As interest rates on Greek debt spiral upward again, the question facing Europe is no longer whether Athens has the political will to cut spending and raise taxes to curb its gaping budget deficit, but whether Greece will run out of money before it gets the chance to do so.
With the rate on 10-year Greek bonds reaching as high as 7.5 percent on Thursday, up from 6.5 just three days ago, the cost of insuring against a Greek default hit a record high.
The message from the market could not be clearer: artfully worded communiqués from Brussels will no longer suffice. To avoid bankruptcy, analysts said, Greece needs a bailout from Europe, and fast.
“This is no longer about liquidity ”” it’s a solvency issue,” said Stephen Jen, a former economist at the International Monetary Fund who is now a strategist at BlueGold Capital Management in London.
Do you remember the video of all the folks on the beach looking out to sea when the Indonesian tsunami hit? They stood there mesmerized by the view of the dry sea bottom and the far distant wave. They just stood there…looking.
This is like that.
Paul Krugman has [url=http://www.nytimes.com/2010/04/09/opinion/09krugman.html?hp ]a piece up[/url] that is breathtakingly honest for an old fashioned liberal – Keynesian economist. He basically says Greece’s problems stem from the fact that they are tied to a currency (the euro) that they can’t control and therefor can’t debase. The solution to excessive sovereign debt is to print money. Krugman points to the high inflation in the post war US as one of the main reasons for the substantive reduction in debt to GDP ration and clearly implies that this is what we need to be doing now. (He ignores the brutally high income taxes that we had in place until around 1960 or so.)
Christ is risen!
John
S&T,
I like your analogy. I [url=http://ad-orientem.blogspot.com/2010/03/what-do-you-see.html]posted this on my blog[/url] with a very similar theme a little while back. That wave is coming…
Any society that balks at budget cuts that would remove its fourteen welfare checks every twelve months of the year deserves to go bankrupt.
Beware of Greeks bearing debt!? 🙂
#3 Ad Orientum,
I checked out your blog. Well done. The graphic is…astounding.
I literally made my stomach turn/twitch. I know it is coming. I am doing my best to clutch at the life preservers (gold, silver, lead, & paying off debt) but I know that we are all about to be swept away. People all around us are still dancing…but I know, I share knowing looks with my wife and some of the older folks in my Church.
What to do? What to do? We cannot flee. It comes on too fast. There is no escape. Only God can save us. We pray. We hope.
The other image that comes to mind is that of Benito Mussolini and his mistress, Clara Petacci, hanging upside-down in the street. These politicians and bankers are playing with fire. This is the sort of thing that ends empires, and our hubris is fearful.
We are spending into the debt.
Re #6
S&T,
What to do? Prepare as best we can. Invest in things likely to hold value in an inflationary environment. Avoid dollar denominated securities, especially bonds or other fixed income instruments. I doubt the coming inflation will be weimar style hyper-inflation. More likely it will be 1970’s inflation on steroids. Still it is going to hurt, a lot.
One piece of advice I have been giving out rather freely is to keep at least a part of any emergency cash reserve (everyone should have one if possible) in a stable foreign currency such as Norwegian Krone or Swiss Francs. Gold and silver also work well as they can’t be printed.
Christ is risen!
John