the beginning.

Back in January, when Greece?s problems first surfaced, I thought it would be the first in a series of fiscally driven market seizures in the following months which would potentially offer up some decent opportunities to buy stuff cheap ? I guess I got that one wrong ... but I still think Greece is the beginning of a wave of government funding crises, not the end.

For starters, we’re not out of the woods yet. The chart below shows my back-of-the-envelope calculations for the colossal amounts of debt governments need to issue this year relative to that already outstanding. I?m not a bond strategist and I?ve not done anything sophisticated or clever, but by taking Bloomberg?s data for existing debt maturity for each government (red) and using the OECD?s projected 2010 deficits as a proxy for net new issuance (grey) my numbers shouldn?t be too far out. But if my numbers are even roughly right and issuance is the problem, Greece should have had almost the least to worry about!

But it’s not just about getting this year out of the way. If it can happen in Greece, it can happen everywhere else too, because Greece just isn’t that different. OK, so it misrepresented the size of its liabilities ? but so too do most other governments; its real fiscal problems are hidden off-balance sheet in the enormous welfare obligations it can?'t afford to pay ? and so are most other governments? (first chart inside); its debt maturity isn?t notably different from the rest of the OECD?s (at about eight years it?s actually longer than those of the US and of Japan ? second chart inside); and its projected budget deficit is lower than those projected in the UK and the US (third chart inside).

In fact, the charts above show that there are no clear thresholds which say when a country will undergo a fiscal crisis ?- the UK had to call in the IMF in 1976 with a debt to GDP ratio of around 45%. Japan has a debt to GDP ratio in excess of 200% and hasn?t had any funding problems (yet). What counts is confidence, and what hurts is when weakening confidence pushes up the market risk premia on a country?s debt, pushing bond yields and therefore interest costs to such a level that government finances becomes unsustainable.

To be sure confidence is certainly buoyed by the knowledge that the deranged madmen at the money printing asylum have full access to the seemingly infinite pulp resources of northern national park neighbors. That and ink. And Greece has neither. But at its core the problem is simple: if you can't outgrow your debt, you die. To wit:

The unavoidable arithmetic behind debt sustainability is that the interest a country pays on its debt must equal the nominal growth rate of that country. If it does, the incremental government revenue generated by the economic growth will pay for the coupons on the debt. If it doesn?t, a shortfall develops between incremental revenues and incremental coupon payments and in the absence of further austerity, more debt is required to finance the deficit.

And here is the Catch 22 of the EMU. When will the Euro bureaucrats finally realize the euro is doomed?

This might sound abstract, but it?s exactly what happened in Greece. When the first austerity plan was presented, Greece cut public sector wages by a painful 10% causing angry protest and social unrest, although it saved the government ?650m. But the same austerity plan assumed Greece?s interest cost would be 4.7% and by late February it was paying 6.25%. According to the WSJ, this has blown a ?700m hole in its budget, more than offsetting the savage public sector wage cuts already enacted. Public sector pay would have to have been cut by an additional 10% to achieve the same budget repair that had originally been intended because interest costs were spiralling faster than expenditure could be brought under control. Even after the bailout agreed this weekend (which at ?30bn falls significantly short of the ?75bn The Economist believes is required) the cost of borrowing from Mr Market as I write still stands at (a bestial ...?) 6.66%, and that is even after the EU rescue plan was announced.

If Dylan is right,look for the upcoming Sotheby's auctions of various Cyclades islands to move to the Chunnel quite soon.

So I?d be surprised if this is the last we?ve heard of the Greek crisis. But without wishing to belittle their plight, the more terrifying spectre is of similar dynamics unfolding in larger economies. For the most chilling similarity between the Greeks and everyone else isn?t in the charts above showing that their various debt metrics are in the same ballpark, it’s in the realisation that we too are subject to the same iron-clad laws of budget sustainability and that we too are as helplessly vulnerable to any reassessment of sovereign risk by the famously fickle Mr Market. The Greek tragedy of being unable to pay for the debt built up during the years of unprecedented low yields reads across to the rest of our governments all too well. The fact is most of us are living on the same knife edge.

