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Debtocracy, the Greek debt and Odious debt
Posted: 07 October 2011 11:15 PM   [ Ignore ]   [ # 31 ]
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GdB - 07 October 2011 10:30 AM

That is an interesting idea indeed. Hope the ECB is reading this…

I am sure the ECB knows it is dangerous and very possible.

Now, read this article
HERE

Warning: Greece Can Break Glass and Leave the Eurozone

The obvious question is that as much as this move might be painful and disruptive for Greece short term, it would be disastrous for the Eurozone. Greece has a credible threat it can use against escalating European demands for austerity. Even Angel Merkel has indicated that she understands that Greece being expelled from the Eurozone, meaning an orderly departure, would hurt Germany. A surprise exit would have all sorts of nasty knock-on effects

Which referred to this article at the NYT

How Greece Could Escape the Euro

But, of course, there is a way out. It would be messy, and perhaps disastrous. But no one is going to send an army to Athens to force it to keep the euro.

Greek Bonds:

Most Greek bonds were issued under Greek law, and presumably Greece can change that law to legalize what it does. Greek bonds already trade for less than 40 percent of face value, so it is possible that their actual value might not decline all that much, assuming investors believed the drachmas would be repaid.

The message from Greece now:

The message from Greece now may be summarized as, “I’m small. I’ve suffered. You can afford to rescue me. If you don’t, I can create chaos for all of you.”

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Posted: 07 October 2011 11:42 PM   [ Ignore ]   [ # 32 ]
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TromboneAndrew - 07 October 2011 02:36 PM

Okay, how do you hold the present regime to be responsible for it? I can see no way to do this without destroying the regime.

With the escalating demonstrations and social unrest by the Greek people in response to the tough austerity measures taken by the regime to meet the demands of the creditors, it is a foregone conclusion.

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Posted: 08 October 2011 01:04 AM   [ Ignore ]   [ # 33 ]
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kkwan - 07 October 2011 11:15 PM

Greek Bonds:

Most Greek bonds were issued under Greek law, and presumably Greece can change that law to legalize what it does. Greek bonds already trade for less than 40 percent of face value, so it is possible that their actual value might not decline all that much, assuming investors believed the drachmas would be repaid.

I don’t understand the point of view that greece leaving the euro would be disasterous.

The way to view it is as a potential solution.

They would start using their own devalued currency. This would help their exports, and help their tourist industry.

Being in the Euro is part of the problem. In the UK we “thank God” we are not in the euro, sure things are bad but they would be so much worse if we were.

Take America. what chance is there of America defaulting? close to zero. Why? Because they have a printing press, they’ll just print it if they need to and pay the debt in devalued dollars.

Greece would get themselves into a similar situation although greece would have much more of a problem with inflation.

And for the eurozone as a whole it would be good because Greece would sort out their own mess and as Greece would have the mechanism to do it made available to them (devaluation against the euro), it would be win win all round.

Stock markets will perhaps start lower if Greece defaults but then will roar up and keep going for months after.

If it happens we can check the prediction.

I don’t know enough about Greek bonds but I suspect people would be more comfortable holding those too,  and there would be tremendous bear closing,so they would probably go up as well, taking pressure off banks who own them.

Stephen

[ Edited: 08 October 2011 01:09 AM by StephenLawrence ]
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Posted: 08 October 2011 01:05 AM   [ Ignore ]   [ # 34 ]
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VYAZMA - 07 October 2011 11:36 AM

The fiscal union and common governance was supposed to be an artificially propped up parity amongst the nations the Euro-zone.  Then the capitalists could run rampant to and fro fencing their native and foreign made wares on a continent that had the same money and the same “buying Power”. 
It was a great experiment that is now failing. 
A country like Germany sacrificed it’s economic prestige to be on par with a country like Greece in hopes that Greece would be able to catch-up through consumerism. Didn’t work!  There’s not enough employment.

OTOH, from this article HERE

Why Germany must exit the euro

This might sound counter-intuitive. Germany, after all, has an enormous current account surplus; it honed its productivity and competitiveness over the past decade; where Greece borrowed it saved, where Spain splurged it cut, where Ireland inflated it deflated. But that is precisely the problem. Were Keynes around today he would have identified the issue instantly: in any monetary system, nursing a mammoth current account surplus can be just as destabilising as a deficit.

From this perspective, Germany should either help Greece or leave the eurozone.

The same with the US now.  The consumerism, power capitalism is failing too.  We sacrificed our industrialization and manufacturing in hopes that we could boost China into parity with us. China makes-we buy, cheap! Oops! Didn’t work.

It did work. China has emerged as the 2nd biggest economy after the US and it has invested 70% of its reserves in the US. It is the US which has declined with the sub-prime loans disaster and the trillions spent fighting two wars in Afghanistan and Iraq.

OTOH, successful US multinational companies have huge piles of cash. The US is not as weak as you think.

