The March of the Sovereign Debt Crisis

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Postby Lord_Morningstar » Tue Jan 04, 2011 1:31 pm

Before this party really gets going, I'd just like to remind people that we have a general thread on the American economy. This one is specifically about governments defaulting or getting bailed out.
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Postby Minardil » Tue Jan 04, 2011 2:36 pm

Please don't ruin Clinton's actual achievement with your knowing nothing about the subject. Try including fact-type thingies, not your usual stuff.


Sigh, predictable as usual. Can't you ever come up with your own snarks?

Seriously.

But back on the subject we were discussing, your numbers include Government Held Debt, that is, money that the government owes to itself. The numbers I posted are the Publicly Held Debt, which is the money we owe to private investors, China, etc.

Public Debt DID go down during those four years, as shown in the link I posted. Here's an article from Politifact describing the components of debt in which a commentator from the Cato Institute mentions that it is the PUBLICLY HELD portion of the debt that is important has has impact on the economy, not the Government held portion.


http://www.politifact.com/truth-o-meter/statements/2010/sep/23/bill-clinton/bill-clinton-says-his-administration-paid-down-deb/

In his words from the article:

Public debt, Mitchell said, "is the key variable since it measures the amount of money the government is draining from private capital markets


So, if we're talking about the use of "funny accounting" to cover up the magnitude of the debt, there is certainly room to argue that "funny accounting" (ie adding in money that the government owes to itself) is used to artificially inflate the magnitude of the debt.

So, I'll stick to my original position that the debt was reduced during that period.
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Postby Cenedril_Gildinaur » Tue Jan 04, 2011 3:07 pm

Yes, if we don't count the money that the main fund owes to Social Security, then there was a surplus.

Total Debt did not go down. Debt got shuffled from column A to column B. Eventually even the debt to Social Security must be repaid or defaulted on, just like the externally held debt.

But not counting the money borrowed for Social Security makes it look like the amount of money borrowed went down. And not counting off-budget spending makes it look like the budget was balanced.

There is funny accounting going on, but it isn't coming from those who include intra-government holdings. In a few years, when Social Security goes into deficit, it will be interesting to see the reaction from those who say intra-government borrowing doesn't count. It was borrowed. It will have to be repaid ... or defaulted.

When the Social Security bill comes due, we will have a huge sovereign debt crisis. According to GAAP accounting, we already do but the government is not subject to GAAP.
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Postby Lord_Morningstar » Fri Feb 25, 2011 10:40 pm

I’m reading an interesting article in Vanity Fair on the Irish economic crisis, which is appropriate, given that the count in the Irish general election is currently underway (just how long are the odds for Fianna Fáil?).

Michael Lewis, the author, makes the observation that “left alone in a dark room with a pile of the money, the Irish decided that what they really wanted to do with it was buy Ireland. From each other.”

So while Iceland suffered from reckless speculation in banking, Ireland suffered from reckless speculation in real estate. In both cases, I get the impression that the fact that those economies are small and somewhat isolated helped in allowing them to sink so deeply into an unsustainable path to (mostly illusory) prosperity.

The level of distortion is pretty staggering. For example, at the height of the boom, more than a fifth of the Irish workforce was employed building houses, accounting for a quarter of Ireland’s GDP (!?). At one stage as many new houses were being built in Ireland as in the U.K., 15 times as populous. From 1994 to 2010, some Dublin homes increases fivefold in value, while in some cases rents had fallen to 1% of the purchase price. There were million-dollar homes available for a little over two hundred dollars a week.

And so from 2000 onwards exports stalled and the economy basically started to revolve around everyone building homes for each other. And the banks then sank half the country’s entire national savings into property loans. It was a truly spectacular bubble.

All said, though, I think there’s some good news – the Irish crisis was caused by recklessness on behalf of a few, not deep underlying issues, so I think that the chance of an Irish recovery is fairly good. But it offers an important lesson nonetheless.
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Postby Bombadillo » Fri Feb 25, 2011 11:30 pm

I think it's worth remembering the conservative love affair with the booming (DEREGULATION all around!) Irish economy and how the world would do well to take lessons from their spectacular rise.