But Greece is a small enough economy to be bailed out by Europe. If we add in Portugal, Ireland, Ireland and Spain (the rest of the so-called PIIGS group), the risk could be systemic (see table overleaf). And in recent months I?ve written about the time bomb that is Japan?s government bond market, where I think the end game is in sight. Who, when the time comes, will bail them out? US health costs are escalating explosively and represent arguably the least tractable of all sovereign issues today. They too are subject to the arithmetic of budget sustainability, from which there is no hiding place. The difference between the rest of the OECD and Greece is merely that Greece could be bailed out.

For our previous perspective on the $1.5 trillion in total exposure by European Banks to "Club Med", read here.

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bugs_'s picture

Oh its an issue about something being small enough?

Page Mr. Geithner!

Jack Ryan's picture

Eventually, the fact that public sector wages are higher than private sector wages will start to create a viscious cycle destroying wealth.  It's only so long that Greece can beggar their neighbors in the EU and the rest of the world.  ... Oh wait, everyone is doing that. 

Alex Lionson's picture

In the meantime - 415 bps on Greece CDS

Alex Lionson's picture

... and 393 bps spread (Bunds)

Cognitive Dissonance's picture

Tick tock, tick tock, tick tock, tick..............

Mako's picture

ALL the countries are the same because ALL of the countries run the same system within the global credit financial system.   The whole ball of wax will be coming down.  You think China is any different you are in for a rude awakening. 

All the countries are trying to sustain an unsustainable equation.   Sorry, waging a war against whoever invented Math seems like a losing war, sure you guys put a good effort, been winning battles for 7 decades, the equation always wins the war.

"That is the sound of inevitability"


AnAnonymous's picture

No. The math enforces all of the countries not to be in the same state.

For some to be in a state, others have to be in another state.

You cant compare a country whose citizens are born with a $50 debt per capita and countries whose citizens are born with a $10,000 debt per capita.

Mako's picture

Sure can.   They are all working towards one goal, sustaining the unsustainable equation.   You better wake up really quick buddy because this is not going to end pretty no matter where you live.

You can only take out what you put in, unfortunately the system EVERY SINGLE COUNTRY in the world is using is based on the assumption that Man has unlimited power.   There is nothing anyone can do, unless you find someone with unlimited power.  Good luck finding Superman with abilities to infinity+1.

Every single country is using the same equation, the global system will collapse due to the misunderstanding of a simple equation... exponential growth. 

Best case, you can feed maybe 4-5 billion once the credit system collapses.  Someone is going to have to go.  Worse case, new dark age and/or total extinction of Man.

AnAnonymous's picture

No. Not every one single country is working toward sustaining the unsustainable equation. Especially all the countries at the bottom which are providing the resources necessary for the machine to lay an output.
They would prefer to get out of the scheme but they cant as they are the base of the pyramid.

As to the other countries, I am not sure they are working to sustain the unsustainable equation. They are working to push the unsustainable equation to its limits and not withdraw before everything that could be squeezed out had been squeezed out.

Mako's picture

And every single one of those countries has a credit system and is getting benefit from using the equation.  Oh, I never said it was fair, regardless they have the same exact system with the global system.  

"I am not sure they are working to sustain the unsustainable equation."

Sure do.  They get up every morning to send the top what they need, the top then gives them a portion of what the bottom has given them.   When the bottom can no longer supply the equation there is nothing the top can do for the bottom, because they never were doing anything for them anyway.  Lemmings got up this morning to try and sustain the unsustainable equation.

- Rises at a rate to sustain the equation

- Peaks and unable to expand at the rate needed to sustain the equation

- Collapses

- Liquidation of the non-performing liabilities

- Rinse and repeat

Been like this for thousands of years.

1-2 billion I would imagine just right off the top, I figure a lost generation or two this time.  If nukes are used, extinction is not out of possibilities.

AnAnonymous's picture

Benefiting how?

