The Greek bailout flame-out

We are in no better a position than Greece, Spain, Portugal or Ireland in spite of the fact that our currency has been devalued by virtually 25% in comparison to theirs, a devaluation which will stoke inflation.
How long must we wait to see the benefits of this 'floating' pound of ours?

Charles Wyplosz's argument is seducing. I do get the feeling that it is the Euro that is now being tested, not Greece and the Greek economy. However, are all eurozone economies in the terrible state that Greece, Portugal, Spain, Italy and Ireland are?

If - and it is if - the eurozone nations hold to their promise to hold a quarterly review of the Greek economy and Greek efforts towards reform, then maybe the Greek government will hold. But will that give sufficient time to Portugal and others to raise the support they need?

The collapse of the Euro would be catastrophic on an international scale. More banking failures, etc. But, of course, the much-promised new regulatory measures haven't yet appeared - and so the current bunch of speculators will, by the, have taken their winnings and run. Great sport, what?

It's really all a farce and the markets know it. The likelyhood of any Greek government being able to both make and sustain the required cuts is minimal. The chances of Germany actually picking-up the tab is far fetched. The chances of Spain, Portugal or Ireland being able to take advantage of the Greek 'model' is almost non-existant.

The interesting thing will be to see just how quickly this whole package unravels and the consequences of that.

I do wish you and other commentators would cease using the term "investors" to describe people who are no more than "speculators and gamblers" the sooner we cease to have a Casino at the heart of the world and UK economy the better for everybody.

Greece, portugal, spain, and on and on and on. All suffering from the same thing: socialism promises benefits that slow the economy, lead to stagnation, larger deficits. Ah the seductivenes of politicians promising something for nothing. Been going on since Roman empire, will we ever learn.......

This comment was removed because the moderators found it broke the house rules. Explain.

Good post Stephanie, keep this up and you may soon be as good as Newsnights Paul Mason:)

I dont know Steph, it must be just me, it all seems so simple.

Greece cooked the books to get into the Euro in the first place, no doubt on a nod and a wink from goldmans and european federalists.

Thus given access to loads more credit they duely carried on doing what they always did.. No change there.

Now the European federalists are trying to save face by putting on a show to 'save their Greek cousins' when the truth is they know they can not be saved nor is it in Greeces own interests to be saved, it is dubious whther they want to be 'saved' or if the hard working germans want to 'save them'.

The idea of monetary union divorced from cultural and political union is ajoke. Heck we still struggle with it here. I brought an Irish £5 back from belfast last week, my corner shop looked at it very suspiciously!!

Greece was probably far happier with the Drachma and control of its own haphazard fiscal destiny anyway. That whole greek ethos is why millions travel there every year from Germany to escape all that fiscal tightening and let their hair down for a month a year.

Heck even the germans will be happy as the price of a bottle of mythos beer will go down considerably when greece crashes out of the Euro and gets to where it should be, a rich in spirit, poor in fiscal management country.

Would we have it any other way?

Do we all want to be like Germany in how we manage things?

What a joke!


Trouble is not many people will be laughing if the contagion spreads bond holders (and pensions) take a massive hit and we turn back the european federalist clock a generation or two.


What can you do with such abunch of delusional beurocratic chumps for so called 'leaders' in brussels.

Where is herman Von Rumpoy anyway to take the matter by the scruff of the neck as the European president and adress his people to steel us and resolve this crisis.

What an absolute farce, monty python in the midst of a mescalin induced creative frenzy could not come up with such rank incompetance.


AHHHHH I feel better now.

#5 Terrance,

"All suffering from the same thing: socialism promises benefits that slow the economy, lead to stagnation, larger deficits."


What a load of tosh! How do you then reconcile the positions of France and Germany in the Greek debacle?

(apparently it is not OK to colourfully express displeasure with speculators! see #6)

#1. antonT wrote:

How long must we wait to see the benefits of this 'floating' pound of ours?

We have had it, I think you will find!

Competitive exchange rates and arbitrage between currencies is made so much easier, by the nearly free money available to speculators - this is a direct consequence of the interest rate policies being pursued around the World.

The Australians have shown us the way today and raised rates to 4.5 percent some 9 times our rate.

Unless the Dollar and Euro fall synchronously with the Pound we will suffer as seems likely with the Euro weakening undoing the advantage of the Pound's 25 percent devaluation.

The moral of the story is that monetary union does not work without centralised fiscal policy. Even if that had existed since 2000, the consequence over the past ten years would have been economic stagnation in southern Europe.

The basic problem is that northern Europe is economically more competitive than southern Europe. The logical consequence of economic union is to allow huge migrations within the union from impoverished areas to zones of economic expansion; such as occurred from the American dustbowl to California in the 1930s.

The markets have correctly surmised that Eurozone credit lines do not solve the basic problem of indebtedness. The economic adjustments required in Greece and other countries (essentially national pay cuts) are vastly more difficult without the option of devaluation.

Who are the experts in dissolving currency unions? Can someone pass their number to Mrs Merkel?

The global economic model may have reached the final conclusion. The idea of a growth economy and that only though continued growth can an economy survive needs to be reconsidered. The idea or model of sustainable economic system that allows for incorporation of new technolgies where needed but not dependent on growth to survive should be advanced. Political, economic/financial and evironmental issues of today can be traced to the politics of growth, particularly uncontrolled growth. We have seen the boom and bust and the results are not something anyone wants to repeat, except the bankers and investors. The global economy, which is really a global financial investment system, has proven to be unmanageable. National economic security should be the first consideration. The continuation of the present system is to forecast more and greater financial collaspes in the future. As the banks and investment firms have grown to finance larger and larger investments they have outgrown the resources of governments and inticed them to become dependent on the financial sector and thus policy directed by that sector. If taxpayer and citizens are going to be asked to feel the pain of banking and governmental actions then something must be done to protect the nations who must pay for these mistakes. Without the Euro, would Greece or any other nation be bailed out? It is other nations unwriting these loans, the loans still come from banks and they will be the ones making the money while the people do without.

All this user's posts have been removed.Why?

Greece will default. But never mind. The banks need to be taken into public control anyway, and it will be good riddance to them too.

We all knew that these landmines of debt would keep popping as leveraging unwinds. There are plenty more to burst.

What is far more important is this simple, but hardly mentioned fact: the true total *USA* debt to GDP ratio is *TWICE* as high as reported, if you take into account social security. I repeat *TWICE*. That's not 300% total private+public debt to GDP but 600%. The only reason you Herbert's don't get to hear about it too often is because US social security is not technically a debt.

Oh and one more thing,

The Euro needs to devalue a bit, and we want to put the banks back in our pockets too, so it's no surprise Frau Merkel is dragging her heals, and a good thing too.

