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Greek Debt/GDP: 336% By 2025
Back in 2012, when the IMF forecast that by 2022 Greek debt would become sustainable (under 120%) we laughed, and laughed, then laughed some more (see: The Farcical Tragicomedy Of The "Sustainable" Greek Debt/GDP "Denominator from November, 2012)
Three years later the IMF itself not only admitted its original Greek debt "sustainability" predictions were total garbage (hence our quarterly humor series presenting the latest and greatest IMF projections about world growth), of which the most humorous was its forecast of Greek 2016 GDP growth as the highest in the entire Eurozone...
... but the IMF itself, under pressure from Washington, has become the biggest advocate of debt forgiveness, just not its own debt: that of the ECB will do nicely.
Unfortunately, while these global financial institutions conduct their monetary experiments, it is ordinary people who are used like Guniea pigs, in this specific case, the people of Greece, whose fate once they vote through the third and final bailout (there will not be a fourth) will be a world of absolute misery.
And to show just how absolute said misery will be, we present an analysis that layers on what we said several days ago when we first calculated that the new Greek debt/GDP post bailout #3 will promptly hit 200%, something the IMF agreed with earlier today.
But it won't stop here, and as the following analysis from Michael Lebowitz at 720 Global shows, just based on the country's negative growth rate and positive interest rate, Greek debt/GDP will keep rising indefinitely and will likely hit 336% in about one decade, at which point Greece will, for all intents and purposes, cease to exist.
Presenting:
"The Simple Math Behind Greece’s Complicated Situation"
"Life is really simple, but we insist on making it complicated." - Confucius
Occam’s Razor is a frequently quoted principle which states that when one is faced with a multitude of seemingly complex possibilities, the simplest approach or explanation is best. As the ECB and Greece fight over terms of yet another bailout we employ this principle to help better grasp Greece’s dire situation.
The ratio of debt to GDP is one of the most basic and popular measures used to determine the ultimate ability of a sovereign nation to service its debt. Consider a country which has a debt to GDP ratio of 100%, and a balanced budget (excluding interest payments). In this country, it can be said that the interest rate on its debt and the growth rate of its GDP must be equal for the ratio to stay unchanged. In this example a 2% interest rate with a 1% GDP growth rate would result in an increase from 100% to 101% in the debt to GDP ratio. As the ratio rises above 100%, the interest rate must be lower than the GDP growth rate or the ratio will continue to rise. At a debt to GDP ratio of 150%, a 2% interest rate would require a 3% growth rate to remain stable at 150%.
Greece has a current debt to GDP ratio of 170%, and based on current bailout terms, it will likely grow to well over 200%. So applying the logic from above, Greece’s GDP growth rate prior to the current bailout needed to be 1.70 times greater than the rate of interest Greece pays on its debt just to keep its ratio constant. Following are some facts which will allow us make judgements on Greece’s ability to improve or at least sustain their debt to GDP ratio:
Since 1970 Greece’s best 5-year annualized GDP growth rate was +1.50% with an average of +.46%. Over the past 10 years growth has averaged -0.50%.
Since 1997 Greece’s lowest 5-year average interest rate on 10 year bonds was 3.41% with an average of 7.50%. Over the past 10 years the average annual 10 year interest rate was 8.16%
Using Greece’s current debt to GDP ratio as summarized above, we present a best case forecast and a likely forecast for debt to GDP over the ensuing 10 years. For the best case we assumed Greece’s highest 1 year GDP growth rate (+2.74%) and lowest interest rate (3.58%). The likely case uses Greece’s average 1 year GDP growth rate (+0.45%) and average interest rate (7.55%).
In both examples we make the very bold assumption that Greece will run a balanced budget excluding interest expense. The results, as plotted below, are not encouraging.
Greek bonds have rallied sharply on hopes that a bailout will help Greece avoid default. We believe the current terms simply delay the inevitable. In the scenarios above we were very generous with the assumption that Greece will run a balanced budget. Consider that since 1990, Greece has averaged a total budget deficit equal to 8.17% of GDP and has never run a surplus going back to at least 1990. One of the goals of the current round of negotiations are structural reforms designed to help Greece reverse its troubling debt to GDP ratio. Reforms are imperative if Greece is to ever become economically viable.
That said, reforms are widely unpopular, take time to enact and take even longer to show results. We believe default, or the politically correct term “debt forgiveness”, is the most likely outcome. When combined with reforms, Default is the only option which leaves Greece with a fighting chance to avoid being in the same situation a few years from now. The CDS and bond markets are likely over-reacting today as they did with the prior bailouts of 2011 and 2012.
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WINNING!
I don't see anything wrong with a 336% debt/GDP. After all, most of my friends are carrying mortgages that are 5x their incomes.