I dont understand how the bottom can benefit from being sent back a portion of what they gave to the top. This reads like them registring a loss.

Some countries largely benefit from the credit scheme (all the countries that can emit credits valorized by other countries' wealth) These countries are definitively the winners in the scheme. As such, they are trying to squeeze the system as much as possible. All the others are of the wrong side of the equation.

Mako's picture

Because the system gives them something they would not have without it.

Some people benefit more than others, the top is the winners, they have the rest of the lemmings doing their dirty work for them. 

If the bottom has it so bad, they can quit anytime they want and if you get enough of the lemmings to stop, that it... it's over.  Of course that doesn't make it all better for the lemmings, their problems would only then start.  A huge black pit would open that instant under the lemmings feet.

There is no out, there is only in.  Something the lemmings should have thought about before they started their march to doom. 

AnAnonymous's picture

If the bottom has it that bad, they can quit anytime? Where in the world have you seen that?

Every human society is dependent on its environment to endure. Some human societies are now dependent on the entire world as their environment.

Dont tell that these societies could do at no cost without the support provided by some parts of the world as an environment.

A country whose soil is rich in a valuable commodity can not withdraw from the game. Their participation is mandatory to the welfare of the rest.

Your comment is like, if the serfs had it that bad, they could quit anytime.
They were put before a non choice two options alternative: either participate or die.

Congo can not quit the coltran market if they want because their coltran resources are vital to the electronics world market.

Drying the resources inflow tap is a casus belli. Cutting supply lines is a casus belli.
Generally, people at the bottom cant affor warring with people at the top. Especially in these days.

Mako's picture

Nobody is a robot, you make choices, you might not like your choices but you do have them.   Or are you not breathing air right now?

If you are a robot, get back to work and keep trying to sustain the unsustainable equation, you will fail. 

"They were put before a non choice two options alternative: either participate or die."

Some people have more choices then others.  Most have countless choices, in your case you pick the easiest choice and then blame others.   Who are you?  One of the Lemmings.

I have to march to the pit....

I have to march to the pit...

I have to march to the pit...

All I have to say is either choose something else, or get back in line with the rest of the Lemmings and shutup.   If you have no choice, then there really is no reason to get mad.  I assure you that you have choices, you just don't like your choices, that is not my problem.

Lemmings like you teach the new Lemmings all they have to know... "I have to march to the pit".  

If all the Lemmings knew the truth, the black pit would open up right this second.


AnAnonymous's picture

I know enough about choices to know that an alternative opposing two polar opposites is in most cases, not a choice. Life or death is not a choice.
Having a car or not having a car is not choice.

Those are alternatives reflecting convictions or necessities.

A choice kicks in when people are faced with options of equivalent properties.

Chosing among four, five similar cars, having to choose a course of education provided by Yale, Harvard, Preston etc... All these are a choice, leading the person to a crisis when making a decision.

Dating a very good looking person with a flabbid personality or a casual looking person with a charming personality is not a choice. Never been. Never will be. Just a reflection of convictions or necessities.

TBT or not TBT's picture

Is it Mako or "Malthus"?

Mako's picture

No Common Senseus. 

I have at least a 5th grade education, which is all that is needed to see the problem.  Most humans do not want to do basic Math, or more like want to see the truth of the Math they are using.   Well, ignoring the Math only last so long. 

sushi's picture

"Worse case, new dark age and/or total extinction of Man."


What is the ticker for Man in case I want to lay on a short?

trav7777's picture

The guy you are responding to is correct.

The problem is the expectation that growth would continue...the debts we have, some of them 30 years in duration or more, expect growth.

Growth at this point isn't happening and won't happen absent a HUGE quantum leap in technology.

Mako's picture

Correct, the books never balance, and never have and never will.   It's an impossibility.   Humans do not want to face the fact they have lived a lie so they continue by telling the new generation the new lie which is the same as the old lie.

Lemmings line up their children's children on their march to doom.


Hulk's picture

Our technology problems have been solved! Once again, a miraculous technology save! Zero point energy!

