Tag Archives: greek debt crisis

China Says Greek Debt Crisis ‘Tip Of The Iceberg’

26 Mar

From the Sydney Morning Herald:

The euro slumped Thursday to a fresh 10-month low after a senior Chinese central bank official warned that the Greek debt crisis was just the “tip of the iceberg.”

Analysts said the comments, and a debt downgrade for Portugal on Wednesday, suggested the crisis was widening to take in the entire eurozone project.

“The fact that Zhu Min, the deputy governor of the People’s Bank of China, felt compelled … to call the Greek debt crisis ‘the tip of the iceberg,’ is as good an indication as any of how rapidly fundamental concerns are growing about the eurozone,” said analyst Neil Mellor at Bank of New York Mellon.

“Indeed, this comment might well signal the point that we stop talking about a ‘Greek debt crisis’ and start talking about a ‘Eurozone structural crisis’ instead,” Mellor said in a research note to clients.

Please take the time to browse the recent posts on this blog.

Our financial authorities – RBA Governor Glenn Stevens, Treasury Secretary Ken Henry, and the Labor Government – are all convinced that the global financial crisis is ‘over’.

They have publicly declared that Australia is all set for a new, multi-decade mining boom (thanks to China), that will provide us with a “period of unprecedented prosperity”.

They have ridiculed Barnaby Joyce, our only politician with the courage to publicly raise questions about the state of the rest of the world’s economies, and what calamity that might mean for Australia, since last October.

And, all of them (except Barnaby) completely failed to predict the GFC in the first place.

Yet, our media and the public believe that everything is fine.  That the Government can just keep right on borrowing around $2bn a fortnight, to continue squandering on a massive, rushed and bungled “stimulus”.

Barnaby is right.

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Waking Up To Sovereign Debt

25 Mar

From Business Spectator:

The current Greek debt crisis is likely to be only the first of a series of disruptions this year, as global financial markets inevitably shift their attention to the sovereign debt problems of advanced economies.

These problems were magnified by the global financial crisis. Faced with a collapse in consumer spending, and the risk of widespread bank failures, governments opened their cheque books while central banks printed trillions of dollars.

This had the effect of stabilising the financial system, but we now have to deal with consequences of these actions, and particularly with the deterioration in the balance sheets of most advanced economies.

The sovereign debt problem is not confined to the so-called PIIGS of Europe (Portugal, Ireland, Italy, Greece and Spain). Markets are also unnerved by the massive build-up of government debt in the United Kingdom and Japan. And that’s without mentioning the huge budgetary problems facing debt-laden US states, such as California.

There are various doomsday scenarios as to how this situation will ultimately play out.

The first is that countries will start off by heading in the direction that Greece is currently taking. That is, governments will attempt to repair their balance sheets by slashing their spending, and pushing up tax rates.

But the worry is that such budgetary measures will prove counter-productive. The countries that follow this path will end up with their economies plunging into recession, and with an outbreak of social unrest. And as their economies shrink, their tax revenues will dry up, which means that they won’t be able to pay the interest bills on their massive debt.

Eventually the situation will become untenable, and central banks will be forced to respond to the situation by printing more and more money in order to create enough inflation to erode the value of the debt.

Under this scenario, massive central bank money printing means ending up with hyperinflation, along the lines of the Weimar Republic, or, more recently, Zimbabwe. In which case the price of gold explodes, with some predicting it could reach $5,000 an ounce. Prices for other commodities also soar, and stock prices are also likely to remain high, as it is assumed that central banks will always keep interest rates below the rate of inflation.

The alternative fear is that the world ends up looking a lot more like Japan than Zimbabwe, and the main struggle is against deflation.

Under this scenario, the determination of consumers to reduce their debt levels overwhelms government efforts to stimulate the economy. What’s more, the deleveraging process causes demand to collapse, and this puts pressure on labour costs. Households respond to this further deterioration in their earnings by tightening their belts even further, resulting in an ongoing deflationary cycle.

One of the main arguments of this camp is that even though central banks continue to print huge amounts of money, it won’t lead to inflation because the banks are not lending the money. Instead, total credit in the economy will contract as consumers, and businesses, try to repay their existing debts, rather than taking out new loans.

According to this view, the price of gold and other commodities will collapse. The drop in demand will also put pressure on the profit margins of businesses, and this will push global sharemarkets lower, even though interest rates will be kept close to zero.

Of course, it’s likely that neither of these two extreme views will play out in their entirety. But we are likely to see markets oscillate between these two opposing fears as worries about sovereign debt continue to climb this year.

Got to love that blind optimism in the final paragraph.

It’s interesting to observe how the power of denial encourages an otherwise rational and sensible commentator to set aside all the evidence of where things are clearly headed, simply because the end of this road looks calamitous –

"She'll Be Right, Mate"

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Everything Falls On Debt Concerns

25 Mar

From Bloomberg:

March 24 – Treasuries, the euro, stocks and commodities slid as a downgrade of Portugal’s debt and weaker- than-forecast demand in a U.S. bond auction added to concern governments will struggle to fund swelling deficits.