Not so much now.

The thing to realize about deregulation and why the moneyed elite are so in love with it is that a lack of regulation makes markets very unstable and through that instability fortunes can rise and fall dramatically. It is only through radical market changes (either up or down) that investments can double, triple, or quintuple overnight. Excess regulation means that only grandma type investment accounts happen with slow building compound interest. While this is good for the middle and lower classes it's boring for the people who really want to make some money rather than just watch their 401k steadily grow.

Regulation = good for retirement accounts and grandma's life savings, not for hedge account managers who need a certain amount of quarterly growth to justify their ridiculous fees.
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Postby Cenedril_Gildinaur » Sat Feb 26, 2011 1:01 pm

Rewriting regulation to favor the elite over the little guy is not the same as deregulation. The elite love regulations that prevent people from competing with them. The bankers you are criticizing love regulation, just not the same regulation you propose.

Once the regulatory door is opened by those you agree with, it is open for those you don't agree with. Regulation can be good for all the things you say it is good for, but it can be bad for them too.
Last edited by Cenedril_Gildinaur on Wed Mar 02, 2011 10:46 am, edited 1 time in total.
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Postby Aravar » Mon Feb 28, 2011 3:44 am

Bombadillo wrote:The thing to realize about deregulation and why the moneyed elite are so in love with it is that a lack of regulation makes markets very unstable and through that instability fortunes can rise and fall dramatically. It is only through radical market changes (either up or down) that investments can double, triple, or quintuple overnight. Excess regulation means that only grandma type investment accounts happen with slow building compound interest. While this is good for the middle and lower classes it's boring for the people who really want to make some money rather than just watch their 401k steadily grow.

[


I sohuld think that the "elite" have been perfectly happy with the bubble in the commodities and stock markets which have followed on form the central banks "printing" money through quantitative easing. The FTSE-100 has gone up nearly 50% from its bottom at the height of the crisis.
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Postby Jnyusa » Wed Mar 02, 2011 10:00 am

Merry wrote:
If there was a surpluss, then the national debt should have went down those years no??

Guess what. It didn't. There was no surpluss, it's fuzzy accounting nonsense.


CG wrote:It goes up every year.

It does not go down.

There was no surplus.


Now I've heard every stupidity known to man.

Two intelligent, supposedly business-wise men arguing that annual 'profit' should be calculated as the change in 'net worth'?

Oh, but CG already argued in another thread that public financials don't have to reconcile, so he really is just blowing smoke all over the place, but you, Merry, have to know better. You run your own practice, don't you?

The federal budget balance is calculated as annual government tax revenues minus annual government expenditures, and we most certainly did have annual tax revenues that exceeded annual expenditures in the last three years of the Clinton Administration. A.K.A. a budget surplus.

Public debt goes down when the bonds are retired, which is what a lot of people argued we should do with the budget surplus of those three years. But that's not what we did with it.

You tell me what the accounting looks like when you manage to spend less than you earned in a year but don't use those savings to pay down your home mortgage.

Lord M. wrote:All said, though, I think there’s some good news – the Irish crisis was caused by recklessness on behalf of a few, not deep underlying issues, so I think that the chance of an Irish recovery is fairly good. But it offers an important lesson nonetheless.


If you look at the last three financial crises that have reverberated around the world, the root cause was fraudulent accounting in all cases. Economies with safeguards built in do not, in fact, routinely crash like the Hindenburg, but criminality, it seems, is part and parcel of human nature, and like every other social ill its speedy recognition and remedy requires all citizens to be on their toes, to be participating, to have some modicum of understanding of the world they live in, to be awake. And we are not.

If you leave your wallet sticking out of your pocket because you are too lazy to tuck it in, your pocket is going to get picked. It really is just that simple.

Aravar wrote:I sohuld think that the "elite" have been perfectly happy with the bubble in the commodities and stock markets which have followed on form the central banks "printing" money through quantitative easing.


I would like to maintain a sharp distinction between monetary excesses and excesses of government spending, since the latter is public and has to do with a failure of prudence and integrity on the part of the entire populace in executing its electoral obligations, whereas the former is private and has to do with manipulation of the value of assets by a relatively small group of people with disproportionate economic power.