Note the $29.95 price on the DVD

Cookie's picture

Sorry, Mr. Geithner is having a massage at Suzie Wong's and is unavailable

BobPaulson's picture

But there was just a smart guy in a suit named Mark Dow on Yahoo saying Tim Geithner is a Hero. Daddy, I thought you told me heros were the people who risked their lives to fight for freedom.

anony's picture

Actually, Hero was a girl and she committed suicide.

AnAnonymous's picture

The very fact that, by convential standards, the rest of Europe is not open to be bailed out warrants its longetivity.

Greece, Iceland and all the others were small enough and irrelevant to the global scheme. This is why it was possible to toy with them.

The rest of Europe, California and stuff can not be bailed out. This is their strength. You can saw all the branches you want, get fun of labelling this or that branch dead wood etc... but you cant saw the branch you are on.

Not a fine analogy as it can be said the branch will break out by itself. But people should keep in mind places to invest are needed. Snipping every single one is out of the means.

RobotTrader's picture

Whatever happens...

The Squid will surely profit from all outcomes.


Sudden Debt's picture

Don't spoil my market run fun! My stock are all up so nice.

I once sold because you all made me believe the market was going to crash in januari AND IT DIDN'T!

So. It will keep going up.


bullwinkle's picture

Mr. Grice, why so gloomy?

My buddy Jim says we're six months away from prosperity!

Szydkid's picture

What I see here is the same problem over and over.  That any one country is insolvent - overleveraged - is irrelevant.  The real problem is they all are and at the same time.  As there is no single "super-regulator" looking at the system as a whole, what occurred with the shadow banking system is now occurring on a country-wide level.  Thus, the only solution is to print more money!  The country that prints the fastest end up like Jack and Rose in the movie Titanic; they're the last to get wet.

Thisson's picture

There's another problem.  Just as USA are net debtors to China, their net Creditor, the same paradigm exists between the poor and the rich.  The poor are net debtors to the rich.  Both situations are unsustainable.  The result will be a liquidation of debts, from the USA to its creditors, and from the poor to the rich.  In other words, we are going to see a massive destruction in "wealth" denominated in debt.

SgtShaftoe's picture

I'm going to make a prediction for what that's worth, which is as valuable as an expert prediction (but still not worth much).  I predict that we may have a correction in the stock market in the fall, but we will go on to have DOW 20,000!  They will print, and print and print and print and print and print...  maybe you're stock will go up in dollar terms, but in nominal value (gold), you'll get the double digit correction.  So I think SocGen is partially right.



and print and print and print....

trav7777's picture

All nations are in "debt" to banks beyond their ability to pay.

There are those on here who say "well, if one guy is in debt, another must be in surplus."


The fact that EVERYONE is in debt and nobody can figure out to whom proves that banks lend capital they do not have.

The banking system is kiting checks against the future, lending out what they do not possess, hoping to get real assets in exchange.

How else can EVERYONE be simultaneously insolvent?  Even China now says they're in trade deficit.  So, who is exporting?  Who is lending?

The banks.

Thisson's picture



We *can* figure out who the debts are owed to: the top 1%.  Everyone is not simultaneously insolvent.  99% are insolvent, and 1% are solvent.

Thisson's picture



We *can* figure out who the debts are owed to: the top 1%.  Everyone is not simultaneously insolvent.  99% are insolvent, and 1% are solvent.

trav7777's picture


The top 1% do not have $100T in wealth or whatever the aggregate debts are for all nations.

That's my point; the money that was lent never existed.  There never was the capital.  It was leverage.

The top 1% *borrowed* the money to lend, exploiting rate arbitrage.  Trace the funds back to their source, the banks.  Only they have the power to create creditmoney like this.

This is, in fact, the problem...the bottom 99% is insolvent, therefore the top 1%, who are still ostensibly on the hook for their debts, are too.

Look at the banks...they were simultaneously OWED massive amounts yet still insolvent somehow.  If they were actually lending money/capital that they possessed, there is no way they could have been insolvent.  The point is that they borrowed and levered in order to lend and THIS is what blew them up, the imbalance between debts "owed" and the value of "assets" which were themselves chopped up slices of loans to others.

