James Saft

James Saft is a Reuters columnist. The opinions expressed are his own.

Greece cannot be saved without debt relief, and debt relief for Greece may mean what amounts to a mass Jubilee with debt write-offs and recapitalizations needed for weak banks and nations across the euro zone.

Little wonder that officials delay, deny and only belatedly try to negotiate openly with reality.

Greece’s credit rating was downgraded by Standard & Poor’s to B on Monday, taking it two steps further into junk territory, just days after a secret meeting of euro zone finance ministers  gave rise to rumors that the country would soon leave the common currency zone.

EU officials have said a new aid package for Greece (and Ireland) is on the way, and S&P foresees commercial creditors paying their share too, which even if it is only an extension of the maturity of the bonds is tantamount to a default.

“Although an extension of maturities with no principal discount would likely imply a recovery greater than 50 percent, our projections suggest that principal reductions of 50 percent or more could eventually be required to restore Greece’s debt burden to a sustainable level, given trend growth potential of the Greek economy,” S&P said in explaining its action.

James Saft is a Reuters columnist. The opinions expressed are his own.

HUNTSVILLE — What happens when you combine a recession, an unwillingness to pay your way, and unrealistic expectations of how much you can make in the stock market?

For U.S. state employee retirement funds, the answer is you end up with an underfunding of $1.26 trillion, a shortfall that will cause political strife and personal misery.

That misery, however, may extend beyond those whose pensions and benefits are slashed or taxes raised, as the issue has at its heart a fundamental miscalculation that is also embedded in many company and personal retirement plans.

James Saft is a Reuters columnist. The opinions expressed are his own.

HUNTSVILLE, Ala. — If bank failures and deflation frighten you, we are managing the economy in the right way, but if you worry about drops in output and investment, we’ve not made much progress.

In other words, policy makers are very good at re-fighting the Great Depression, but may have simply reallocated the damage.

A study of the interaction of credit, the economy and financial crises by economists Moritz Schularick and Alan Taylor looked at the period between 1870 and 2008, casting a shadow over the usefulness of modern activist central banking.

James Saft is a Reuters columnist. The opinions expressed are his own.

HUNTSVILLE — Wednesday was a weird day, caught somewhere between being a victory for the paranoid and a genuine step forward for openness and transparency.

And no, I am not talking about the sad spectacle of President Obama trotting out his birth certificate to assuage his deluded doubters. I am instead speaking of the Federal Reserve, which for the first time in its long history has taken the step of actually taking questions from the press after announcing its monetary policy decision.

Unlike the birth nonsense, there are two not mutually exclusive ways you can interpret the Fed’s decision to put itself at the mercy of the hacks. First, it is a real step forward for transparency, a step along the way towards renouncing the cant of the era of Greenspan, who seemed to regard himself as part economist, part Delphic Oracle and part Wizard of Oz.  Second, it marks a waning of the power of the Fed, which has been diminished by its poor track record and by steps it took which opened it up to attack.

James Saft is a Reuters columnist. The opinions expressed are his own.

HUNTSVILLE — If history is any indication, the Obama administration’s investigation into oil speculators makes now a potentially great time to load up on oil futures.

The Justice Department on Thursday announced a working group to probe fraud, speculation, index trackers and “investor practices” in the energy market, a move taken after gasoline prices topped $3.80 per gallon, the highest in almost three years and a politically very inconvenient fact.

Authorities playing the “evil speculators” card is an  excellent indication that they have both lost control of the narrative and have little they can do to alter the policies and fundamentals that brought on the pesky high, or sometimes low, prices in the first place. The right play could just be to take this as a signal that prices are going to continue to annoy authority, and make your investments accordingly.

In investing, extreme behavior is becoming more mainstream every day.

How else can we interpret the extraordinary moves by the University of Texas’ endowment fund to not only buy nearly $1 billion of gold, equal to about 5 percent of its assets, but to insist on taking physical delivery of the precious metal.

Things really have come to an interesting juncture when the second-largest academic endowment in the U.S., managed and advised by sober, rational people, decides that what they need is insurance against getting, in essence, robbed, via inflation, by fiscal and monetary policy.

Little wonder that gold futures went above $1,500 per ounce for the first time on Wednesday, driven by a laundry list of concerns starting with a falling dollar and not ending with the growing chance of “debt restructuring” (well, default, if you insist) by Greece.

James Saft is a Reuters columnist. The opinions expressed are his own.

Standard & Poor’s decision to put the U.S. on warning that it may lose its AAA debt rating is both deliciously absurd and genuinely earthshaking.

Absurd because S&P are some of the people who missed the real estate bubble and mortgage bond implosion; and earthshaking because not only has the U.S. never held less than a AAA rating, much less been put on threat of downgrade, it thoroughly deserves the warning.

Standard & Poor’s cited the risks of a lack of a credible plan to reduce the national debt and said the move flags a one-in-three chance of a downgrade over the coming two years.

James Saft is a Reuters columnist. The opinions expressed are his own.

If you are worried about the impact of a U.S. government shutdown on markets, you might just want to look past Treasuries and keep a weather eye on corporate bonds.

Investors will have good reason to dump U.S. corporate debt and shares in the event of a shutdown. Given that there are $29 trillion of corporate securities outstanding compared to only $9 trillion of Treasury debt in public hands some of those sales could flow into supposedly safer longer-term Treasuries even as corporate yields burst higher.

President Barack Obama proposed on Wednesday cutting the deficit by $4 trillion over 12 years, less than a week after Democrats and Republicans struck a last-minute stopgap deal to temporarily avert a government shutdown. Even so, the political divisions are deep and there are ample opportunities in coming months for impasse to lead on to nonpayment of bills, the sort of sort-of default that would doubtless send markets reeling.

The battle between the banks and nation states is shaping up as something that lies between a phony war and a rout.

The bald facts are that three years after the crisis in which banking almost brought down the global economy, the biggest banks are bigger, more global and more entrenched in their positions courtesy of a now all-but-explicit government guarantee.

All three factors make large banks harder for individual nations to control, even the U.S., and even if the U.S. manifested the desire to pull out of its heads-you-win-tails-we-lose bargain.

James Saft is a Reuters columnist. The opinions expressed are his own.

While it may well be a case of cut the U.S. budget or suffer a bond crisis, the current debate begs a question: who will pick up the slack in the economy and who exactly will finance them?

Democrats and Republicans raced, in a plodding sort of way, on Wednesday to reach a compromise budget deal that would keep the government operating past a Friday deadline.

Regardless of what may be wise, the likelihood is that there are going to be further substantial cuts in government expenditure, though this won’t begin in earnest until after the 2012 elections.