Tag Archives: PIIGS

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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OECD Economist: Double-Dip Recession Looms

28 Feb

One can only wonder if Treasury Secretary Ken Henry watched the ABC’s “Inside Business” this morning:

One of the OECD’s leading economists says there is a strong chance that the world’s leading economies could quickly slide back into recession.

The deputy director of the OECD’s financial and enterprise affairs, Dr Adrian Blundell-Wignall, has told ABC1’s Inside Business program that the threat of a double dip recession remained because problems in the banking system have not been solved.

“There are many icebergs the ship has to negotiate before we’re out of jail here. This is going to be a 10 year process, not a one year process,” he said.

Dr Blundell-Wignall says many of the banks’ problems have been hidden by changes to accounting rules and their most toxic assets have been shifted to the balance sheets of the big central banks in the US and Europe.

Dr Henry recently stated that the GFC is “over”:

“What people have called the global financial crisis, that has passed“.

Dr Henry went on to predict a “period of unprecedented prosperity” for Australia, one that could “stretch to 2050”.

Dr Henry failed to predict the GFC.

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Greek PM: Worst Fears Confirmed

27 Feb

Greek Prime Minister George Papandreou told parliament on Friday, after a visit by EU economic inspectors, that the worst fears about Greece’s economy had been confirmed:

“Everything that was revealed after the elections proved that New Democracy (the previous, conservative administration) fled from its responsibilities,” Papandreou said. “History confirmed our worst fears.”

“The damage is incalculable. It is not only financial or fiscal but also affects the position of the state …

“Our duty today is to forget about the political cost and think only about the survival of our country.”

“There is only one dilemma: Will we let the country go bankrupt or will we react? Will we let the speculators strangle us, or will we take our fate in our own hands?” Papandreou said.

“We must do whatever we can now to address the immediate dangers today. Tomorrow it will be too late, and the consequences will be much more dire,” he added.

Leading economists around the world have been warning of dire consequences for the international economy should the Greek debt crisis become a contagion that spreads around the globe.

Yet in Australia, Senator Barnaby Joyce is ridiculed by all and sundry, for daring to warn of the impacts on Australia from this looming international sovereign debt crisis.

A crisis that Barnaby’s esteemed critics cannot see coming. Again.

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Is Greek Debt Contagious?

26 Feb

The Greek flu looks like it’s spreading through Europe. How contagious is it? How far will it spread?

Charles Wyplosz, Professor of International Economics at the Graduate Institute (Geneva), and one of the world’s leading experts on Eurozone monetary and financial matters, sets the record straight on the latest twist in the GFC:

A debt default by the Greek government, on its own, would be a non-event. Greece is a relatively small country (with 11 million people, its GDP amounts to less than 3% of Eurozone’s GDP). Contagion to Portugal, which is even smaller, would also be a non-event. Moving on to Spain and Italy is another matter…

The real worry is the banking system. Some European banks hold part of the Greek debt and, if still saddled with unrecognised losses from the subprime crisis, some might become bankrupt. Many governments have simply not pushed their banks to straighten up their accounts, and they are now discovering some of the unforeseen consequences of supervisory forbearance…

Contagious debt defaults, along with bank failures, could lead to a double-dip recession in Europe, possibly affecting the US as well. If that were to happen, with the interest rate at the zero lower bound and fiscal policy not available any more, we could face a terribly bad situation.

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Greek Crisis Coming to America

26 Feb

Professor Niall Ferguson, recently seen on ABC TV in his acclaimed documentary series “The Ascent of Money“, writes for the Financial Times:

It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate…

What we in the western world are about to learn is that there is no such thing as a Keynesian free lunch. Deficits did not “save” us half so much as monetary policy – zero interest rates plus quantitative easing – did. First, the impact of government spending (the hallowed “multiplier”) has been much less than the proponents of stimulus hoped. Second, there is a good deal of “leakage” from open economies in a globalised world. Last, crucially, explosions of public debt incur bills that fall due much sooner than we expect.