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Posted: 08 October 2011 01:18 AM   [ Ignore ]   [ # 35 ]
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kkwan - 08 October 2011 01:05 AM

 

The same with the US now.  The consumerism, power capitalism is failing too.  We sacrificed our industrialization and manufacturing in hopes that we could boost China into parity with us. China makes-we buy, cheap! Oops! Didn’t work.

It did work. China has emerged as the 2nd biggest economy after the US and it has invested 70% of its reserves in the US. It is the US which has declined with the sub-prime loans disaster and the trillions spent fighting two wars in Afghanistan and Iraq.

OTOH, successful US multinational companies have huge piles of cash. The US is not as weak as you think.

I shouldn’t think the policy works for America or China, it’s nuts. The sub prime problem was caused by loose credit, it wasn’t a “root” cause.

Basically America lives way beyond it’s means (regardless of wars), it issues debt which the Chinese buy and it puts that money into the economy. The American consumers buy the Chinese products with the money the Chinese have leant them! The Americans want to pay it back with devalued dollars, which the Chinese see as unsportsman like. The Chinese avoid it by pegging their currence to the dollar, which the Americans see as unsportsman like.

It is very funny, although of course serious too.

Stephen

[ Edited: 08 October 2011 01:22 AM by StephenLawrence ]
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Posted: 08 October 2011 02:18 AM   [ Ignore ]   [ # 36 ]
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StephenLawrence - 08 October 2011 01:04 AM

I don’t understand the point of view that greece leaving the euro would be disasterous.

The way to view it is as a potential solution.

If Greece can leave the eurozone, how about Spain, Italy and Ireland etc.? The eurozone has no provision for departure. Will the eurozone break up if more were to leave? That would be disastrous for the eurozone.

OTOH, if only Greece leaves and the rest of the eurozone remains intact, it is a potential solution.

However, from this article at the BBC

Italy and Spain debt downgraded by Fitch

Italian and Spanish government debt have both been downgraded by the Fitch credit rating agency.

These periodical downgrades of sovereign debt by rating agencies are reminiscent what they did for banks in 2008. The next one in line for downgrade could be France.

It has been alleged the downgrades of banks in 2008 led to self fulfilling prophesies.

Similarly, there is the same concern now wrt European sovereign debt.

From the wiki on self-fulfilling prophecy

A self-fulfilling prophecy is a prediction that directly or indirectly causes itself to become true, by the very terms of the prophecy itself, due to positive feedback between belief and behavior.

The rest of what you wrote, I generally agree, though whether the stock market will “roar up” is a moot point given the fragility of the American economy. At the very least, there will be one less wild card to worry about if Europe stabilizes. But, that is a big if. smile

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Posted: 08 October 2011 02:52 AM   [ Ignore ]   [ # 37 ]
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kkwan - 08 October 2011 02:18 AM
StephenLawrence - 08 October 2011 01:04 AM

I don’t understand the point of view that greece leaving the euro would be disasterous.

The way to view it is as a potential solution.

If Greece can leave the eurozone, how about Spain, Italy and Ireland etc.? The eurozone has no provision for departure. Will the eurozone break up if more were to leave? That would be disastrous for the eurozone.

Can’t see why that would be disastrous either, just more potential solutions.

If the system will work better with different currencies then it’s positive not negative.

It will be interesting to see if it happens. I really think the bears will get roasted.

Stephen

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Posted: 08 October 2011 02:59 AM   [ Ignore ]   [ # 38 ]
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kkwan - 08 October 2011 02:18 AM

These periodical downgrades of sovereign debt by rating agencies are reminiscent what they did for banks in 2008. The next one in line for downgrade could be France.

It has been alleged the downgrades of banks in 2008 led to self fulfilling prophesies.

Only if the market isn’t positioned for it.

The risk is what ever it is regardless of the ratings agencies and they are now behind the market.

I think you’ll find American bonds went up when the debt was downgraded because it was pretty much bound to happen as it is for France and the UK.

Stephen

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Posted: 08 October 2011 03:37 AM   [ Ignore ]   [ # 39 ]
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Kkwan,

Another idea might be to suspend membership for nations who’s debts are over a certain level with the view to bring them back in at a later date.

I haven’t seen that floated, presumably it has been?

Stephen

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Posted: 08 October 2011 03:44 AM   [ Ignore ]   [ # 40 ]
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StephenLawrence - 08 October 2011 01:18 AM

I shouldn’t think the policy works for America or China, it’s nuts. The sub prime problem was caused by loose credit, it wasn’t a “root” cause.

Of course, it is not the root cause.

Basically America lives way beyond it’s means (regardless of wars), it issues debt which the Chinese buy and it puts that money into the economy. The American consumers buy the Chinese products with the money the Chinese have leant them! The Americans want to pay it back with devalued dollars, which the Chinese see as unsportsman like. The Chinese avoid it by pegging their currence to the dollar, which the Americans see as unsportsman like.

It is very funny, although of course serious too.