It would be simple to limit monetary excess by legislating limits on monetary growth, and Milton Friedman for example, one of our shining exemplars of conservative thought, long argued that this should be done. I quite agree with him. Discretion should be removed from the monetary authority. I would like to see budgetary discretion limited for the legislature as well.

It is neither conservatives nor liberals as such who have argued against limitations on the monetary authority. Rather, the banking community has lobbied tirelessly against it, and for two things actually: (1) easy money, to aid the growth of lending; (2) deregulation, to protect them from the ravages of subsequent inflation.

What this combination of policies has done is to more than triple the proportion of our national productivity committed to interest payments over the last sixty years. arguably THE largest damper to economic growth we have experienced during that time period, and to place 75% of the return on assets paid in the US (per John Bogle) in the hands of money brokers instead of putting it in the hands of investors where it belongs.

Yes, I do blame the elites, depending on who you mean by that. I blame the financial services industry that has gotten everything it wanted to the detriment of everyone else since 1980. And their unbridled legislative success I blame on knee-jerk conservatives who demonstrably do not know the difference between an asset and a claim on an asset, but have the bullhorn arrogance to proclaim that all our financial problems are caused by the government and the unions and unwed mothers.

If I have to hear one more time that our banking collapse was caused by blue collar nebisches who wanted to own more house than they could afford, while Hank Paulson lied through his teeth to Congress to give his buddies a three-month window to get the hell out of the stock market without their insider trading being too bloody obvious, I think I might just puke. When it reaches this point, where treason is tooted as Conservatism, we're screwed.

I am waiting for the captains of industry (who may all be in China by now) to rise up against the banks. Then you'll see real reform. The US and the EU will not be the winners in that scenario, of course. We'll be in bread lines.

I would be interested, Aravar, in hearing your opinion about the prolonged refusal of England and Denmark to join the monetary unification. Personally, I cheer them on every day they manage to hold out. But you are a thoughtful, British conservative and I am curious how to perceive this issue.

[/i]
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Postby Cenedril_Gildinaur » Wed Mar 02, 2011 10:34 am

Jnyusa wrote:
CG wrote:It goes up every year.

It does not go down.

There was no surplus.


Now I've heard every stupidity known to man.

Two intelligent, supposedly business-wise men arguing that annual 'profit' should be calculated as the change in 'net worth'?


http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm

Read it. If you are going to discuss economics you should try to learn a little about the subject. Only a moron could read it and then say Clinton ran a surplus.

The last president to run a surplus was Eisenhower. The debt in 1998 was larger than the debt in 1997. The debt in 1999 was larger than the debt in 1998. The debt in 2000 was larger than the debt in 1999. The debt in 2001 was larger that the debt in 2000.

Jnyusa wrote:Oh, but CG already argued in another thread that public financials don't have to reconcile, so he really is just blowing smoke all over the place, but you, Merry, have to know better. You run your own practice, don't you?


Nothing of the sort, and you fail to support your case by distorting what I wrote. I wrote that government expenditures should not be included in a measure of national income. That is far from saying public financials don't have to reconcile.

Jnyusa wrote:The federal budget balance is calculated as annual government tax revenues minus annual government expenditures, and we most certainly did have annual tax revenues that exceeded annual expenditures in the last three years of the Clinton Administration. A.K.A. a budget surplus.


Add in the off-budget expenditures. Go ahead. It is quite simple to do, even you can do it.

Jnyusa wrote:Public debt goes down when the bonds are retired, which is what a lot of people argued we should do with the budget surplus of those three years. But that's not what we did with it.


When some bonds are retired and more bonds are issued in their place then the total debt goes up. I shouldn't have to explain that to you.

Jnyusa wrote:You tell me what the accounting looks like when you manage to spend less than you earned in a year but don't use those savings to pay down your home mortgage.


When you don't include all the expenses it looks like you are doing better than you actually are. You tell me what it looks like when you prepare a fancy budget, but don't include the credit card bills.

