: I have the horrid feeling this guy is very correct


MacDoc
May 28th, 2010, 04:37 PM
Greece could set off bigger debt bomb

http://beta.images.theglobeandmail.com/archive/00655/Greeceprotest_65_655261gm-a.jpg Pensioners chant slogan, during a march organized by a Communist-backed labor union, in central Athens, Thursday, May 20, 2010. Labor unions are staging a general strike Thursday to protest austerity measures. (AP Photo/Petros Giannakouris)

When debt bubbles surpass a threshold, governments can’t shrink them any more
Eric Reguly
From Friday's Globe and Mail Published on Thursday, May. 27, 2010 9:38PM EDT Last updated on Friday, May. 28, 2010 1:16PM EDT

Let’s play a little game called Disaster. Imagine an event that could trigger a genuine, knock ’em down, worldwide catastrophe. Think of Pearl Harbor, multiplied by 10, or even 100.
We’ll limit the options to man-made events, but eliminate traditional candidates like nuclear war or co-ordinated terrorist attacks. Climate change scientists might put their money on a massive greenhouse gas-induced drought that triggers uncontrollable emigration—entire countries emptying out, their citizens swelling the populations of Europe and North America. Doomsday economists, on the other hand, could raise the spectre of a global debt bomb: When industrial and emerging economies all exceed debt thresholds, a sovereign default by one country spreads like a firestorm, and triggers a global depression.
There’s no telling when, or if, the climate-change scenario could take place. Unfortunately, that’s not true of the second one. Debt bomblets have already exploded. And the big one—the Daisy Cutter—is being primed for action.

Greece is ground zero. Look at the damage the country inflicted on European debt, equity and currency markets this spring. How could a nation that accounts for less than 3% of the European Union’s gross domestic product (GDP) be so destructive?
There are two possible explanations. The first is that Greece’s fiscal problems belied its size. When Argentina, a country much wealthier than Greece, defaulted on its debt in 2001, the country’s annual budget deficit was the equivalent of 3% of its annual GDP. Its total accumulated public debt was 50% and its yearly international current-account deficit was 2%. And Greece? Its budget deficit last year was a whopping 13.6% of GDP, its public debt was 115% and its current-account deficit was 10%.
The second is that Greece is not a special case. Some of the world’s largest developed countries have budget deficits almost as large, relative to the size of their economies. The United Kingdom’s deficit weighs in at 11.4% of GDP, Spain at 11.2% and the United States at 9.9%. As deficits climb, so do national debts. Federal debt in the United States has climbed by half since 2006, to $12.3 trillion (U.S.) at the end of last year, swelling the debt-to-GDP ratio to 84%. Japan and Italy have debt ratios well beyond 100%. Almost every other country in the 30-nation Organization for Economic Co-operation and Development is watching its debt ratio climb relentlessly toward triple digits. Enormous debt loads used to be a problem for emerging economies. Today those burdens are also a problem for the allegedly wealthy countries.
National debt loads in the West will continue to climb as economies struggle to recover. The debts are only affordable now because central bankers have kept interest rates near zero. Watch what happens when interest rates rise. Economic growth isn’t rapid enough to stabilize debt-to-GDP ratios. Tax revenues have yet to recover, and no politician dares to take an axe to stimulus spending if it means plunging the economy back into recession. With governments, businesses and consumers still carrying such heavy debt loads, another major banking disaster could trigger another round of costly bailouts or nationalizations. Oh yes, aging populations will also inevitably create a pension crisis.
Economists Kenneth Rogoff and Carmen Reinhart, authors of the 2009 book This Time Is Different: Eight Centuries Of Financial Folly, calculated that, on average, countries add 86% to their debt loads within three years of a credit crisis. Governments of mature economies will issue an estimated $4.5 trillion (U.S.) worth of bonds this year.
The upshot is that some major countries face debt restructurings, debt defaults or both. High debt-to-GDP ratios alone can kill growth, as governments soak up private savings to pay interest charges and borrow more. Since 1980, Mexico, Russia and Argentina have all defaulted on their debt. The same thing could happen in bigger Western countries—the Daisy Cutter event.
Sovereign defaults can wreck economies. Banks can go bust as the prices of government bonds they hold plunge to cents on the dollar of face value. They can’t lend any more, which paralyzes businesses big and small. Currency devaluations destroy consumers’ buying power. Yes, eventually a mess can sort itself out, but that could take years, even decades. The Mexican peso crisis of 1994 walloped the rest of Latin America, and as late as 2002, some Brazilian bonds traded as low as 40 cents on the dollar.

