Comments on: Spiking Greek CDS

By: csodak

csodak — Mon, 08 Feb 2010 16:47:21 +0000

This debt does not just vanish but instead is absorbed within the finances of the rest of the Eurozone. Do you think the citizens of the EU are in any mood to take on the additional debt of the PIIGS? Spain’s citizens will not obediently carry out their public financial obligations after watching the PIIG get bailed out. While the US was willing to absorb Latin America’s debts before, I don’t think you would find Americans willing to do the same now.

The slow unwinding of the international debt crises seems to be a giant ponzi scheme where the liabilities flow to the top, not the assets. And whose on top now…China or the US?

By: Krasting

Krasting — Mon, 08 Feb 2010 12:42:11 +0000

Rolfe may be right that the answer is a combo of 1 and 2 and not 3. To break up the Euro at this point would be giving in to the pressure too quickly. It would cause a great deal of pain. It would not hurt as bad as Argentina, but it would very bad indeed.

The 1&2 solution assumes that the budget/growth issues are short term. They are not. This is a very long term problem and 1&2 are just bridges to nowhere.

We will get 1&2, but a year later nothing will have changed and then #3 will have to go back on the table. There really is no other alternative that will work. 1&2 are just band aids.

So if this is to be the case the broader issue of a too strong dollar will likely be with us for a while. I don’t think there could be a more powerful deflationary force in the world than a strong dollar. It will kill us and the global recovery.

Oh well……

By: Nick_Gogerty

Nick_Gogerty — Sun, 07 Feb 2010 16:45:21 +0000

An IMF bailout is also a potential option. None of these finance options are “solutions”per se but rather band aid options similar to Japanese fiscal policy from 1990.

The other important thing is that Greece and Portugal will set the tone for bailouts down the road relative to EU policy.

By: Nick_Gogerty

Nick_Gogerty — Sun, 07 Feb 2010 00:50:58 +0000

Maybe the crisis will be resolved with siginificant shifts in the relationship withe public unions, a Thatcher type moment. regardless of the 3 outcomes that is realized it seems historical inflection points are in the making for many developed economies who are over leveraged, over budgeted and running out of time.

By: tjfxh

tjfxh — Sat, 06 Feb 2010 03:20:53 +0000

This is only true if the government in question is monetarily sovereign and is issuing its own currency for its disbursements, and all its debt is denominated in its own currency. The EU/EMU states are not monetarily sovereign and act as the individual states in the US, which are revenue constrained. They must “live within their means” unless the monetary sovereign steps in.

The US government and the EMU governing body are not financially constrained as currency issuers. Essentially the same thing is happening to many states in the US, most notably California, in comparison with the EMU peripheral countries. The solution is for the US government and the EMU governing body to issue currency to fill the gap between nominal aggregate demand and real output capacity that is leading to deflation, resulting in recession, rising unemployment and underemployment, and growing social unrest.