It is hilarious, isn’t it?  cheese

Initially, the Americans and not the Chinese had lots of money i.e. disposable income, which they spent on buying Chinese made goods which were cheap. Many American companies either relocated their factories to China or outsourced the manufacture of their products to the Chinese.  However, the Chinese saved a lot of the money they earned and invested in America by buying their debt. Somewhere down the line, the Chinese became the biggest lender to America and the Americans cried foul. Why don’t the Chinese buy more American goods instead of saving the money to lend it to America? But the Chinese reasoned, if they do not save more money to invest in America how will the Americans get more money to buy more of their goods?

Now, the Americans accuse the Chinese of manipulating their currency to make their goods so cheap. OTOH, the Chinese accuse the Americans of devaluing their currency by QE i.e. create more money by fiat, which affects the profit they make and the value of their investments in America because it converts back to less Chinese money. But the Americans say if they don’t create more money they will become insolvent one day. Why don’t the Chinese revalue their currency upwards instead? But the Chinese say if we do that, not only will our goods become more expensive in the US, we will make less money and our investments in the US will be worth even less after that.

How more circular can it get?  LOL

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Posted: 08 October 2011 03:52 AM   [ Ignore ]   [ # 41 ]
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kkwan - 08 October 2011 03:44 AM
StephenLawrence - 08 October 2011 01:18 AM

I shouldn’t think the policy works for America or China, it’s nuts. The sub prime problem was caused by loose credit, it wasn’t a “root” cause.

Of course, it is not the root cause.

Basically America lives way beyond it’s means (regardless of wars), it issues debt which the Chinese buy and it puts that money into the economy. The American consumers buy the Chinese products with the money the Chinese have leant them! The Americans want to pay it back with devalued dollars, which the Chinese see as unsportsman like. The Chinese avoid it by pegging their currence to the dollar, which the Americans see as unsportsman like.

It is very funny, although of course serious too.

It is hilarious, isn’t it?  cheese

Initially, the Americans and not the Chinese had lots of money i.e. disposable income, which they spent on buying Chinese made goods which were cheap. Many American companies either relocated their factories to China or outsourced the manufacture of their products to the Chinese.  However, the Chinese saved a lot of the money they earned and invested in America by buying their debt. Somewhere down the line, the Chinese became the biggest lender to America and the Americans cried foul. Why don’t the Chinese buy more American goods instead of saving the money to lend it to America? But the Chinese reasoned, if they do not save more money to invest in America how will the Americans get more money to buy more of their goods?

Now, the Americans accuse the Chinese of manipulating their currency to make their goods so cheap. OTOH, the Chinese accuse the Americans of devaluing their currency by QE i.e. create more money by fiat, which affects the profit they make and the value of their investments in America because it converts back to less Chinese money. But the Americans say if they don’t create more money they will become insolvent one day. Why don’t the Chinese revalue their currency upwards instead? But the Chinese say if we do that, not only will our goods become more expensive in the US, we will make less money and our investments in the US will be worth even less after that.

How more circular can it get?  LOL

grin

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Posted: 08 October 2011 03:52 AM   [ Ignore ]   [ # 42 ]
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StephenLawrence - 08 October 2011 02:52 AM

Can’t see why that would be disastrous either, just more potential solutions.

If the system will work better with different currencies then it’s positive not negative.

It will be interesting to see if it happens. I really think the bears will get roasted.

 

Not to Germany or France. They will be appalled.

OTOH, I think the bears are in the ascendant, not the bulls. Let’s see within the next month or so.

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Posted: 08 October 2011 03:59 AM   [ Ignore ]   [ # 43 ]
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StephenLawrence - 08 October 2011 02:59 AM

Only if the market isn’t positioned for it.

The risk is what ever it is regardless of the ratings agencies and they are now behind the market.

I think you’ll find American bonds went up when the debt was downgraded because it was pretty much bound to happen as it is for France and the UK.

But the Dow, S & P and Nasdaq all closed negative.

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Posted: 08 October 2011 04:14 AM   [ Ignore ]   [ # 44 ]
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StephenLawrence - 08 October 2011 03:37 AM

Another idea might be to suspend membership for nations who’s debts are over a certain level with the view to bring them back in at a later date.

I haven’t seen that floated, presumably it has been?

Yes , it has been suggested recently.

From this article HERE

Greece better off out of euro

He added: “It must be possible to temporarily leave the euro zone to restore the fiscal health and restructure the economy.”

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Posted: 08 October 2011 04:22 AM   [ Ignore ]   [ # 45 ]
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kkwan - 08 October 2011 03:52 AM
StephenLawrence - 08 October 2011 02:52 AM

Can’t see why that would be disastrous either, just more potential solutions.

If the system will work better with different currencies then it’s positive not negative.

It will be interesting to see if it happens. I really think the bears will get roasted.

 

Not to Germany or France. They will be appalled.

Dunno? Do you mean the people or the politicians, I should think the people think kick the buggers out. grin

Anyhow, either way, it’s political not financial.

OTOH, I think the bears are in the ascendant, not the bulls. Let’s see within the next month or so.

Yep.

Stephen

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