Here’s a guess: Governments will take the cowardly option and try to inflate their debts away. They won’t stop spending, and the currency printing presses will run flat out. But that strategy often backfires, and the threat of default grows ever larger. Gold and productive real estate, like wheat farms, may be the defensive investor’s only remaining assets of choice.

Have a nice day.

ouch....

Greece could set off bigger debt bomb - The Globe and Mail (http://www.theglobeandmail.com/report-on-business/rob-magazine/greece-could-set-off-bigger-debt-bomb/article1577676/)

Macfury
May 28th, 2010, 05:32 PM
MacDoc, Greece is just the very model of the kind of country that believes in big government projects and public housing as you do. Your beloved Barack Obama is taking the U.S. there shortly. Why worry now?

Greece has an economy the size of Michigan. I'd be much more worried about the enviro-wacko states like California that are ready to default.

MACenstein'sMonster
May 29th, 2010, 04:20 AM
We're long overdue for a correction.

Besides investing in gold and wheat farms I'd suggest investing in nets. You know, like the ones that were proposed to be placed around the factory in Taiwan were the iPad is being assembled.

Max
May 29th, 2010, 07:12 AM
Some grim humour there, Macinstein. I was reading about those anti-suicide nets yesterday. Those are the first measures the spokesthingie mentioned as part of a response to the problem! Sounds like a band-aid for cancer, doesn't it? Ugh. The implications of the situation are certainly disturbing. I guess building those shiny new iPads is not nearly as nice as owning and using one, eh? Hmmmmm..

The thing about Greece is that, on its own, it's bad enough. Though it can be contained if everyone just stays the course, it's the ripple effects of that one-two punch - panic and loss of confidence - that could wreak severe damage throughout the world.

Well, it won't have been the first time.

Macfury
May 29th, 2010, 10:46 AM
The thing about Greece is that, on its own, it's bad enough. Though it can be contained if everyone just stays the course, it's the ripple effects of that one-two punch - panic and loss of confidence - that could wreak severe damage throughout the world.

I don't believe it would be the ripple effect but the collective effect. If Spain gets caught with its pants down it's game over for a successful Euro. Unfortunately, Madrid already has a severe case of plumber's butt.

The whole notion of the Euro is another example of the failure of collectivism. In the pre-EU, the Drachma would have been devalued and interest rates would have adjusted themselves. Instead, the only option now is to either kick Greece out of the EU, or feed its crack habit.

chasMac
May 29th, 2010, 11:15 AM
...the only option now is to either kick Greece out of the EU, or feed its crack habit.

Or Germany withdrawing from the Euro-zone. Germans' dissatisfaction with the current state of affairs; their view that they are essentially propping up mismanaged economies is well known (the Alberta/Ontario of Europe, as it were), and increasingly reported on at the moment. Perhaps some crisis precipitated dismantling of the common currency could ultimately prove to be beneficial.

Macfury
May 29th, 2010, 11:28 AM
Or Germany withdrawing from the Euro-zone. Germans' dissatisfaction with the current state of affairs; their view that they are essentially propping up mismanaged economies is well known (the Alberta/Ontario of Europe, as it were), and increasingly reported on at the moment. Perhaps some crisis precipitated dismantling of the common currency could ultimately prove to be beneficial.

The whole idea of the Euro is a joke. Germany would do well to pull out of that confederacy of clowns.

chasMac
May 29th, 2010, 11:33 AM
The whole idea of the Euro is a joke. Germany would do well to pull out of that confederacy of clowns.

Or rather crassly: Europe is too big to fail, Germany is too big to fail; the Med states not so much. Otherwise, such are the trials of confederation of sorts; get used to it.