AND THE GREEK PARLIAMENT. BOTES YES...
You are comparing figs to olives. The ratio of your friends' mortgages to your friends' income is 500%; there is no analog ratio to be taken from this article. Rather, the article described the ratio of debt owed by the Greek government to Greek GDP, which is not at all the same as Greek government income. The latest figures for the latter suggest that Greek government income --- which is the only income available to service Greek government debts --- is only 22% of GDP, similar to most other developed countries.
At best, it appears that the actual ratio of Greek government debt to government income (not to total GDP) is 225/50, or 450%. Now, if the interest rate for Greek debt is the same as your friends' fully secured mortgages, you've got a point. The problem is, it is significantly greater, which is exactly the point of this article.
All your assets are belong to us.
Would appear so.
Still seems like overkill to me though.
America is just as broke as anyone, collapse is very close, so is the global banking system/mark of the beast! Read the Obama Antichrist prophecies, the Bush/Clinton Cabal will take him out, and Satan will bring him back in! http://revelation12.ca
More printers should be located in the countries with the higher Debt to GDP ratios
It is at times like this that such a nation requires a Marxist expert on Game Theory.
As demonstrated, poverty, and taking advantage of poverty, is a choice, made by the majority, regardless of what it may say to the contrary. Money is a token, nothing more. What matters is how it is distributed, and by eliminating anonymous cash, working capital in the hands of those who can make it productive, the critters have placed themselves in a hangman’s noose, increasing rent/income at the cliff edge.
Labor is not going to install stupid technology on top of stupid infrastructure as a means of generating debt for the nation/states to trade, until all the natural resources are gone. Chauvinist or feminist, republican or democrat, christian or muslim, capitalist or communist, the Fed or ECB, makes no difference, because from the perspective of labor, they are all thieves, seeking something for nothing, and as their number grows, labor disappears.
If you filter out all that is not the stock market, you will see how to trade it, as a superimposition of civil marriage demographics, which feeds the bond market, which feeds the real estate market, the articulation of which you will see if you isolate them with filters accordingly. Capital and the middle class are always locked into a path to the DNA churn pool, because they cannot change behavior in real time.
Only the individual can adapt, which requires recompilation to generate aggregate change. If you filter out all that is not programming, you will see the kernel. If you filter out all that is not the circuit, you will see an AC computer to run it. Labor is not going to accept taxation at 75%, subject to having its children taken and given to a couple in civil marriage for failure to comply, just because the majority voted it so, claiming to target the rent/income 1%, while actually attacking the income/rent 1%.
The answer to turning an aircraft carrier around on a dime is that you don’t. You reconfigure it, and ignite the remainder. Tada, what they really want in Greece is to eliminate anonymous cash, and enforce arbitrary credit and debt on everyone. Those sneaky Germanic tribes.
Like everything else in empire, immunization and antibiotics kill a perceived short-term threat at the cost of destroying the population in the long term, with climate variability in a positive feedback loop with debt. With human DNA comes DNA for thousands of critters to maintain its health, which the hospital is systematically killing, as an economic activity to grow GDP, surprise.
All empires kick the can, until they can't, and start over. Alexander was a rockstar, accomplishing nothing.
I have no fucking idea what you just said, but, man, that was a LOT of words. And I am sober!
Please allow me to interpret.
"We're fucked."
Kind of like Japan today.
Ha, Japan,,,the Eveready Bunny.
And if the traitors who agreed to the deal actually looked at reality, then they wouldn't even consider it. But they have been threatened by psychopaths and given in
As of right now it can never be repaid, but Germany etal insists otherwise. Only one side can be right and demanding a different outcome won't make it true. Best case is the EU crumbles to dust and worst case is a world shattering explosion......
I think Germany is trying to push Greece out but is instead going to wind up in a wealth extraction role.
So Germany won WWII after all.
Negative, the jews with their low IQ puppet allies won the war. http://justice4germans.com/2013/07/03/the-kaufman-and-morgenthau-plans-t...
http://benjaminhfreedman.blogspot.com/
This whole Greek thing is just too crazy. We are talking half a century of bad Debt to GDP, austerity and debt slavery. A kid born today in Greece can live a full life and never escape deep debts to EU banks. That's how crazy this is.
The people voted for a Government to change things.
The government changed things and gave people a vote to comfirm it, they did!
Then after all that, everybody turned around, signed just what the people voted against, only worse. And now they are ready to carry on.
No matter who you elect, no matter what you vote. You are under a Deep State, centered in Washington, with a branch office in Brussels.
Greeces are now so totally fucked!
A kid born in Greece today should become an emmigrant. Not sure where...but not there or here. That kid is gonna have to face some obstacles which he can kick his parents and grandparents in the groin for eterntiy.