Regarding the situation in Greece, the EU (Brussels) is working frantically, but professionally, quietly behind the scenes to outplay the United States in what is really: an Economic War –
Euro vs dollar.
The EU has already announced that it's banning Wall Street banks from the Government Bond business in Europe. There was no public condemnation, just a quiet announcement that banned Wall Street from financing government bond "deals" like the one Goldman Sachs sold to Greece. The effect: the EU is labeling Wall Streets business tactics too dangerous for their governments. i.e. Go play somewhere else.
Soon after, the President of the European Commission said that the EU was considering a ban on government debt speculation through Credit Default Swaps (CDS). President José Manuel Barroso said that "the Commission will examine closely the relevance of banning purely speculative naked sales on Credit Default Swaps against sovereign debt."
While not an outright ban, the threat of banning CDS on national debt would be a major loss for the world's financial speculators, particularly those in the United States.
The Greek crisis may be the proximate cause of the anti Wall Street actions, but these actions follow the March 6 national referendum in Iceland. Citizens voted overwhelmingly, 93% to 2%, to reject their government’s plan to have citizens pay for the losses of Iceland’s second largest bank.
It has become increasingly difficult, perhaps impossible, to explain why the rich get richer while the rest of us try to get by on survival skills. Despite promises of trickle down effects from policies that benefit those at the top, the record since the 1970’s has been one of declining living standards for those who produce the wealth that the wealthy find ever-new-ways to steal.
Merkel of Germany and Nicolas Sarkozy of France support these anti Wall-Street actions. Leaders are becoming worried that the manipulated government debt crises throughout EUrope will be met by citizens with angry protests. Merkel and Sarkozy are not heroes of working men and women. They're reacting to the excesses of Wall Street as those excesses threaten the Euro currency. There is a growing fear among the European elite that country after country - all the STUPID PIIGS - might rise up each adding to a roaring hot rage.
There is change coming. I for one do not believe that in this Economic War between the dollar and the Euro, the American financial elite can possibly out-think the EU financial elite. Mark my words and bide your time.

The reason that the bail-out will fail is because the tough measures will spiral the economy downwards thus reducing the internal ability to stabilise and rebalance public finances thus exacerbating the deficit ratio and reduce the ability to repay the 110B loan. It will have to be rescheduled in a couple years time.

"To see what a disappointment this must be for the European authorities, consider quite how much precedent and procedure has been thrown overboard in the past few days. "

It's exactly this that has caused the problem. The precedent being that collateral must be worth something and the procedure being you don't just change the rules for a currency when things go awry.

Some things I would like Stephanomics to explain:

Why is it considered more acceptable for everyone in Greece to live in austerity for several years than for Greece to restructure its debt repayments? If Greece defaults some bankers lose money. If there is a period of austerity millions of Greeks live in hardship. Surely the happiness of millions of Greeks is more important than bankers losing money?

Why is devaluation seen as acceptable but debt restructuring is not? The devaluation of sterling has meant that everyone holding the currency has lost about 25% of their savings, compared to what we would have had if we had joined the euro, and similarly our salaries and pensions are 25% less. The bankers who bought UK debt are happy. If we had joined the euro, our savings and pensions would be the same as before the crisis, and the bankers would be unhappy. Is making the bankers unhappy really so terrible? I would rather have had my savings and pension protected than the bankers happiness. Please explain.

To put it another way - why does everyone have to struggle so hard to avoid default? It was after all what the EU treaty said should happen to a country in the eurozone that could not meet its debts (or at least it said no other eurozone country should bail it out). I always thought the bankers were fools to lend to Greece on the same terms as they loaned to Germany, but it turns out they were right: no one will allow Greece to default, any more than they will allow Germany to default. How did the bankers know that in advance?

Not YET failed?? meaning it's going to. But why do these schemes not have at least some protection against the 'investor' speculators. 'Leading commentator says rescue is failing'. Steph's tone is an encouragement to them to bet against the Euro and test how far they can go, as on a famous occasion a certain gentleman bet against the Pound. Wasn't a certain Mr C advising the then chancellor on that occasion.

All industrialised developed economies have been printing and spending too much money - there isn't enough to go around.

A simple and obvious defect in the entire national, european and global financial systems - printing and spending and betting and lending and transferring 'money' until the worthless stuff is becoming worthless.

You would have thought someone would have seen this coming and thought about it earlier - some will claim that they did - but the underlying problem is that our monetary systems do not work anymore because no one will accept the value of the note that the money is written at and the stuff is worth less than we think - and the bearers of the notes cannot be trusted either.

I just thought I'd drop this worthless piece of misinformation in there somewhere.

It is likely that Greek debt will be restructured at some point. German and French banks will be the biggest losers.

I don't expect to hear an outpouring of public sympathy in the UK about this ... and quite right too; the French and the Germans did not complain while our Mediterranean friends were splurging their borrowed Euros on French perfumes and German washing machines.

No room for schadenfreude though, this will affect us too.

4. At 6:58pm on 04 May 2010, sassydog1:

I agree but we are lucky that they are not being called wealth creators. Speculation is a big problem with our system and it means that the very tools of the system are being used to make money rather than to keep the system going. The speculators are similar to the people who stole electrical cabling from hospitals and grid covers from the roads and sold them to the scrap dealers when metal prices had risen.

Hello USA!
The Euro will never go down, you and your friend (England, fake Euro member) can stay relaxed.
Portugal and Spain will stay up, like Germany, they sent money to Greece!
Keep trying to give bad advertisment to Portugal and Spain!

The last few months have shown that leadership, both in terms of correct ideas (strategy) and promptness of action are sorely lacking in Europe. We have all watched this slow motion crash happening.

How is it that we all elect such a bunch of numskulls into senior positions in our governments? In answer to my own question, with so little quality to choose from in our own election, you can see why. But it is sad that a better quality of person fails to either enter politics, or rise to leadership within it.

#18. If there is a period of austerity millions of Greeks live in hardship. Surely the happiness of millions of Greeks is more important than bankers losing money?

Well of course its not so much "the bankers" that loose money. Its the rich who have given their money to the bankers to make even more money with. Now "the rich" are people with investments, much of which is pensions. Anyone with a descent pension pot may not consider they are rich, but in this context they are.

So the question of this bailout, as well as our own bailouts, is whether it is fair to enable "the rich" to be saved at the expense of the ordinary worker.

This would be easier to answer but for the fact that our baby boomer middle classes are now "the rich". So we are not talking about the top few percent of the population, but maybe the top third. As this includes all the decision makers, you can see why they make the decisions the way they do.

#Alan (18)

Greek Debt restructuring is not an alternative to austerity. Austerity is coming to Greece whatever happens, simply because no one is willing to finance their debt party any more.

And the point is not that we need to keep bankers happy. The point is that banks are at the centre of a global financial system which delivers unparalleled material prosperity (And for those who don't like it, try living in the 19th century). We saw what happened to the 'real' economy around the world when Lehman Brothers went bust.

This ongoing fiasco can be summed up very simply - "I told you so!" At the time the euro "funny money" was concocted, it was clearly a failure waiting to happen - the idea of treating such a disparate range of economies as being the same was unbelievably stupid! How could anyone in their right mind, think that the economies of France & Germany were/are the same as 3rd world basket cases like Greece is beyond me!

And to think that the Libdems and NewLieMore want to push the UK into that mess!?????

#18 a valid point but Greek banks have x.35% of balance sheets in greek govt debt so although yes restructuring would impact german and french bank profits it would also bankrupt the greek banking system. Add 'corralito' to the austere years to come! Think also what it would do to the ECB. The actions are not designed to save bankers profits. A messy situation indeed.

We shouldnt have to much sympathy for Greece though, tax avoidance is practically sport over there...

#26 capncook,

"The point is that banks are at the centre of a global financial system which delivers unparalleled material prosperity"

Git it a bit wrong there capn. It should have read "banks are at the centre of a failed global financial system which has delivered unparalleled debt"

#5: Right on!
Based on the percentage of socialists and marxists on BBC's economy blogs I have another proposal. Why don't socialists across Europe pool their money and lend it to Greece? Nobody is holding them back. Of course they wouldn't charge interest or expect their principal back, would they? Because that would make them evil capitalist speculators. And they surely wouldn't mind giving their Greek comrades untold more billions so they can live happy and worry-free lives, right? Why don't they put their money where their mouth is? Is it possible they only have mouth, no money (initiative, ability)?
Greece will have to leave the Euro, it's as easy as that.