Macfury
May 29th, 2010, 11:37 AM
The thing that scares me is that many of the U.S. Blue States--with economies larger than some European countries--are going meekly, cap in hand, to the U.S. federal government to bail them out. The only power the feds have is to borrow more cash or to print it. Obamanomics is a bummer.

Greenman
May 29th, 2010, 12:17 PM
... :mad:

markceltic
May 29th, 2010, 12:25 PM
[QUOTE=chasMac;970465] Germans' dissatisfaction with the current state of affairs; their view that they are essentially propping up mismanaged economies is well known (the Alberta/Ontario of Europe, as it were), and increasingly reported on at the moment.
An interesting tidbit of sorts of what I see happening in my area is an influx of Germans to our friendly shores.Recently an ad for a job stated that speaking German was an asset for the applicant.There has always been a German influence on the South Shore, but around here for the past few years their growth is quite pronounced. I suppose many may be looking for a "safe harbour" for the coming storm.

MacDoc
May 29th, 2010, 06:19 PM
Gee MF the private sector really stepped up to the plate in Iceland....:rolleyes:

According to the report, the story began in 2003 with the privatisation of small Icelandic banks, whose assets multiplied by 20 in seven years. Their short-term debt quickly became fifteen times higher than the reserves of the central bank, headed by David Oddsson.

''Mistakes were certainly made. The private banks failed, the supervisory system failed, the politics failed, the administration failed, the media failed, and the ideology of an unregulated free market utterly failed,'' the PM added.

Icelandic banking report reveals greed, ?extreme negligence? | EurActiv (http://www.euractiv.com/en/financial-services/icelandic-reports-reveals-greed-extreme-negligence-news-445224)

give predators an inch.....

Stupidity, irresponsibility and negligence is hardly the sole domain of government as you'd have everyone believe.

Strange that Canada is lauded for it's strong banking REGULATION...odd that..at least in your weird world.

UBS banks analyst Peter Rozenberg believes Canadian banks represent the best of western banking institutions in a “new world.” This new world, he suggests, involves not only investors that want to see decent profits and dividends with strong capital bases, but also regulators that actually take risk into consideration for a change.

The Canadian Approach to Regulatory Systems
Canada might not be having much luck in its Olympic quest for domination, but it can teach the U.S. a thing or two in other matters… like its well-coordinated regulatory system that works together, despite being comprised of four separate branches:
The central bank, the Bank of Canada, which maintains stability of the overall system
The Superintendent of Financial Institutions, which oversees financial institutions in particular
The Canadian government Finance Ministry, which sets the broad rules on ownership of financial institutions and the design of financial products
The Financial Consumer Agency of Canada, which acts as a consumer protection agency
All four meet regularly to ensure that loopholes don’t exist for Canadian banking executives to sneak through… a concept that the U.S. could learn a thing or two about. And they actually seem to care about enforcing those rules instead of just talking about them, focusing on the spirit of the law instead of just the letter.

The Canadian Banking System (http://www.investmentu.com/2010/February/the-canadian-banking-system.html)

Macfury
May 29th, 2010, 07:13 PM
Gee MF the private sector really stepped up to the plate in Iceland....:rolleyes:

How could one bank get so big as that except by first being owned by Iceland's federal government? It should have been sold in pieces, not wholesale. And what killed it? Buying mortgage derivatives backed by Fannie Mae and Freddie Mac in the U.S. These derivatives would have been worthless unless rubber-stamped by these government entities.

Free market? Righhhhhht.