You have heard every stupidity known to man - you heard that Clinton ran a surplus. It is an absurd statement. Only someone completely uneducated in economics, politics, or even basic math could read the final sum and say Clinton ran a surplus. You heard another stupidity shortly after that. When someone pointed out the truth, you got to see someone else call him stupid. Now that was very stupid.
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Postby Faramond » Wed Mar 02, 2011 3:12 pm

So what was done with the surplus in the late 90's?
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Postby vison » Wed Mar 02, 2011 3:16 pm

No doubt I am wrong, but I am going to suggest it got spent.

Foreign wars are an expensive hobby.
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Postby Cenedril_Gildinaur » Wed Mar 02, 2011 5:42 pm

Faramond wrote:So what was done with the surplus in the late 90's?


It was more than eaten up by the off-budget expenses of the late 90's.
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Postby Lord_Morningstar » Wed Mar 23, 2011 4:38 pm

The Prime Minister of Portugal has resigned after Parliament rejected his proposed austerity budget. The opposition parties claim that the measures go too far. He claims that this will inevitably lead to Portugal needing a bail-out.
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Postby Cenedril_Gildinaur » Thu Mar 24, 2011 9:55 am

The earthquake / tsunami / nuclear crisis may be what finally pushes Japan over the edge into Sovereign Debt Crisis.

LAND OF THE SETTING SUN

The great earthquake/tsunami/nuclear meltdown of 2011 will result in more quantitative easing in Japan and the U.S. This will result in even more inflation than we are experiencing today. Once the inflation genie is out of the bottle, the race to the bottom will accelerate. Gold will decide who wins the race. It has been a neck and neck race since 2001. I’m not sure it is a race anyone wants to win. But the destination is certain.
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Postby Bombadillo » Thu Mar 24, 2011 11:32 am

Once the inflation genie is out of the bottle, the race to the bottom will accelerate. Gold will decide who wins the race.

Damn dude, you and Glenn Beck. At least Glenn gets paid for spouting end-of-the-world, dig-a-hole-and-bury-your-gold-in-the-backyard scenarios.

Either way, neither of you is correct. If a serious societal breakdown occurs and you ARE prepared for it than the people with the guns and the personal armies will come and take all your stuff and throw you in chains with the rest of us.

I for one WELCOME our new corporate warlords!
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Postby Cenedril_Gildinaur » Thu Mar 24, 2011 1:25 pm

You think that a societal breakdown will empower corporations? :? :roll:

Corporations are a creation of the government and won't exist without it.

In ye olden days there was a much more intelligent argument about the absence of government. That argument was that organizations like the Mafia would step in and step up. Your corporate-phobia has caused you to use a much weaker argument.
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Postby Dave_LF » Thu Mar 24, 2011 1:39 pm

The big banks and corporations are increasingly indistinguishable from mafias. Take away what little power the government still has over them, and you can remove the word "increasingly".
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Postby Swordsman_Of_The_Tower » Thu Mar 24, 2011 7:59 pm

I'd probably take the Sicilians over Wal-Mart.

Heck, I'd probably take the Tijuana Cartel over Wal-Mart.
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Postby Jnyusa » Sat Mar 26, 2011 11:45 am

Swordsman wrote:Heck, I'd probably take the Tijuana Cartel over Wal-Mart.



• Swordsman_of_the_Tower, Wal-Mart greeter, frozen to death in his apartment because he couldn't afford heat

• Swordsman_of_the_Tower, carefree tourist, shot to death by the Tijuana Cartel in an El Paso bar where he stopped for a drink

Yeah, I see your point.
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Postby Swordsman_Of_The_Tower » Sat Mar 26, 2011 11:57 am

Jnyusa wrote:
Swordsman wrote:Heck, I'd probably take the Tijuana Cartel over Wal-Mart.



• Swordsman_of_the_Tower, Wal-Mart greeter, frozen to death in his apartment because he couldn't afford heat

• Swordsman_of_the_Tower, carefree tourist, shot to death by the Tijuana Cartel in an El Paso bar where he stopped for a drink

Yeah, I see your point.


Getting shot is quicker. Messier, but quicker.