Greece “is going to default at some point,” and Europe’s failure to answer that challenge will hurt the common currency, UBS Investment Bank’s London-based deputy head of global economics, Paul Donovan, said in an interview on Bloomberg Radio. “If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work,” he said.

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Labor Less ‘Creative’ Than Greece

19 Mar

From the Korea Times:

The Greek crisis is a textbook example of the interconnectedness of the global economy and the foreign policy environment.

For most of the last decade, the Greek economy grew faster than others in the euro area. Yet, the country’s balance sheets worsened.

(Sound familiar?)

So, when the global recession hit, and the Greek economy contracted by 2 percent in 2009, international bond markets panicked, fearing that Athens was going to have trouble meeting its obligations. By mid-February the Greek government was paying three percentage points more to borrow money than the interest rate charged Germany, worsening the mismatch between Greek revenues and expenditures.

Wall Street bears some of the blame for this mess. Goldman Sachs and possibly other American financial institutions reportedly helped Athens understate its true indebtedness through the creation of innovative financial instruments.

The Rudd Government has used a more traditional way to understate our true indebtedness. ‘Creative accounting’. Or ‘cooking the books’.

First, Rudd Labor has made changes to the ‘methodology’ used for reporting Gross Domestic Product (GDP).  And they have applied those changes to all the previously reported Budget numbers too.  The result?  A “substantial increase” in Australia’s GDP.  As much as (eg) 4.5% per annum added to the real, inflation-adjusted GDP that was originally reported in the Howard Government’s 2006-07 Final Budget Outcome.

The benefit to Rudd Labor in making this “substantial increase” to GDP in the historical data, is that their spending (as a percentage of that GDP) looks lower.  Their annual spending growth (as a percentage of GDP) looks lower. Their debt (as a percentage of GDP) looks lower. And, their Interest-on-debt (as a percentage of GDP) looks lower too. This explains why Rudd Labor politicians always love to quote everything in percentages. “As a percentage of GDP”.

Second, Rudd Labor has also changed the ‘methodology’ used to calculate the inflation-adjusted value of ‘real’ spending growth.  This was a sudden decision, for the November 2009 MYEFO budget update. The result? The Rudd Government’s reported ‘real spending growth’ is a whopping 30.1% lower under their new calculation method.

Finally, Rudd Labor lies about the GFC whenever it needs to defend its massive spending spree. They have repeatedly told the public that “the GFC punched a huge hole in our projected revenues”.  But the official Budget documents show that this is a lie.  In the May 2009 Budget, the estimated government “Receipts” were only 2.7% lower than for the previous year.  And by the November MYEFO update, government revenues were expected to be slightly higher than for the previous year.

Please follow those links. View for yourself the actual Budget documents that show how Rudd Labor have ‘cooked the books’.

You will see that, unlike Greece, our Labor Government does not need to hide our true state of indebtness through the use of creative financial instruments.

They use good old-fashioned ‘creative accounting’ instead.

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ECB: Stark Warning of Eurozone Debt Crisis

17 Mar

From BusinessWeek:

European Central Bank Executive Board member Juergen Stark said the euro region may face a sovereign debt crisis unless governments reduce budget deficits.

There is “a clear risk that we will enter a third wave,” which is “a sovereign debt crisis in most advanced economies,” Stark told lawmakers in the European Parliament in Brussels today.

In Australia, our government is continuing to increase our budget deficit, by refusing to withdraw its woefully incompetent and wasteful “stimulus” spending.

Even though we had no recession, and RBA Governor Glenn Stevens recently referred to 2008-09 as “the mildest downturn” we have had since WW2.

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China Biggest Worry For Markets

17 Mar

Fromt the Wall Street Journal:

Nervousness is growing in the financial markets about China, which might seem odd when there are so many other places to worry about.

There’s still Greece, for example, which is likely to be the focus of this week’s meetings of European finance ministers. There’s Germany, and its trade surplus. And there’s the U.S., the U.K. and all the other places with triple-A-rated debt that may not be rated triple-A for much longer.

So why the focus on China, where shares closed Monday at their lowest in five weeks, with the benchmark Shanghai Composite ending below 3000 at its weakest since Feb. 9? Well, as one bank put it on Monday: “Are we facing a ‘growth miracle’ or will China be the next bubble to burst?”

Even the markets are more cautious on China than Australia’s financial powers, the RBA and the Treasury department. They still believe we are headed for 40 years of “unprecedented prosperity” on the back of a new China-fueled mining boom.

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RBA Concerned About Greece

16 Mar

And about time too!

From The Australian:

The Reserve Bank lifted the cash rate to 4 per cent in early March in response to two months of data suggesting the economy might be growing at or close to trend.

But board members expressed concern that the fallout from the Greek financial crisis might have implications for the Australian economy, the minutes of the RBA’s March 2 board meeting say.

The minutes show the central bank was concerned about the possibility of contagion, that the Greek problem could spread to other parts of Europe.

“The main risk was the possibility of contagion to other sovereigns and perhaps other markets, primarily in the euro area.

“Members agreed the fiscal problems in Europe, if not resolved satisfactorily, could result in renewed turmoil in markets and fresh weakness in the global economy, which could have implications for Australia.