MacDoc
May 30th, 2010, 02:21 PM
Editorial

The Trans-Atlantic Crisis

Published: May 29, 2010




http://graphics8.nytimes.com/adx/images/ADS/22/34/ad.223456/CYRUS_Sundance_120x60_v2.gif (http://www.nytimes.com/adx/bin/adx_click.html?type=goto&opzn&page=global.nytimes.com/yr/mo/day/opinion&pos=Frame4A&sn2=830fb506/d2df0717&sn1=dea95fc6/902a601b&camp=foxsearch2010_emailtools_1225562c_nyt5&ad=Cyrus_120x60_01.25&goto=http%3A%2F%2Fwww%2Efoxsearchlight%2Ecom%2Fcyr us)




America's Uncertain Recovery


.doubleRuleBlack { background: #fff url(http://graphics8.nytimes.com/packages/images/opinion/doubleRule_000.gif) repeat-x top left !important; } Editorial Series



Financial Regulation (http://topics.nytimes.com/topics/opinion/editorials/select-financial-regulation/index.html)



The stock market gyrated wildly last week, soaring when China denied reports it was about to forsake the euro, then retreating on bad news about Spain’s creditworthiness. Contagion from Europe is obviously still a threat to the United States. But Europe’s woes are only one of several risks still facing the American economy. And those risks are made all the worse by an increasingly incoherent response from Congress.
The biggest danger is high and intractable unemployment, currently 9.9 percent, or 15.3 million people, nearly half of whom have been jobless for more than six months. Even if last month’s strong job growth is sustained — a big if — it would take five years to get back to a more tolerable unemployment rate of 5 percent.
At the same time, state budgets are collapsing, with governments facing a collective budget hole of $112 billion in the fiscal year that starts for most of them on July 1. Closing the gaps will mean tax increases and spending cuts, which will provoke more layoffs, both among public employees and businesses that contract with state and local governments.
Adding to the economic pressure on families, more house price declines are likely, the result of millions of foreclosures and other distressed homes sales. Adding to the pressure on small businesses, credit will continue to be tight, as potentially hundreds of small banks fail, most of them weakened by souring loans on commercial real estate. The Federal Deposit Insurance Corporation recently reported that 775 banks were on its watch list, the most since mid-1993.
Any one of those issues would be worrying. Collectively, they constitute an emergency. Yet, the Senate left town on Friday for a week’s break without passing a bill to extend expiring unemployment benefits; senators said they would get to it later. The House voted for the bill, but stripped out provisions for a health-insurance subsidy for jobless workers and for more aid to states.
Congress’s reluctance to pass the package of measures, which costs about $70 billion, is grounded in familiar arguments that the nation must act now to cut the budget deficit. In fact, withholding support now — when the recovery is still fragile and needs are still great — runs the risk of condemning the economy to a long, hard slog of subpar growth, barely indistinguishable, in effect, from recession itself. That would be worse for the nation’s finances than upfront spending.
It is up to the Obama administration and Democratic Congressional leaders to make that case, ideally in tandem with a credible plan for reducing the deficit in the longer term. Health care reform was a down payment on controlling costs. Further serious discussion of the deficit has been put off until after the midterm election, when the president’s budget panel is due to report.
Even then, how many politicians will find the courage to deal frankly with the tax increases that deficit reduction will require? Economic recovery is not a given. Neither is effective political leadership. We will not have one without the other.



Europe's Endangered Banks

So far, Europe’s troubles have not hurt American banks, which own little debt from beleaguered Greece, Portugal or Spain. But the American and European financial sectors are entwined, and it is unclear whether American banks are prepared for what could happen.
Doubts remain about the solvency of the weaker European countries, despite the plan by the European Union and the International Monetary Fund to make up to $1 trillion available to indebted economies.
The plan has brought needed respite to financial markets. Crucially, the European Central Bank threw a lifeline to banks in the euro area, promising to buy tens of billions worth of weak-country debt from them, a small portion. The German Bundestag overcame public resistance and approved the rescue package.
But it has a fundamental shortcoming: it relies on deep budget cuts from countries that are in a recession or teetering on the edge. Several have weak governments that may not be able to carry through the prescribed fixes. Even if they do, the budget cuts are likely to make them even weaker.
Consider Ireland, which was quick to address the financial crisis. Last year, the Irish government slashed spending, cutting the pay of public-sector workers. It raised taxes. The Irish economy contracted 7 percent, and the budget deficit widened to 14 percent of its gross domestic product. This year, the deficit is expected to reach 12 percent of G.D.P.
Greece has now pledged to slash its budget deficit by more than 10 percentage points of G.D.P. by 2014. Spain says it will cut its deficit to 6 percent of G.D.P. next year from 11.2 percent in 2009. Italy announced cuts worth $30 billion. Portugal and even Germany have also announced budget cuts.
This is a recipe for economic stagnation. It also may not avert a debt rescheduling by some of the weaker European countries, which would force European banks to take a cut on their holdings. Sitting on slim cushions of capital reserves, European banks are in no shape for a sharp drop in the value of their assets.
It would be best to recognize that debt restructuring is inevitable. That would allow weaker countries to start growing again more quickly, but to withstand it European banks must be made to raise more capital. German banks’ capital amounts to less than 5 percent of their total assets, compared with 12.4 percent in the United States. And they are sitting on $650 billion in debt from the four most stricken countries.
American banks are more stable and better capitalized but must remain alert. American banks ended 2009 with $1.2 trillion worth of total European debt. That is about par with the amount of subprime residential mortgage debt outstanding in 2008. It would be foolhardy to assume this problem is far away.