A shred of dignity as well.
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Postby Lord_Morningstar » Sun Apr 17, 2011 3:02 pm

There has been a trend across Europe of late towards nationalistic, anti-immigration Eurosceptic parties. I just read on the BBC that in the most recent Finnish election the True Finns Party has won 19% of the vote and 39 of the Parliament’s 200 seats. Finland requires that the parliament approve EU bailouts, and as such a government depending on the True Finns’ vote could veto the bailout package, which is expected to be finalised by mid-May.

These two trends towards sovereign debt default on one hand and Euroscepticism and nationalism on the other are almost certainly related, and I think where they are going to end up is the major question in European affairs right now.
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Postby DarkJello » Sun Apr 17, 2011 3:21 pm

Just came across the following story while surfing for news:

French, Italian and Tunisian protesters had planned to board what they called a “train of dignity” in Ventimiglia and travel to Nice in southern France, in defiance of the limits on immigration introduced in the wake of recent upheaval in North Africa.

The demonstrators want to “open borders, guarantee free access to European territory, and remind people that no human being is ‘illegal’”, according to organisers.

But all mainline train services from Italy to France were cancelled on Sunday afternoon.


Activists said they would sleep at the station and attempt to board a train on Monday.

Rome has asked for clarification on France’s decision to block the services, which “appear to be illegal and in clear violation of European principles”, according to Foreign Minister Franco Frattini.

The French government has objected to Italy’s recent decision to grant temporary visas to thousands of migrants from Tunisia, saying that it doesn’t want an influx of migrants arriving in France.


http://www.english.rfi.fr/europe/201104 ... on-protest

(Emphasis mine).

Curious indeed. Nationalism or cold logic driving the above decision? Other factors you folks believe relevant? Oh what a world.

DarkJello :drink:
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Postby Jnyusa » Sun Apr 17, 2011 6:47 pm

The French are behaving unimaginatively.

The smart response would be to load up a train with Algerian migrants and send them to Italy.
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Postby Swordsman_Of_The_Tower » Sun Apr 17, 2011 6:57 pm

Fascism, or some new form of it, will likely come to some nation in Europe in the not to distant future. Especially when you have them winning major amounts of seats in elections, have politcal leaders calling the swastika "heritage" and have things like this happening.

The Hungarian far right looks set to roll out a campaign of Roma intimidation after meeting little resistance to its vigilante "law and order" mission in Gyongyospata, a Hungarian village of 2,800 people 80km north-east of Budapest.

For A Better Future, a paramilitary organisation deriving its name from a Nazi youth movement slogan, entered the village at the start of the month. It conducted foot and car patrols, followed Roma around and stopped them from entering shops.

On March 10, the intimidation reached its peak when 1,000 black-uniformed neo-Nazis marched through the village, some reportedly armed with dogs, whips and chains.

Many Roma were afraid to leave their homes or take their children to school. The local mayor, Laszlo Tabi, who is not officially allied to a political party, allegedly offered his seal of approval, while the police sat on their hands.

"I cried when I saw them marching," says Janos Farkas, the spokesman for the village's 450-strong Roma community which centres around a dirt road in a shallow valley at the edge of the village. Many of the dilapidated homes do not have mains water and few of their occupants jobs.

"I can't see how this could happen in a democratic country? The police are now present, but why did they let it go on for three weeks?" asks Farkas.

Nothing has been done to stop the vigilantes from restarting their activities here or to prevent them springing up elsewhere.

A national 'example'

"This looks like a local conflict, but it is a national one," says Kristof Szombati of Politics Can Be Different, a liberal green party. On this, if nothing else, the far right agrees with him.

Gyongyospata provides an "example for future situations" says Gabor Vona, the leader of the extreme-right Jobbik party, which is behind the uniformed intervention, at a press conference in the village council chamber. His party hopes to use the vigilante campaign to mark the first anniversary of its entry into parliament, with 17 per cent of the vote, next month.

Among those areas targeted for vigilante takeover is Hajduhadhaz, a town of 13,000 in the east.

"The police do not have enough power to handle the situation," says Gabor Kovacs, a Gyongyospata-born vigilante volunteer in full black uniform, fumbling with his black baseball cap.