Banks didn't just lend out their deposits then get run on.  They themselves borrowed massively from others to create leverage pyramids.  All of these roads trace back to the Fed as the bank of banks.

yabs's picture

I hope you are one that survives
you have nailed it down to its core
So many are on the right track but few see the route cause
everyone blaims derivatives but they are the symptom of the problem. Its the only way growth could be given to a system that requires exponential growth. Same with all the sub prime loans.
The greatest shortcoming of the human race is the inability to undertsand the exponential function.
The Final and last phase is in and thats why we now talk about trillions of dollars that have to be printed
as we are in the last phase of the parabolic blow off.
when it bursts expect armageddon

trav7777's picture

Math is a sorry reason to have armageddon.

I keep trying to get people to understand that these are just numbers on paper.  The money lent was never possessed; it was created.  That is how we got price inflation out of it.

It's how the MZM and other money metrics kept increasing; they kept creating money via credit. 

Yet we see banks ostensibly creditors who are themselves insolvent.  Everyone lent to everyone else money that they didn't possess and now they expect repayment.

And people are ready to go to war and have society actually collapse because of some shit on an accounting ledger?

We need to stand up and collectively REPUDIATE this system.  We can be like Bavarian Producers in the Weimar era and say take your jew confetti back to where you came from.

Real Bills Doctrine provides us a production-backed means of exchange, a real currency, and makes banks what banks are supposed to be.

The banks should not tell us that we have to give them our firstborn because they lent us money that the banker never had in the first place.  Fuck that.  There's no loss to him except in his expectation of RENT.

If I pulled the shit the banks do, I would get arrested and jailed for counterfeiting and fraud.

Nevermind the Fed or the other CBs.  Look into the history of the BOE...they backed out whatever initial capital they put up in that bank within an instant.  Why?  Because they had "assets" in the form of sovereign loans, created by lending capital THEY NEVER HAD.  So, they backed out their REAL capital and left the loans on the books as assets.

The banks are assetless; that is the big elephant in the room.  The debt is backstopped by bullshit and smoke and mirrors.  It must be rejected, along with the entire CB debtmoney FRN system.  All of it.

This is actually what the Founders did and were about.

AnAnonymous's picture

I failed to see the math behind the curtains.

The whole world is an aggregation of assets like mines, arable lands etc... to support human life.

Just as a single mine goes depleted, the Earth will go depleted.

At present times, because of coincidences (unequal developpment in human societies gives a situation where a segment of humanity has preserved unwillingfully resources for the other segment to use), we are still in the ascending part of the extraction curve. That is the situation.

The core principle of the game has been to transfer as fast as possible wealth from one area to another. This is what Adam Smith underlined in his books and why he advocated for colonization as a means to speed up the transfer and break the wealth limitation inherent to a geographical space.

Debt is a powerful tool to win this race. A person able to go deep in debt will always perform much better than if not allowed to go in debt.

Now of course, as for any single mine, the Earth will go downhill as a supportive environment for human beings.
And people who were deep in debt will appear like people who were consumed ahead of the curve, giving them a very comfortable edge over people who could not go into debt.

People are focused on money.Money is not a variable. Money is nothing but a way to materialize an exchange rate.

The FED is a powerful tool in the transfer game as the US can afford to drop credit lines after credit lines and witnesses how this speeds up the transfer of wealth from the exterior of the US inwards the US.
One USD dropped and this is X unit of oil that is injected into the US.

Hulk's picture

Math is a sorry reason to have armageddon

Remember too that we are not doing the simple math as it applies to energy too. If folks could just do simple 9th grade math, they would realize just how delusional trying to supply our energy needs with real time solar derived sources, both from an energy units and financial perspective.

Hubbert's peak will deliver the knockout blow to the World's financial system.Worldwide oil consumption is now at a record high with a positive derivative. We have truly left our bare asses hanging out in the breeze....