Editorial - America?s Uncertain Recovery - NYTimes.com (http://www.nytimes.com/2010/05/30/opinion/30sun1.html?hpw)

Interesting times.....trying to make a silk purse out of a sows ear..as with Japan - one of these days the reality of deflation will set in and over inflated assets such as housing and over inflated worth such as MPs, bank execs and far too many public servants get their come uppance.

Japan knows only too well how that looks...

That debt restructuring is going to exist on many many levels...

Macfury
May 30th, 2010, 02:32 PM
The canard of overinflated housing prices is a smokescreen. Governments are spending their way into economic hell.

Ireland's economy contracted not because of fiscal restraint, but because more than half of all Irish economic activity is government spending. The nonsense is believing that government spending on all sorts of fluff--including so-called affordable housing--forms a sustainable economy.

Vandave
May 30th, 2010, 09:42 PM
This is the beginning of the end of big government programs in the West. Government controls too large of a percentage of our economy with little productive output or activity. Entitlement spending worked when the demographics supported it. It no longer will. The West is not growing very quickly and has an aging population. We need to scale back our entitlement spending or eventually we will follow the path of Greece. Government needs to reinvent how it does business. Our bureaucracy is extremely outdated and no longer serves us effectively. We need massive fundamental change.

dona83
May 30th, 2010, 10:17 PM
The United States' increase in debt was created by Bush and his military spending, nothing more.

The Conservatives increased the national debt as well.

Macfury
May 30th, 2010, 10:55 PM
Every party is to blame. But while Bush's spending was nuts, that of Obama is criminally insane.

Chimpur
May 30th, 2010, 11:26 PM
I'd rather spend money on us; than spend money on some jihad happy terrorists crackpots. I think some protectionism is in order. Its our gold, our diamonds, our lumber, fish, wheat, cattle, etc. Buy local/Canadian; stop importing everything. Stop eroding the industrial base. The days of a bagged salad from California are numbered.

Vandave
May 30th, 2010, 11:39 PM
I'd rather spend money on us; than spend money on some jihad happy terrorists crackpots. I think some protectionism is in order. Its our gold, our diamonds, our lumber, fish, wheat, cattle, etc. Buy local/Canadian; stop importing everything. Stop eroding the industrial base. The days of a bagged salad from California are numbered.

Protectionism is the wrong path, especially for Canada. Trade has increased our standard of living tremendously. We need more trade and more of the private sector. We need less protectionism and less government. We need more freedom and less people telling us what we can and cannot buy and from whom. A good example is the CRTC and CBC. Both should be scrapped. Outdated models.

hayesk
May 31st, 2010, 04:05 PM
The thing that scares me is that many of the U.S. Blue States--with economies larger than some European countries--are going meekly, cap in hand, to the U.S. federal government to bail them out. The only power the feds have is to borrow more cash or to print it. Obamanomics is a bummer.

I didn't know that was an exclusive property of the Blue states. Well, in fact, it isn't. But it's not that easy. You also have to assess how federal laws affect various industries in red and blue states. Some states may be better off because there are laws to prop up richer states.