"The Roma have stolen vegetables and grapevines," he says, although he explains that the identity of culprits is rarely known because thefts often happen at night when victims are asleep.

"We have a good working relationship with the police. I also have criticisms, but I do not want to talk about them publicly," says Vona. The county police are reported to be aware of the formation of a permanent local branch of the vigilante movement.

"I feel better with For A Better Future patrolling here than with the police," says a non-Roma villager, unwilling to give her name, for fear that her Roma neighbours will find out. She says Roma have scaled her fence and stolen two hens, one this year, one last.

"I can't let my hands rest in my lap for a second while Roma might come along and burn my house down." The best solution, she says, would be to "take them away".

Her middle-aged neighbour, Sandor Torok, prefers far less drastic action. He had a chainsaw stolen from his yard in late January but got it back after three hours after offering a Roma boy a 5,000 forint ($26) reward for its return.

Allegations of more serious Roma-misdeeds are doing the rounds among non-Roma villagers too, none of which can be confirmed. One elderly non-Roma man is even said to have killed himself because he thought Roma neighbours might move in. According to a clerk in the council offices, some Roma beat a young female school teacher, although a fellow teacher said she had not heard of the incident.

"Roma have lived here for 500 years and have always stuck to the law. Only one or two youngsters have done anything wrong," says Farkas.

There is no evidence that even petty crime has risen in Gyongyospata, but the financial crisis has driven up the significance of people's everyday possessions and the far right is only too happy for the chance to profit from the heightened sensitivity.

http://english.aljazeera.net/indepth/fe ... 52176.html
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Postby Cenedril_Gildinaur » Tue Apr 19, 2011 9:21 am

S&P threatens to cut U.S. credit rating on deficit

S&P, which assigns ratings to guide investors on the risks involved in buying debt instruments, slapped a negative outlook on the country's top-notch credit rating and said there's at least a one-in-three chance that it could eventually cut it.


A downgrade, which would leave Germany and France with a higher rating, would erode the status of the United States as the world's most powerful economy and the dollar's role as the dominant global currency.
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Postby Lord_Morningstar » Thu Jun 16, 2011 10:37 pm

The Greek situation is now very bad. Its debts are so large that even the first bail-out hasn't been enough to cover them, and fresh austerity measures have led to more riots. A second bail-out or an outright default is looking likely, which has scared the market.
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Postby Bombadillo » Fri Jun 17, 2011 12:14 am

Hmmmm, wasn't S&P the same folks who loved to rate CDS's AAA for all those years? Yeah, I give those folks lots of credit.
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Postby Aravar » Fri Jun 17, 2011 1:44 am

Bombadillo wrote:Hmmmm, wasn't S&P the same folks who loved to rate CDS's AAA for all those years? Yeah, I give those folks lots of credit.


Well just look at the yield on Greek bonds: they're now at around 18%.

(The yield is the interest on the face of the bond coupled with the discount from face value at which it is sold)
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Postby Jnyusa » Fri Jun 17, 2011 7:47 am

That's probably the nominal rate, isn't it, Aravar? Do you know what the real rate is?

Oh wait ... I can look it up instead of asking a stupid question! :)

Hm, inflation is only 3.3% right now, but it averaged 9.7% over the last decade? Wow, that all by itself will kill growth even without a financial crisis. So they're having to pay 10-15% in real terms for their funds, while the core countries are paying a bit under 3% on 10-yr bills.

It will be plenty hard to reconverge from a difference that large.
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Postby Aravar » Fri Jun 17, 2011 8:30 am

Jnyusa wrote:It will be plenty hard to reconverge from a difference that large.



One of the underlying problems with the Euro is that the convergence criteria were fudged in the first place. Strict guidelines were laid down in the Maastricht Treaty, but as the date for the launch approached only the UK (which wasn't going to join) and Luxembourg qualified. It was neverthless thought that the project should not be derailed, so they went ahead anyway.

I wonder whether the more benign economic circumstances toward the end of the 90s in the UK were caused by adhering to the disciplines required to meet the critria. Once the prospect of joining had gone away, the UK Government strated running largish deficits even before the crisis hit, and is now running an enormous one.
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Aravar
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