However, the RBA’s wishful thinking remains strong:

“But while that outcome could not be ruled out, it was not the most likely one.”

I would like to see RBA Governor Glenn Stevens and his cohorts called before the Senate, and forced to actually justify their crystal-ball gazing confidence  by producing real evidence.

They completely failed to predict the GFC.  That EPIC failure cost Australians literally billions in lost retirement savings and investments.

Why should we believe the RBA’s judgement is correct now?

Especially when there are ever-growing contrary views rolling in daily, from all around the world.  Many from those who did predict the GFC!

And they do not share the RBA’s judgement.

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France Next On Debt Watch

13 Mar

From the Globe and Mail (UK), via Reuters:

French debt looks set to come under pressure in the near future with investors battered by the Greek crisis arguing it is pricey and does not reflect France’s growing indebtedness.

As a result, other euro zone paper, including Germany’s and — perhaps surprisingly — Italy’s, could be in for a filip.

The gist is not that France’s economy is under any immediate Greece-like default stress, but the cost of its bonds — and the cost of insuring them — does not properly reflect what stress is actually there.

“France has been lumped as a core euro zone economy. To our mind the budgetary situation is not as good as the pricing suggests,” said Richard Batty, an investment director at Britain’s Standard Life Investments.

“It is being priced as though there isn’t a budget problem,” he said.

In it latest note, Mr. Batty’s firm said it was being put off French debt because its fiscal problems and the true cost to euro zone economies of any bailout of peripheral economies are not fully priced in to its debt.

This echoes the view of a number of other fund managers and bank analysts.

Less than a week ago, famous international financier George Soros warned that the Euro currency ‘may not survive’ the Greek debt crisis contagion in the Eurozone.

Others fear that the UK will be the next to fall thanks to its enormous debt levels.

Meanwhile, in Australia our financial authorities remain seemingly oblivious to the dangers from every quarter of the globe. They are still advising the government that we will simply sail out of the Rudd Government’s massive debt, on the back of a multi-decade China-fueled mining boom.

More evidence emerges almost daily, that this new China boom is no more than a hopeful fantasy, that will collapse possibly as soon as 2012.

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Soros: Euro ‘May Not Survive’

8 Mar

From Bloomberg:

The euro is being “severely tested” and “may not survive” the Greek deficit crisis, billionaire investor George Soros said.

The European currency’s construction is “flawed” because there is “a common central bank, but you don’t have a common treasury,” Soros said on CNN’s “Fareed Zacharia GPS” program.

“The exchange rate is fixed. If a country gets into difficulty, it can’t depreciate its currency, which would be the normal way,” Soros said.

The sovereign debt crisis in the Eurozone is far more serious than Australia’s economic authorities at Treasury and the Reserve Bank are admitting. A collapse of the Euro – and the European Monetary Union – would clearly have huge impacts for the global economy, including Australia.

Barnaby is right.

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Britain Grapples With Debt of Greek Proportions

5 Mar

From the New York Times:

Suddenly, investors are asking if Britain may soon face its own sovereign debt crisis if the government fails to slash its growing budget deficits quickly enough to escape the contagious fears of financial markets.

“If you really want a fiscal problem, look at the U.K.,” said Mark Schofield, a fixed-income strategist at Citigroup. “In Europe, the average deficit is about 6 percent of G.D.P. and in the U.K. it’s 12 percent. It is only just beginning.”

Since the Labour government’s intense fiscal intervention in 2008 and 2009, yields on British government debt have soared to among the highest in Europe. And on a broader scale, which includes the borrowing of households and companies, the overall level of debt in Britain is the second-largest in the world, after Japan’s, at 380 percent of the country’s gross domestic product, according to a recent report by the consulting company McKinsey.

Britain is not in the 16-nation euro zone and, unlike Greece and other struggling countries that use the currency, it retains control over its monetary policy. As a result, it has benefited so far from a huge bond-buying program undertaken by the Bank of England — proportionally, the largest in the world — that has kept mortgage rates and gilt yields at unusually low levels.

That means the government and its citizens have been able to continue to borrow at interest rates that do not reflect their true financial situation.

Indeed, the increase in private and government debt here contrasts sharply with the deleveraging that has been going on in the United States.

British household debt is now 170 percent of overall annual income, compared with 130 percent in the United States. In an echo of the United States’ rush into subprime mortgages with low teaser rates, millions of homeowners in Britain have piled into variable-rate mortgages that are linked to the rock-bottom base rate.

As for the British government, it has been able to finance a budget deficit of 12.5 percent of G.D.P. — equal to Greece’s — at an interest rate more than two full percentage points lower only because the Bank of England bought the majority of the bonds it issued last year.

Sound familiar?

In Australia, household debt is over 150 per cent of income. And in an echo of the British rush into US-style sub-prime mortgages with low teaser rates, some 250,000 homeowners in Australia have piled into variable-rate mortgages that are linked to the rock-bottom base rate, until recently the lowest in 50 years. Many highly ‘marginal’ borrowers who could not previously even raise a deposit, were lured into mortgage debt by the Rudd Government’s First Home Owners Boost, plus additional state-based grants.

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