28

Tax avoidance is a sport here too, the only difference between here and greece is here tax avoidance is the sport of kings, hard working families and small business are not allowed to play.

Greece is simply more democratic than here:)

29

Nice response, made me laugh.

not my favourite paper but Ambrose evans pritchard has been writing in the telegraph about club med being bust for at least the last two years rather than the bandwagon that find the greece the favourite story of the week. Of course, the BBc never act in such a manner when it comes to important economic issues. hmmmm.

If Greece defaults the bonds will be restructured with a haircut to existing bondholders. The market is telling us this is highly probable...i.e the bond price falls to reflect the fact the market thinks greek debt will be restructured. Given just about everyone on this blog seems to agree with the market, why on earth are most of you blaming speculators? This is perfectly ordinary market dynamics. Not everything is the fault of hedge funds or prop desks.

#18

There are interesting figures about who holds the Greek debt in the latest issue of "The Economist" - French banks are owed 50 billion Euros, followed by German banks that are around 30 billion Euros. You find them in the top three holders of Portuguese debt too, although far behind Spanish banks. Restructuring the debt would mean a big loss for all these banks - among which you will find no doubt "systemic risk" banks (Société Générale is a big player on the toxic/exotic market. Not only GS benefited from the AIG bailout). Everybody is still in denial and trying to pretend the king wears something. For how long is the question.

#30 andreasr,

Ranting is all well and good when there is some inteligent thought behind it. Unfortunately that does not appear to be the case in your post!

Now please tell me why both France and Germany have taken the lead in the EU efforts to assist Greece when they are both socialist countries?

Aha - we appear to have short memories

Greece cooked the books to get into the euro ok,but how much have the banks bail outs have cost thus far globally.

1. Who sold products to the markets that were not what they appeared (A rated yeh right :))- How much did Lehmans and co cost.

2. Lines of credit similar to banking scenario - unfortuntate that this is at the country level. Speculators are not helping.

3. Time for change - short term pain for longer term gain (optimistic)

4. Value of Euro, not a bad thing if it weakens

5. Further goes to show the need for central governance in Europe eventually.

Remember borrow at your own peril one day you will still have to pay it back.

Bluesberry (#15) beat me to it - this is economic warfare, plain and simple. The US is desperate to maintain the dollar, and to do so in the face of weak fundamentals they need to undermine any viable alternatives. Hence this mad rush to trash the euro.

Not that the Eurozone doesn't have its problems - see this excellent graphic at the NYT to appreciate what an interconnected web of debt they've woven for themselves:
https://graphics8.nytimes.com/images/2010/05/02/weekinreview/02marsh-image/02marsh-image-custom1.jpg

But in the financial media's rush to pillory Europe, there is no mention made of the US situation. For example: the FDIC closes down 6-8 banks almost every weekend now, posted every Friday after market close at
https://www.fdic.gov/
Last Friday's banks totalled over $25 billion in assets:
https://jsmineset.com/2010/05/03/important-notes-on-fridays-bank-failures/
This website gives nice analyses of the bank failures every "Fail Friday". In general, the FDIC not only has to take a straight loss when it closes these banks, but it also has to enter into loss-sharing agreements with whoever takes the banks over.
https://www.huffingtonpost.com/2009/08/31/loss-share-fdic-offers-bi_n_272518.html
IOW, the failed banks' assets are so dodgy that that the banks taking them over want guarantees from the FDIC to cover any future losses. These guarantees typically amount to 50% of the stated "assets", meaning that *half* of each failed banks' assets are considered worthless crap. The FDIC has been running in the red since last year, and that's *not counting* these loss-sharing obligations.

And this is just one aspect of the problem. You can add to this the continuing malaise of the housing market (down 50% from peak in Arizona where I live), fracturing social cohesion (witness the hoopla over the immigration bill), increasing state/municipal insolvency, unfunded pension/social security/Medicare liabilities, continuing high unemployment, and the costs of sudden unexpected disasters like the BP oil spill in Louisiana and the flooding in Nashville.

Any mention of this in the news? Nope. It's all Greece, all the time. Coincidence? Got to sell those T-bills somehow, I suppose. But a quick word to all those Brits enjoying a bit of schadenfreude at Europe's discomfiture: don't think for a moment we wouldn't throw *you* under the bus, too, if it became in our best interests to do so. Drowning men aren't too particular about who they drag down with them.

#34:
Neither Monsieur Sarkozy nor Frau Merkel are socialists. In fact Angela Merkel actually lived under this godawful system and knows just how it works. Which is why I believe she is so recalcitrant in this crisis. "...taken the lead in EU efforts to assist Greece" maybe your euphemism for "...being forced to salvage their common currency".
Maybe all these excuses (speculators, rich Germany exploiting poor disadvantaged Greece, US economic war, evil bankers) sound intelligent to you. The point of my post was simply if this was true, the problem could be solved by the conspiracy theorists themselves. Due to biological imperatives, I won't be holding my breath for it.

I did mention a couple of Weeks back that what we are now seeing with the problems of the EU/IMF Greek Bail - Out Plan would cause, which is a Crisis of confident within the Finance Centres of the Eurozone.

The only thing I was then not sure about back then was: will this issue of the Greek Loan explode and effect the World Financal Markets - Before, or After the pending UK General Election, because the UK Economy IS the main item after the next Election that will dictate what happens next for the setting of the Medium - Long Term courses for Actions that will govern what we must do to minimise any further risk of falling ourselves back into a Double - Dip Recession, which will also see a Run on Sterling.

As the Eurozone situation is now getting progressively worse, we MUST ask ourselves as to whom is the RIGHT Person NOW today to guide us through what WILL be a pending UK Crisis situation which will be by far much more worse than the recent Recession was, for do WE want George Osborne, or Gordon Brown taking us through this next period in what will become known as a World financal melt-down in the Global Money Markets.

Within the City of London they are fearing and dreading the thought that the Conservatives might win the next General Election, for they know only to well that any next Conservative Government can only ruin any chances of any future UK Recovery, since to put it very simply - George Osboune doe's NOT have the full necessary experience needed in any way whatsoever to solve these pending Financal issues in the best interest of the UK.

Morning Stephanie,
I enjoy your blogs because of the thought and analysis that you put in. You do not just repeat the concensus view trotted out by our politicians.
Some questions still puzzle me about the Greek crisis and its knock-on effect to the whole of the Eurozone.
1. Doesn't the EU have a common defence policy if one of the member states is attacked? If so, why is Greece spending so much of its GDP on buying defensive weapons (allegedly against Turkey)?
2. What do we (in Europe) need to do to prevent the Ratings Agencies downgrading each nation in turn to allow the speculators to get rich?
3. Do we get a vote on the Lisbon Treaty now?
4. It is quite likely that USA will raise their interest rates in a couple of months. Will that be the signal for a Euro/Sterling implosion?
5. Is there any provision within the Eurozone to unwind the currency for individual states and shouldn't someone look at the possibility and what would be involved and required to be actioned before the event?
6. How will the UK handle the type of austerity measures being enforced on the Greek people by the IMF and can we have a vote like Iceland to tell the creditors to get lost?

Greece is a basket case. Spain, Portugal, Italy, Ireland, UK and also the USA are also basket cases in waiting.