Macfury
May 31st, 2010, 04:21 PM
I didn't know that was an exclusive property of the Blue states. Well, in fact, it isn't. But it's not that easy. You also have to assess how federal laws affect various industries in red and blue states. Some states may be better off because there are laws to prop up richer states.

Red states as a whole continue to outpace blue states in economic growth and employment growth. They may vote for Democrats because they are already in the dumps and looking for a handout, but it is not an unfair characterization. Those in the worst shape, New York and California, are most consistently liberal.

CubaMark
Jul 6th, 2010, 07:58 PM
Some (very creative) Marxist analysis from David Harvey (assisted by a pretty good artist):

qOP2V_np2c0

Macfury
Jul 6th, 2010, 08:07 PM
That's pretty funny--considering that government intervention enabled almost every one of the so called crises of Capitalism. Federal governments have screwed up horribly, from vetting mortgage derivatives through Fannie Mae, right down to saving decrepit banks and car companies that should have been allowed to fail and exit the market.

CubaMark
Jul 6th, 2010, 09:20 PM
Governments have always intervened to support the capitalists... the saving of decrepit banks is a transfer of private debt to public debt (i.e., us). The record of bank "rescues" throughout Latin America, for example, is horrendous. A private bank opens its doors, takes public money, proceeds to either outright steal the cash or undertake unwise investments, becomes so important to the economy that the government "cannot allow" it to fail, and then does a bailout. Then it does something really stupid- allows for the privatization of the bank, but the debt is now firmly on the backs of the taxpayers.

Adrian.
Jul 6th, 2010, 10:03 PM
I don't believe it would be the ripple effect but the collective effect. If Spain gets caught with its pants down it's game over for a successful Euro. Unfortunately, Madrid already has a severe case of plumber's butt.

The whole notion of the Euro is another example of the failure of collectivism. In the pre-EU, the Drachma would have been devalued and interest rates would have adjusted themselves. Instead, the only option now is to either kick Greece out of the EU, or feed its crack habit.

Speaking from the inside, the finance community would not allow the Drachma to devalue enough to provide any serious relief to Greece. There are two possible scenarios: run on the currency and every man for themselves or ordered liquidation of assets while the IMF provides temporary funds to maintain the value of the currency on the condition there are no restrictions on international financial transfers.

Currency devaluation is not a panacea for this sort of problem. That said, nor are currency boards like the euro.

hayesk
Jul 7th, 2010, 03:41 PM
Red states as a whole continue to outpace blue states in economic growth and employment growth. They may vote for Democrats because they are already in the dumps and looking for a handout, but it is not an unfair characterization. Those in the worst shape, New York and California, are most consistently liberal.

Correlation is not causation.

CubaMark
Jul 7th, 2010, 06:03 PM
Protectionism is the wrong path, especially for Canada. Trade has increased our standard of living tremendously. We need more trade and more of the private sector. We need less protectionism and less government. We need more freedom and less people telling us what we can and cannot buy and from whom.

Disagree. Protectionism, implemented appropriately, is essential to a healthy economy and standard of living. Among the worst aspects of NAFTA was the removal of any legislative power for communities / provinces to favour local businesses rather than international conglomerates. There is no way local businesses can compete against global companies.

Why is that a problem, you ask? Surely lower cost services of global companies are better for the taxpayer, right? Wrong. Local businesses are the foundation of global economies. If a local company's bid is marginally in excess of the global firm, local should always win out... because the money eventually / mostly goes back into the local economy, rather than having profits repatriated abroad.

Look at what happened with the idiotic privatization of Nova Scotia Power: the provincial Conservative government sold it off for a song, ostensibly to contribute to combatting the deficit (which it did not). The NSP has been so gutted of personnel that every time the wind blows or a cloud appears overhead, linemen have to be brought in from as far away as Maine to fix the lines. So much for local jobs...

Either I'm getting obtuse in my advancing years, or the world just doesn't make sense. Economic conservatives proclaim the small businessman to be the most important economic player on the planet... and yet the ECs continue to implement trade legislation that puts the local at a serious disadvantage. Bipolar, perhaps?