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Magnus: Sovereign Default Threatens World

26 Feb

Respected UBS economist George Magnus says sovereign debt default now presents a grave risk to the global economy:

The sustainability of sovereign debt hangs heavily over bond markets, and the prospects for economic and financial stability…

There is no peacetime precedent for the current speed and scale of public debt accumulation and it is difficult to assess the social tolerance for high debt levels, and for the pain of protracted fiscal restraint. In several European Union member states, the threshold has already been breached. The spectre of sovereign default, therefore, has returned to the rich world.

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Barnaby Warns of Bigger GFC

25 Feb

Could the USA default on its debts?  Barnaby thinks so… and said as much in October and December last year:

The Nationals Senate leader Barnaby Joyce is openly canvassing an economic upheaval that would dwarf the current global financial crisis, triggered by the US defaulting on its sovereign debt within the next few years.

In unusually pessimistic comments for a senior political figure, Senator Joyce said the US Government was running such large deficits and building up so much debt that it was in a similar position to Iceland or Germany before World War II.

Is Barnaby alone in expressing this concern?  Rudd Labor would have you think so. Others agree with Barnaby:

It is not literally impossible that the Federal Reserve could unleash the Zimbabwe option and repudiate the national debt indirectly through hyperinflation, rather than have the Treasury repudiate it directly. But my guess is that, faced with the alternatives of seeing both the dollar and the debt become worthless or defaulting on the debt while saving the dollar, the U.S. government will choose the latter.

And this:

The economic landscape still looks pretty gloomy despite (because of?) massive increases in federal government spending by Congress. Want something else to worry about? What if your government suddenly went “belly up” on some or all of its public debt IOU’s?

Impossible you say? Not really.

And this:

The specter of a wave of sovereign debt defaults is becoming more of a possibility daily. Historically, waves of sovereign debt defaults follow periods of relative calm in credit markets. In short, sovereign defaults are contagious.

And this:

Mr Ip believes the government will sooner try and inflate down the debt than default, which is probably true. But he reckons that in the unlikely event America must choose between hyperinflation and default, the unthinkable could occur.

And this:

The list of countries at risk of bankruptcy is increasing by the day. The acronym used to be PIGS (Portugal, Ireland, Greece and Spain). It is now PIIGSJUKUS and growing. The main contenders are currently: USA, UK, Japan, Spain, Italy, Greece, Ireland, France, Portugal, Baltic States, Eastern Europe and many more. On a proper accounting basis all of these countries are already bankrupt, but since many nations can either print money, like the US and the UK, or increase their already high borrowings, like Greece and the Baltic States, they have technically avoided bankruptcy.

And this:

But the ultimate financial question – until recently, unthinkable – is now being asked. Yes siree, the mighty US government could default. That’s how much the world has changed.

So why do Kevin Rudd, Wayne Swan, Lindsay Tanner, Ken Henry, and Glenn Stevens, not wish to discuss concerns about US debt, and the implications of a possible sovereign default on the Australian economy?  According to Treasury secretary Ken Henry, to do so could “alarm” the community:

”I don’t mind discussing hypotheticals in general … [but] one has to be careful not to discuss publicly hypotheticals that are that extreme,” Dr Henry said.

Right. This is the same Ken Henry who never saw the GFC coming. No doubt he would have considered it just another “extreme” hypothetical back in 2007.

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Rogoff Sees Sovereign Defaults

25 Feb

From Bloomberg –

Ballooning debt is likely to force several countries to default and the U.S. to cut spending, according to Harvard University Professor Kenneth Rogoff, who in 2008 predicted the failure of big American banks:

Following banking crises, “we usually see a bunch of sovereign defaults, say in a few years,” Rogoff, a former chief economist at the International Monetary Fund, said at a forum in Tokyo yesterday. “I predict we will again.”

“Most countries have reached a point where it would be much wiser to phase out fiscal stimulus,” said Rogoff, who co- wrote a history of financial crises published in 2009.

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