The difference is that the UK and USA will monetise the debt, thereby inflating the debt away and crashing the currency. This is why the Chinese are buying resources, as they know that's the plan.

38. LondonHarris wrote:

"we MUST ask ourselves as to whom is the RIGHT Person NOW today to guide us through what WILL be a pending UK Crisis situation which will be by far much more worse than the recent Recession was, for do WE want George Osborne, or Gordon Brown taking us through this next period in what will become known as a World financal melt-down in the Global Money Markets.

.....George Osboune doe's NOT have the full necessary experience needed in any way whatsoever to solve these pending Financal issues in the best interest of the UK."

But you're forgetting: the Conservatives have Ken Clarke - who has far more experience than anyone, Brown included. Clarke is a major player and the Tories are not going to let this experience go to waste, whoever is 'fronting' the position of [Shadow] Chancellor at the moment. I wouldn't be surprised if Osborne were to be replaced within a couple of months of the election.

So on the basis of your argument, that 'experience' (which doesn't necessarily equate to competence) is the only thing that matters in this crisis then how can you discount Clarke and the Tories?

#37

You forget that the whole global mess was created was created by what you call) this godawful Capitalist system

The Emperor really doesn't have any clothes !!

#32 >>Given just about everyone on this blog seems to agree with the market, why on earth are most of you blaming speculators?

Well, someone has to be the fall-guy and, it seems, the "speculators" have been "volunteered !! Quite just who these "speculators are had never been specified. Can't be Goldmans since they don't seem to speculate; they seem to "make sure" of things !!

A bit like blaming "bankers" for all ills without specifying who "the "bankers" are and what they actually did !! Or like blaming "global recession" for a massive local long-term deficit !!

It's just the blame game. "I am never wrong !! It's always someone else's fault !!"

#39 >>5. Is there any provision within the Eurozone to unwind the currency for individual states and shouldn't someone look at the possibility and what would be involved and required to be actioned before the event?

How does one "unwind" a unified currency from an individual state, short of booting said state out of that unified currency ??

#40 >>This is why the Chinese are buying resources, as they know that's the plan.

They have also been quietly reducing their US and other debt holdings for the past two years. They must have known something that others have refused to acknowledge until it smacked them in the face !!

44. At 06:43am on 05 May 2010, ishkandar:

32. At 10:02pm on 04 May 2010, fletchhero:

You may be right. Everyone wants to blame Gordon Brown.

I don't agree with the market in its present form. It is not free at present. It is fixed. Plus the market can not work properly if the tools of it can also be bought and sold.

#42 >>You forget that the whole global mess was created was created by what you call) this godawful Capitalist system

Err...which "global mess" are we talking about ?? The countries in the current mess comprise of less than 1/6th of the world's population and more than half of the world's population live in countries that have reasonable *growth* still !! The BRIC countries comprise of the bulk of this half and the rest are made up of Japan, South Korea and a handful of East Asian, Pacific and Latin American states !!

Not *everyone* is eyeballs-deep in the doo-doo, all appearances to the contrary !! To date, the Aussies seem to be doing quite well, thank you !! Perhaps, they might even see a great influx of "cousins" from the "mother country", fleeing the new austerity regime !!

36. At 11:46pm on 04 May 2010, FaustKnits wrote:
https://graphics8.nytimes.com/images/2010/05/02/weekinreview/02marsh-image/02marsh-image-custom1.jpg

That is great visual. Do you have a similar one for UK and US debt ?

Perhaps the Greek bailout will work.
But what of the others, Spain Portugal, Italy, Ireland etc.
They face the same severe austerity measures being imposed on Greece.

However it is entirely possible, that another Government bond crisis may develop before they have chance to succeed in imposing such measures.

EU nations can't really afford to bail out another country, only the ECB could do it.

The ECB could engage in quantitative easing thereby purchasing through the back door (to avoid section 104 of the Maastricht Treaty) Spanish or Portuguese debt for example.

Trouble is when you use quantitative easing to satisfy government debt, you admit that it cannot be satisfied by other means. In essence you are admitting a nation is on the verge of bankruptcy.

Quantitative easing usually devalues the currency and the more of it, the more devaluation you get.

But here’s the rub for the ECB. If it prints money and buys one nations debt, then other nations will likely point out the following:

• Their currency (The Euro) will likely be devalued by the ECB’s actions.

• If the nations whose debt has been bought by QE ultimately default, how does the ECB deal with it.

• Then there’s the issue of the interest rate. What if the ECB’s interest rate is, or becomes in time, less than another member nation has to pay on the open market to service its debt.

I suspect that the ECB printing money to buy an insolvent nation’s debt, will result in other solvent nations wishing to exit the currency union.

Ultimately the main issue is still being avoided, namely:

Bad debts have to be written off.

One sentence, seven words, but nevertheless in my view, that’s how all this will end.

Financial Times today reports:
‘Economy displays signs of strong recovery: The winner of tomorrow’s general election will inherit an economy already showing signs of a strong recovery, with manufacturing output and exports expanding at the fastest rate in 15 years in April ..’
I have argued since 2008 that big cuts are NOT the way to eliminate the deficit. GROWTH is the answer. Growth will return both Corporate profits and our tax revenues to normal - especially in our Banking industry. Growth will sustain more jobs and reduce the cost of benefits. Growth will mean more people earning and paying both income tax and NIC. Growth reassures creditors that we have the potential to avoid any re-structuring.
After ten years of an over-valued pound vs. euro, we now have a level opportunity to compete and to grow. We don’t need to make huge numbers of British people unemployed to satisfy the nasty party’s lust for inflicting pain.

PS: I hope your bandaged finger is not a harbinger of any cuts to come? Best wishes: leftie

If British and Euroland government debts and liabilities were truly a problem, how come 10 year Bond prices have risen by about 5% in recent days? And despite market expectations of future inflation having nudged slightly higher.
Talk of widespread debt crises is just bond market and political hype.

It gets to the point where a worldwide co-ordinated soveriegn default starts to be an attractive option.

Who is the money owed to? The Banks and institutions.... Give them all a big haircut and cut them down to size, they are too powerful and too greedy. The banks caused this mess, now its time for them to pay for a change...

#18,

The problem with defaulting is that due to huge deficits, the nations are dependent on the lenders. If a nation defaults, it will shortly find it either completely impossible to secure further lending, or at the very least face exorbitant rises in the interest rates it has to offer.

Consider the UK. What happens if we can't borrow any money? Public workers go unpaid, benefits and pensions go unpaid, projects collapse, and so forth. What do you suppose would happen to the NHS if nobody was paid for three months, with no reason to believe they ever would be again? It doesn't bear thinking about.

Default is not an option for those who are overly dependent on borrowing to sustain their current level of spending. Which is, unfortunately, exactly those who most need to default.

re #11 ghostofsichuan
Interesting post. Thanks. When the 'credit crunch' and banking crisis were at their two peaks, the Beeb on R4, had brief bursts of consideration of some serious underlying issues, such as spiritulaity, morals, sin, practicalities and failings of markets, etc. But it quickly got lost, and it was back to business as usual. The major political parties (and the fringers as well, most of the time) have by and large stayed away from this territory in the election campaign, although one has made some hints about redressing things here in the UK.
What is plain, whatever happens here, in Greece, in the Eurozone, in the EU it is affected by world events more than ever before. Whoever we elect to lead us tomorrow, the promises and plans and hopes for the future can be blown off course, or blown up within days or weeks. Again, it is frustrating that relationships to the rest of the world have not been widely considered in the campaign. Easy to exist in a bubble. And the big bubble can be a dangerous place.
As the station seargent in the Hill Street Blues police drama would say at the end of morning shift's briefing: "Hey, let's be .. careful .. out there, today!"

re #41
Ken Clarke has committed the Tories to privatising Royal Mail. Assuming Dave doesn't slap him down and cause a war amongst the Clarkites and the anti-Clarkites, then would not going ahead with the sell-off cause a war between the Tories and the country as a whole?