Again, here is Prof Bartlett expalining MAKO's equation:

 Here is a current IEA report on a big drop on OPEC oil output and current + projected consumption levels:


AnAnonymous's picture

@Trav7777, the debt is already rejected. Focusing on money hides the bigger picture.

When somebody somewhere sells one unit of oil, makes a deal for a 10 pc return, it means that in a later term, this person expects to be able to buy 1,1 unit of oil with the return he makes.

Plainly impossible as oil is a depleting resource. You can mask this with the productivity story but only for a time.

If you look at Saudi Arabia, it is what happened.
These guys under the US tuition have been selling their oil for decades, and re-invested the money they received into the US for several reasons.

This gives the US a strong hand as they were provided with natural assets needed to support and developp a society and makes liquid with the money they got from the guy they just bought oil from (the other side of the strong US position was enabled by China who's been supplying the US with goods in order to reward internal social interactions within the US)

Saudi Arabia has lately wakened up to the sucker deal they were in.

The debt is already repudiated: the US and some other countries are consuming through debts resources they perfectly know not to be able to pay back.

It is present times. Everyone is aware of that. Even Africans are trying to get out of the sucker deal.

B9K9's picture

Travis, at the risk of responding to a stale thread, I'll make two points:

  1. Yes, you are absolutely correct that the quadrillions of debt are simply accounting ledger entries. That is, there isn't any real capital behind the numbers - as you state, the debt came into being simply by being entered unto the books as an asset (loan) and liability (deposit). Wipe them both out and what do you have? A big fat -0-? Um, no, which brings us to point #2.
  2. All of those loans have been sold off as investment vehicles to pension funds, 401(k) retirement accounts, etc, etc. No one, and this should be emphasised, NO ONE wants to have their life savings evaporated in an instant. Now, of course they really are worth -0-, but there is a really big difference between denial & acceptance. And since these folks vote, and the entire machine is dependent on the illusion continuing, we will never see a voluntary recognition of the losses.

This is why guys like Denninger are so clueless; they think the system is actually fundamentally honest. They just can't square the fact that it's being manipulated to such radical degrees because of national security concerns.

They will keep on keeping on until they can't keep on any longer. How long that is is anyones guess, but the building volcano of compounding principle+interest in both private and sovereign debt will blow sky high unless some type of productive miracle comes along, pronto.

At this point, it's hard to see anything short of putting water in your gas tank. I mean, it has to be a real game changer. Otherwise, the cascade begins and everyone, everywhere finds out they really are worth -0-. That's when the riots, random social chaos and world war(s) begin.

WhiskeyTangoFoxtrot's picture

@ trav7777 - "We need to stand up and collectively REPUDIATE this system."

How do you suggest accomplishing this? The problem is in guaranteeing collective action while avoiding the hold-out problem. If everyone else agrees to act in defiance of a fucked up system, others stand to gain by holding out, at least temporarily. This, I think, is what perpetuates the lie of a system we live under. So the question is, how do we actually get out from under it?


yabs's picture

yes as in all pyramid schemes only the ones right at the top survive

chrob's picture

did anyone see Marc Faber calling Bernanke, Geithner and Summers "clowns" and talking about how he will never sell his gold:

RobotTrader's picture

The higher the Greek bond spreads blow out....

The faster the banks stocks go up....


Jesse's picture


What is the difference between the Federal Reserve Bank and a Walt Disney parade?

The Disney Parade has a band,  but both of their Grand Marshalls are Goofy. 

ABG LINE's picture

Who is this " Mr. Squid"?

Par Contre's picture

Is the public mood starting to shift? Get a load of this:

Pit maverick Republican Congressman Ron Paul against President Obama in a hypothetical 2012 election match-up, and the race is – virtually dead even.

Thisson's picture

The problem is that Ron Paul has no charisma.  I would substitute Peter Shiff because you get nearly the same policies, but in a more appealing "vessel"

Cognitive Dissonance's picture

Sadly, your assessment actually says it all. As long as the population wishes to believe that the illusion is better than real substance, there will be no change in policy nor direction.