Nobody will ever escape deep debt to the banks, regardless of country of origin.
i saw drachma,privatizations,euro,growth,depression and as of yesterday no hope in sight.If I had a kid I would have wanted it to have a second citizenship so as not to bear the burdens of its grandparents.
Someone help me out here. What happens to % Debt/GDP if something even more likely happens to the growth of the Greek economy. Say, for instance, the GDP collapses as a result of deep cuts in pensions, wages and folks going to the black market to survive? If the denominator decreases isn't that supposed to do something or other to the % figure?
Amazing number of charts and research studies wrap up in 2025. Looks like the mayans were off by 13 years.
scroogle: Global Governance 2025. Owning the weather by 2025. Etc, etc..
@ Stuck - why we talk about debt to GDP is amazing to me like a government could somehow take 100% of GDP to service debts. Maybe they can manage to tax 20% of GDP in a year meaning they really only have 20% of GDP to service all curent spending and debts which makes your buddy levered 5x on his mortgage look like peanuts.
As long as government consumption is added to GDP rather than subtracted, it's all kind of moot, anyway.
it truly is amazing, how all parties seem to think that by adding massive amounts of debt that greece will be able to 'recover'.
the end has been and will remain the same: default and creditors eat it, greek govt has no money. end result of pension cuts and lower spending will be the same under 'bailout' or 'default' scenarios, only one is with lower debt and a future where things can get better, vs more debt and no end to the misery.
it remains a mystery as to what the true goal of the EU/eurogroup/ECB is. what do they really envision in europe? if its a united states of europe, then taxpayers in germany WILL pay for problems of citizens in greece, ireland etc---just like in the USA there are payer states, like Texas and receiver states like alabama. but the germans dont seem to want this (at least not schauble). only the most dire/evil visions seem to be what 'persons' like schauble are directing efforts towards.
It's a Magical Mystery Tour in terms of Greece and the debt slavery equation foisted upon it by GS, the oligarchs and the politicians. What a tragedy.
Still lower than Portugal's if you add public and private. I doubt that Greek private debt goes beyond 100pc.
2025? So, is this some kinda guarantee there will be a 2025? Tell me, what will the Greek debt be in 2535? What should I do to prepare?
From now until 2025 is an ETERNITY as far as the market is concerned. If nothing bad will happen today buy. If nothing bad will happen this week, BUY with both hands.
Thats what I was going to say also....will there even be a 2025, and if so, will the planet be even worth living on? fukishima, gulf oil spill, chemtrails, monsanto, vaccines, etc, there will be nothing but bankers with computer driven bodies listening to the rolling stones....live!
The United States and Greece share many commonalities. In this instance, a highly contagious disease, commonly contracted through unprotected mental intercourse with ideologues such as Krugman. This particular disease is known as Keynesianism. The disease debilitates the host by corrupting its cerebral cortex and establishing a degenerative addiction. This affliction forces the host to in-debt itself through debt monetization and debt instrumentation. As the disease worsens, a borrowing and spending frenzy occurs in a futile effort which exacerbates the condition. In the terminal phase of the disease, the host attempts to achieve escape velocity by borrowing itself out of debt.
If the IMF can show this level of inaccurate forecasting and yet still run the show it's no wonder why we are where we are.
Imbeciles and yet NO talk of resignations from their Head.
Run the numbers with a 5 percent 30 yr Tbill rate and a 1.5% GDP increase in the US.... I bet we win....
Screw GDP.
Tell me how much profit after taxes businesses have that can be taxed to pay off this debt. Because GDP in and of itself cannot do a damn thing.
If that is too difficult, just give us the GDP excluding government spending....
Now isn't that a pretty site?
Expect a wild ride going forward.I still suspect that under U.S. pressure that eventually a large debt forgiveness package is lurking behing the scenes.It'll rattle bond markets.I always get a kick out of bullshit statement coming from the WhiteHouse,like the one from Obama today.These guys are a lot dummer than I thought.
So how does compounding interest work again?
Company starts drowning in debt: declare bankruptcy, and restructure or liquidate
Person starts drowning in debt: declare bankruptcy, and restructure or liquidate
Country starts drowning in debt: OH MY GOD WHAT DO WE DO??
What is so fucking hard about this? The people who lent money to Greece are retarded, so it's hard to feel any sympathy for them. Sorry, but you deserve to get 0 cents on the dollar if you're that stupid.
Debt to GDP is meaningless. Compare debt to cash-inflow that is compare it to annual tax income. Presently greek debt is about 9 times annual tax income. Imagine you make 250.000 a year and you have loans of 2.250.000. Well, if you read this your probably US-citizen and such ratios can not shake you.