51. At 08:33am on 05 May 2010, leftie wrote:
After ten years of an over-valued pound vs. euro, we now have a level opportunity to compete and to grow. We don’t need to make huge numbers of British people unemployed to satisfy the nasty party’s lust for inflicting pain.

______________________________________________________________

Growth of 12% in GDP in one year would be needed to clear last year's deficit never mind reduce debt.

This year GDP growth is expected to be 1%

What kind of growth are you anticipating over the next 5 years?

#50. Dempster wrote:

"Bad debts have to be written off."

Yes.

More especially this applies to private debt. Unaffordable mortgages on over priced property need to be defaulted upon with the property being sold at a lower realistic price by the mortgage holder and thus the assets are returned to the market at a proper price.

This is very unfortunate for the borrower, but they cannot be protected to the point where the overpriced property is no re-priced - it has to be sold from under them and returned to the market - what we as a society decide to do with homeless families so created is a real issue, but this cannot and must not prevent the return of the overprices houses to the market.

Similarly with public debt - PFI and PPP contracts need to be realistically analysed and if they are over priced then defaulted upon by the state.

We must down price our over-priced land related assets to provide the basis for growth - if we don't we will enter a very severe downward spiral caused by the blockage in the market fro land and buildings that are needed fro the new or expanded productive business which is our only realistic source of economic salvation.

This scenario is the de-leveraging of debts and the debt-deflation that we need to get rid of the over pricing and excess borrowing of the last decade or more. After this has occurred then it the time for Keynesian deficit financing - but not now.

Just cutting back in the public sector as the Tories immediately propose (as do the other parties later) will not be sufficient and will fail to revive the economy.

Look at it this way we borrowed from our future earnings and 'invested' in property during the past decade - however we have now to pay back the borrowing and the only way we can do this is to re-price property substantially. Unless and until the price of a family home in the UK is equivalent to those of our competitors we cannot recover. (Employers need to pay staff a living wage and this includes sufficient for a family home within a reasonably proximity of the place of employment.)

Further we must also provide a reasonable financial incentive for savers and investors to save and invest in the UK. We cannot keep cheating the smallest savers in favour of the rich savers. Rich savers can afford to manage overseas investments where interest rates are already up to nine time higher than in the UK. Also overseas financial institutions will borrow from UK savers, at these current derisory rates, to invest abroad.

(Also please read up the role of debt-deflation in the collapse and recovery from the 1930s depression.)

#51 >>GROWTH is the answer.

And just how will that be achieved ?? Growth is a pipe-dream so long as no one trust your finances or economy !!

Of UK's 4 major banks, 2 are lame ducks that the international community are wary of. One had moved it HQ to HK and the last had made a profit mainly in its investment arm !!

Manufacturing is a joke compared to France and Germany and the UK has damn all natural resources. Add to that an over-priced labour force and where will "growth" come from ??

It's easy to talk the talk and shout "Growth", it's not so easy to identify where that "growth" will come from !! Yet another housing asset bubble ?? Or perhaps some other bubble ?? That's not growth; that's self-delusion, as is shown in this current crisis !!

As for an over-valued pound, with the euro the way it is and the way it's going to be in the foreseeable future, exporting into Euroland is going to be a dicey business *IF* there is that much to export in the first case !! UK's biggest trading partner has a $13 trillion, and growing, bubble that's just waiting to expolde all over everyone !! Britain produces very little manufactured goods that others really want. Much of the British "earnings" are from invisible exports that are not dependant on the value of the quid !!

So, instead of sitting around and praying for a miracle to patch up a sinking ship, just grab a bucket and start bailing !! And bailing means deep cuts in an over-extravagant government spending !! It can be done voluntarily or it can be done by the IMF Stormtroopers. Either way, it *must and will* be done, if Britain is to survive !!

What we can see in the last months is one simple truth: taking public deficit as something absoulutely natural and even good for economy is one huge myth, unfotunately supported by most of the economists and proving potentially and in the light of recent events rather likely lethal to at least eurozone and bringing another hard blow to the world economy as a whole. Fact is that Greece won´t fulfill the austerity measures it is supposed to under the bail out terms and so giving so much money to Greece is like throwing it out of the window. If they got where they are in the time of unprecedented economic growth how on earth could they get out of the mess now in the crisis? Let them fall.

One of the interesting things about the super NYT graphics (see FaustKnits #36 or DevilsintheBalls #49) is the high level of lending by French and German banks (but note, too, the British commitment to these weaker economies).

This shows that the Greek bail-out is not a "Greek" bail-out but a European banking bail-out. Greece is now out of the market until 2014 but the rest of the eurozone isn't. Nor is the UK: and once the reality of the UK debt mountain is fully revealed (inc PFI and PPP as John-from-Hendon reminds us), then the £ could be under strain once again.

Looks like a major chunk of Europe is going to be in the proverbial.

#51

https://www.businessweek.com/news/2010-05-05/u-k-recovery-doomed-to-disappoint-bootle-says-update1-.html

May 5 (Bloomberg) -- The U.K.’s recovery from recession is “doomed to disappoint” as the weakness of the pound fails to spur exports, Deloitte LLP economic adviser Roger Bootle said...............

Who's got it right then?

#58 See #54 on the effects of a default. No one trusts a bankrupt wastrel !! Until the underlying problems are address (the excessive spending), any new start will simply re-start the cycle of boom abd bust (didn't someone say that *that* was abolished ??) !!

However, the second time around, the lenders will be extra wary and load their lendings accordingly, as the Greeks have discovered !!

This idea has all the hallmarks of another Argentinian crisis (2002-2009) !!

- https://en.wikipedia.org/wiki/Argentine_economic_crisis_%281999%E2%80%932002%29

Argentina survived by flogging massive amounts of soy to China. What have we to flog to anyone ??

#58
"Look at it this way we borrowed from our future earnings and 'invested' in property during the past decade - however we have now to pay back the borrowing and the only way we can do this is to re-price property substantially"

This will not happen without a change in attitude. We have tabloids hailing 20% property 'inflation' as 'good news'.

The best teacher for humans, the so called 'smart animal' is pain, and pain is on its way make no mistake.

This situation (global debt of whatever flavour) will resolve itself with global chain reaction defaults probably in 2012.

As for the Eurozone one interesting theory doing the rounds is that the country most out of step with the rest of the Eurozone will leave. This country is...Germany.

Sovereign defaults are no longer the fantasy scenario for either the USA or Japan.

I have visions of 'President Palin' (well it might happen) defaulting on US debt and saying to the world 'wanna make something of it punk, make my day'.

#63
"What have we to flog to anyone ??"

Stories of how we won The War (WW2) single handed by being plucky and all round good eggs.

re #4
'Tis a weakness of the 'free market'. Hard to regulate. But the alternative doesn't work. Agreed - we must do better.

Seems like everything I read says Greek default is inevitable and that the current bailout package will delay it long enough to/is simply wasting everyone’s (i.e. EU taxpayers - the ultimate pickers-up of the bill) money to pave the way for the exit of private investors…

…but they’re all going along with it because of the fear of what default might mean/potential consequences (even though they know that default will eventually happen - which seems a bit crazy to me, a bit ‘headless chicken’).

Have I missed something? That seems to be it in a nutshell to me.

When is someone going to shout “the Emporer has no clothes on”??

I'm in Ireland. We can expect to cop it too. It's a shambles over here and another big example of a massive heist from the public purse to the private sector. We call it 'NAMA' ( a vehicle for taxpayers to give our banks money - many billions - to drop all their toxic loans and half-finished property developments on us ).

Joseph

Stock markets go down. Bond prices go up
Stock markets go up. Bond prices fall.

You pays your money and you takes your choice.
Companies being hit by threat of govt intervention
Govt debt being hit by threat of defaults.

Where would you place your hard earned ?

Britain must now be putting some money into the rescue bail out of Greece - even if its just part of the UK's bloated enormous annual EU contribution

How convenient for Darling and Brown to have the distraction of a UK general election to hide the 'gory detail'

The UK contribution to the EU would increase again, next year, under a Labour government?

#58 "This is very unfortunate for the borrower, but they cannot be protected to the point where the overpriced property is no re-priced - it has to be sold from under them and returned to the market - what we as a society decide to do with homeless families so created is a real issue, but this cannot and must not prevent the return of the overprices houses to the market"................."Further we must also provide a reasonable financial incentive for savers and investors to save and invest in the UK."


Hmmmmmmmm am i glad you're not my neighbour, I guess you're alright Jack? Well would be if youy could earn money on your savings.

Let me make a guess based on your continual line - you own your own house, you have plenty of cash in the bank, you holiday abroad.

Debt isn't a crime, debt is a its a reality, bad debt write off is not the same as default. People in debt haven't broken any laws, they haven't conned or deceived banks (well not everyone)they have played by the rules that the banks imposed at the time. These very same banks are now concerned about their exposure to not just private but sovereign debt and have changed the rules of the game, again I say it's not the people's fault yet you want them on the streets.

Have you ever evicted someone, well I have in a former life as a banker during the 1980's and the sight of a young woman with a child in a puschair walking up the street in tears with absolutely nowhere to go will live with me until the day I die.

What is it John, people or property? You decide, it will tells us a lot about you.

Greece has about as much chance of implementing an austerity plan as the UK has. Just look at the response of our electorate to even the slightest suggestion of spending cuts.

The spending's not going to stop until the money literally runs out because no politician is ever going to win a mandate to cut it in a controlled way.

Short term German led bail-outs aside, Greece shows quite how quickly that can happen. A lesson to the UK if only we weren't busy kidding ourselves that minor tweaks to NI and child tax credits can plug a £160bn annual overspend.

As Argentina shows, when the money does run out, the most vulnerable will be hit hardest. Be very afraid if you're a pensionner.

@5. At 7:12pm on 04 May 2010, Terrance

Yes we can easily learn that you wrong in blaming socialism for the disaster of free market economics!

Greece - Previous government conservative, six month center
Spain - Previous government conservative, current center
Portugal - Previous government conservative, current center
Ireland - Previous government conservative, current conservative
Iceland - Previous government conservative, current cente-left?

Hardly hard core socialism!

Its the markets silly, that ruin economics and jobs not socialism!

Lots of speculation above about what might happen if Osborne becomes UK chancellor or if Brown retains power etc.

I will stick my neck out and predict that the UK economy will be steered by someone else after Thursday.

My guess is that between them, Labour and the Lib Dems (possibly with some other minorities) might get enough seats to form a working government but only if Labour, at Clegg's insistence, drop Brown.

Clegg will tell them which current Labour people he's prepared to work with... and then any 'democratic' voting that needs to be done within the Labour party will be engineered to come out that way. I reckon it will be either another Labour chancellor (possibly continue with Darling) or it will be Vince Cable (that would give Labour an outsider to blame if it all goes horribly wrong over the next term).

Not sure who would end up as PM in this scenario. Probably one of Clegg, Balls or Milliband. A frightening thought although at least Milliband does seem to be relatively intelligent.

It's hard to believe, taking an objective look at the figures, that the Conservatives will get enough of the swing to have a majority.

Either way, the outcome from the economic perspective won't be too different. There will be a few 'austerity' measures there soon too. And I'm not saying we don't need them in other European countries too - particularly here in Ireland.

What is this? A journalists competition into who can make the best "statement of the bloomin' obvious"?

it was obvious the atempted bailout (because nothing has changed hands yet) would make things worse.

Only fools (and market fools at that) actually think that a democratic Government can impose austerity measures - never seen before - in a country which has 'shut down' at the very thought of it!

The banner on the Parthenon said it all - "Peoples of Europe - Rise up"

Are the Capitalists getting scared yet? We all know volatility marks the top of the market.

Follow the bears.

# No. 41, oh, how I wish you were right! The perfect outcome of this election would see Ken back at No 11. Sadly, this is a pure pipedream. He stood against Dave in 2005, he's a Europhile, and he wasn't one of Dave's fellow Bullers. It was clear to all but Dave at least two years ago that Osborne was a liability. If he hasn't done anything about it by now, he isn't going to just after winning an election, when the pressure's off, is he?

There's more chance of Vince Cable being Cbancellor!

41. At 06:15am on 05 May 2010, the_fatcat

"So on the basis of your argument, that 'experience' (which doesn't necessarily equate to competence) is the only thing that matters in this crisis then how can you discount Clarke and the Tories?"

4m unemployed - "A price worth paying" - Norman Lamont, Tory Government.

It all depends what kind of 'experience' you're talking about.

Let's clarify 'the plan'.

1. Banks fail with massive losses - Governments step in an take on the debt.
2. Governments fail and IMF steps in to take on the debt.
3. IMF fails.

#52. leftie wrote:
If British and Euroland government debts and liabilities were truly a problem, how come 10 year Bond prices have risen by about 5% in recent days? And despite market expectations of future inflation having nudged slightly higher.
Talk of widespread debt crises is just bond market and political hype.

Did you not see the graph that Stephanie posted on this blog a few days ago. It shows that the Greek bond prices were neck and neck with the UK until only last November. The current flight from the Euro is bound to benefit currencies such as Sterling while we still hold an AAA rating. The fact that the change is so little is what you should be pondering, considering the size of the problems in the Euro zone.

There is something about Leftie mentality, that just cannot see future events however obvious. As a nation we continually import more than we export, and spend more than we earn. Because of the size of our nation, and our stability (generally law abiding etc) we have been able to absorb this type of economic self harm, by forever selling off assets and accumulating debts.

Some of us on this blog have done the maths. There is enough information out there now that anyone with a half decent grasps of maths can see the calamity that we are in.

Unfortunately large masses of the population seem to think that because they are allowed yet another credit card to spend on, that somehow they are worth it. Never understanding their future financial state resulting from unaffordable debt. So I suppose it is to be expected that they have the same economic blindness to our nations finances.

Leftie, over the last few days when you heard Gordon Brown continue with his mantra about only a few days left to save spending on the NHS, Police, Child Tax credits etc etc, did you actually believe him? He is saying these things to suck in the uneducated. Surely you don't consider yourself one of them?

#15, #36 Nail struck firmly on head...

Yes, It's good old fashioned economic warfare courtesy our 'special chums' on the other side of the pond. The USD must be kept supreme, regardless of the costs to humanity, and whacking the euro is the present theatre of war.

Greece is simply 'round one'. Subsequent rounds can take place anywhere - wherever it suits Wall St. and its associates - until the end goal has been achieved.

The cruellest laugh is that the USA is the biggest basket case of 'em all and when its debt obesity finally brings about the inevitable coronary we are all looking at a disaster of biblical proportions.

For all the people questioning why Greece should go through the pain of austerity measures and not just default or restructure and punish "speculators" and "banks" in the process: Argentina was forced to do that a few years ago and the BBC just released an article about it. https://news.bbc.co.uk/2/hi/business/10096028.stm
Austerity measures have the advantage that once you got through them successfully you now have a viable economy again.

Definition : Economist a one-sided Accountant - What do I mean ? well as explained in more detail on the NEFS - Net Export Financial Simulation site, companies use double entry bookkeeping and the 'economy' is just all of these added together. What this means is that as well as looking at Greece and saying "Yieks" we can look at the other side of their Double-Entry and also say Yieks!
- What is on the other side - Well let's say it's the Germans which is a least partly and possibly mainly true. Germany is a Net Export Economy. All Economies live by the Sisyphus Equation : Profits = Fixed Assets + Debt. So for years Germany has been saying "Look how much Profit we have been making !" - but that 'Profit' is actually Greek and Spanish Debt. So Greek and Spanish teachers during their 13 week summer holidays drive round in German built Mercs and Audis while their German cousins are busy at work designing the next generation of B'Mers for these 'workers' to look good in. That 'Profit' was never there as it was always un-payable Greek debt. If they have any money at all where do the Spanish and Greeks get it from - EU grants, mainly from Germany - and now that's not enough the Germans are now giving them emergency loans.
So because the Germans don't use NEFS they end up lending money to foreigners to buy their goods – this is a mathematical certainty and is a basic design fault of the silly out of date financial system we use. If the Germans used NEFS, they could build all the cars Germans wanted, then some more to pay for Imports, then a few more to have a reasonable foreign currency buffer, and then go home on Wednesday lunchtime and enjoy life. In the meantime the Greeks and Spanish would drive round in small Greek cars and Spanish cars and ride bikes and not be in debt.

#73. Not sure who would end up as PM in this scenario. Probably one of Clegg, Balls or Milliband. A frightening thought although at least Milliband does seem to be relatively intelligent.

It's hard to believe, taking an objective look at the figures, that the Conservatives will get enough of the swing to have a majority.

After all the "game changing" TV debates I cannot see that the UK populace would accept having a prime minister that was not one of the 3 that took part.

Does anyone else think it strange that the bond markets are opening at 1am, especially to allow trading as soon as the direction of the voting is known? Is a hung parliament going to cause an immediate selling of Sterling? Or is it just in case Labour miraculously get a majority, in which case I can understand why someone would want to dump Sterling as fast as possible.

81. At 11:52am on 05 May 2010, Glenis wrote:
All Economies live by the Sisyphus Equation : Profits = Fixed Assets + Debt.

Dont understand a word of this. I presume you are referring to the Balance Sheet equation.

Capital (Accumulated profits) + this years profit =
Fixed assets (Property, Equipment etc) + Current assets (Stock, debtors and cash) - Current liabilities (Creditors, overdrafts) - Long term liabilities (long term debt)

If you are going to apply this to economies you have to take into account a figure for the skill and motivation of your labout force as well as an amount for the natural resources of the country plus alot more stuff.

It aint that easy

The pain in Spain will fall mainly on the (North German) plain.

#82
"in which case I can understand why someone would want to dump Sterling as fast as possible"

'..dump Sterling' and move into what. Gold?

In a hung Parliament scenario Clegg will probably swallow his pride and accept Brown as PM. Bigger fish for the LibDems to fry. Brown will go eventually. His own Party will see to that.

The markets have already factored this in. Incidently the City has still more respect for Brown's economic handling skills than Osborne.

I've worried myself, I've done a bit of budgeting...

The (only just still current) government's highest forecast for growth = 3-4%.
Lets say 3% growth for 10 years.

Current GDP is Circa £1.5 trillion 10 years growth at 3% results in GDP of £2.015 Trillion in 2020, a real increase of nearly one third or 515 Billion over 10 years. So lets go forward 10 years and apply Taxation to this increase in productivity at current base levels (approx. 38%).

This gives us £195 Billion extra income to the exchequer in the 10th year. (With a lot of luck and a lot of hard working taxpayers and a lot of export profits.) I realise taxed Company earnings/profits, VAT and duties and other taxes raise more but I'm assuming we need those to run the rest of the country not just pay debts. So lets just say that is it, in simplistic taxpayer terms.

The deficits for the next few years are going to be horrendous, it is estimated at about 170 billion for year 1. Add Interest at current Guilt yields of 4% ish and in 10 years time we have paid interest of 68 billion on the original 170 billion. Total 238 Billion.

So in the 10th year, all the taxpayers additional earnings can't pay back all of what we borrowed in year 1 :( So reversing the sum what we really need in 10 years time (to pay back year 1) is 238/38*100 = 626 Billion in Growth which is 3.5% Growth - hence the chancellor's 3.5% forecast to keep the markets happy until after the election. When they will admit this is highly unlikely and revert to half from growth and half from taxation & cuts. Simples.

To put this in context: There are around 32 million tax payers. So over 10 years the taxpayers have to increase their output (earnings) by 515,000 / 32 = £16,100 each which is £1,600 per year on average. OR they have to be taxed that much extra. And that figure is (given an average earnings figure of 26,000) 6% extra starting now! I don't see the growth (0.00x% gets us absolutely nowhere!) So tax it is then.

We are really really going to struggle to pay this off.

Getting back on topic and to the point, Greece has a population of approx 12 million. At the same ratio as us they have approx. 6 million taxpayers. They have just borrowed 100 billion Euros ish at 5%. Their GDP is currently around 350 Billion Euros.... They think they are going to pay that back with cuts? It seems to me they need 4% growth just to pay the interest and 7% to repay the capital at 10 billion per year( over 10 years) that's 11%. But they are saying 4 years? Greece must go bust.

I am but a lowly pleb with a calculator, so someone, possible a master of the universe, tell me what is wrong with my calculations?

In my personal view, national and international "Debt Jubilee" - is starting to look like the only way.

41. At 06:15am on 05 May 2010, the_fatcat wrote:
38. LondonHarris wrote:

"we MUST ask ourselves as to whom is the RIGHT Person NOW today to guide us through what WILL be a pending UK Crisis situation which will be by far much more worse than the recent Recession was, for do WE want George Osborne, or Gordon Brown taking us through this next period in what will become known as a World financal melt-down in the Global Money Markets.

.....George Osboune doe's NOT have the full necessary experience needed in any way whatsoever to solve these pending Financal issues in the best interest of the UK."

But you're forgetting: the Conservatives have Ken Clarke - who has far more experience than anyone, Brown included. Clarke is a major player and the Tories are not going to let this experience go to waste, whoever is 'fronting' the position of [Shadow] Chancellor at the moment. I wouldn't be surprised if Osborne were to be replaced within a couple of months of the election.

So on the basis of your argument, that 'experience' (which doesn't necessarily equate to competence) is the only thing that matters in this crisis then how can you discount Clarke and the Tories?


------------------------------------------------------------

The Tories have "Discounted" themselves out in Europe by their own foolish Actions, for it is David Cameron himself who has moved his Party onto a Far - Right fringe Grouping within the European Parliament and this WILL marginalise the UK Conservatives should they win the next General Election.

One only has to think back to the problems caused by Margaret Thatcher during her time when she also was side-lined by the other European Leaders back then.

Any Recovery process will require alot of give and take between the EEC Member Countries to resolve this pending Eurozone Crisis, and by moving the Conservative MEPs' into a marginal Grouping was NOT the Answer.

Ken Clark is seen by his Party as an outsider, by being Pro-European which completely goe's against the position in which the Conservative Party now today stands, and therefore Clark will have NO Voice that will merits the position in which the Conservative Party now today stands.

This is what is causing the mis-trust of any next Conservative Administration in City of London Trading Rooms, which will if the Tories are Elected, see Sterling sink with a Run on the Pound.

This will amount to being the Second time that David Cameron has had an imput into destroying the UK Economy, for the last time was when Cameron was an Adviser at the Treasury to Norman Lamont, which gave us "Black - Wednesday", for Cameron clearly doe's carry former Baggage from another Era of failed Conservative Government, and this also is well remembered in the City of London, when UK Interest - Rates shot out of Control bach then upwards to over 17%.

The UK simply cannot afford any further period of mis-handling under another Conservative Government.

The next 'bale-out' will be the Benolux countries themselves - out of the Euro - forming a new trade agreement with Switzerland and possibly Scandinavain countries and forming their own new version of the Euro currency under strict financial discipline.

Sounds far fetched - wait and see - Many Germans are not happy at being Europe's banker of last resort.

Where does this leave the rest of EU? .....Er ....Nowhere?

Unfortunately, Britain is unlikely to get an 'invitation' (see the 'financial discipline' requirement, if Brown is still around as 'spendaholics' will be banned)

76. writingsonthewall wrote:
41. the_fatcat

"'So on the basis of your argument, that 'experience' (which doesn't necessarily equate to competence) is the only thing that matters in this crisis then how can you discount Clarke and the Tories?'

4m unemployed - "A price worth paying" - Norman Lamont, Tory Government.

It all depends what kind of 'experience' you're talking about."

Maybe you prefer 8m 'economically inactive....'

#5 Terrance. Aint got nothing to do with Socialism, but everything to do with systemic fraud. Fraud does these kind of things, that is why it used to be illegal.

#42 Foredeckdave. Wrong! This mess has been created by systemic fraud. No part of the capitalist theory venerates fraud.

#80 andreasr. Why not provide some examples of economies that became viable as a comsequence of IMF imposed austerity measures? I can´t seem to think of any...

re # 83 "If you are going to apply this to economies you have to take into account a figure for the skill and motivation of your labour force as well as an amount for the natural resources of the country plus a lot more stuff" - I agree, this 'other stuff' is the basis of the legitimacy of creating new Numbers -NEFS so we can go home on Wednesday Lunchtime.
At the moment this does not happen - The National Accounts, the Bond Markets... they only look at the 'balance sheet' and in this Balance sheet Profit for X essentially equals Debt for Y. The Profits of German Companies and their Shiny National Statistics do not include in their profit figures 'Real German Wealth' items that you mention - to the penny, all they show is Profit = Assets + Debt (and no small amount of worthless Greek and Spanish and... Usual suspects Debt - so was it ever 'profit' in the first place ? as your profit is only as good as they payability of your debt) - If it is true that the Greeks fiddled their figures to get into the Euro it is equally true that German companies fiddled their figures by showing profits on goods sold to the Greeks - If I 'sell' a car to an unemployed broke bod and he 'pays me with an IOU I am fiddling my books to say I made a profit on the deal

#70. NorthSeaHalibut wrote:

"What is it John, people or property? You decide, it will tell us a lot about you. "

It is the economy. Like it or not and about the future.

It is distasteful to do many things (incl. evicting families and firing people), but just because something is distasteful does not mean it is not essential. The economy does not have emotions it has the imperative of arithmetic.

Can you tell me how the country becomes competitive again, unless it has housing costs in line with our competitors? If a worker in the suburbs of Shanghai or Ho Chi Minh City faces a housing cost substantially less than one in Bradford how is a UK manufacturer possibly able to be competitive? (Extreme example - substitute Warsaw!) But you get my drift I think.

In the medium term we must remain competitive and to do so we have to reduce the price of housing. If you want someone to blame (as this is fashionable) them blame the regulators who let the UK's property get so far away from a rational price point - don't blame the arithmetic of economics.

Without rational (substantially lower) property prices either by a substantial further devaluation of sterling (say 50 percent) or by actual price reductions we cannot recover and then what of your people or property argument. Above all we need to productively employ our people, but this must be done competitively.

You are I think being a naive optimist whose ideas are based upon a never-never land view of the country having a divine right to live off of the assets of the foreign poor. It will not wash I am afraid. We need farmers who can employ farm labourers who can once again afford to live near where they work so that their farmers can produce and sell produce at competitive prices. Your ideas provide no solution, only continued decline and destitution for everyone (rather than a few who we will ensure will be rescued by the social safety net) You are perhaps a typical banker, I am afraid, - offering more debt, but for your own profit not for the benefit of the country! You care only for the bankers but not for the country! Your ideas helped create the problem and you are unwilling to grasp both your responsibility fro the current debacle, nor provide any rational or logical solution.

I have a suggestion - can we postpone our UK Olympic games and then help the Greeks pay off theirs, before finishing ours?

Well they are our EU friends and we're all in this together and pehaps we could use some of their facilities and just have a big party at the end - perhaps even in London!

I'll put this to Gordon being as we're near bankrupt!

86. At 12:34pm on 05 May 2010, ChangEngland

BRAVO ! Superb analysis.
I dont see anything wrong with your calculations and people should look at them closely becuase they highlight the crux of the problem for the UK.

There are too many promises to pay (debt) that will never be made good.

Too much debt created by an uncontrolled financial sector with no responsibility for the consequences of its actions.

Ultimately bad debts have to be written off.

And unless you want to go for a repeat performance, the only way forward is for the state to control the creation of money as debt.

If you leave the creation of money as debt to market forces, this is precisely what you end up with, namely civil unrest on a national level and destitution and misery on a personal one.

Perhaps the ‘writings on the wall’.

Any government, which like the UK has its own currency and central bank, can force the market to accept whatever prices for government bonds etc, denominated in its own currency, it wishes to impose. If the prices are too high it can force them down by printing and selling more bonds, if too low it can use QE to buy bonds to force the prices up. It only has to worry about exchange rates and the possible effect on inflation. Of course this is essentially the mechanism used inversely by the BoE, under instruction from the MPC, in its attempts to control UK inflation.

Unfortunately when the euro was set up, the conventional wisdom was that governments should not interfere with markets in this way, and Eurozone members where deliberately left to fend for themselves in the bond markets, without the power to control them. Just as the world learned the folly of this free market philosophy, when the banks collapsed, now the Eurozone governments are being re-taught the same lesson.

If they wish to retain the Eurozone, the member governments must temporally prop up any other members who get into trouble by means of loans and use the breathing space to ammend the Masstricht treaty. All euro denominated government bonds should be issued collectively and the prices controlled by the ECB. The ECB should be accountable to the directly elected European Parliament, not the Council of Ministers, for its exercise of this power.

The Eurozone financial ministers have behaved very irresponsibly by delaying their support for Greece untill the very last moment and for the harsh conditions they have imposed. These would have been excessive, even in normal times, and are sheer lunacy during recovery from a recession. Unfortunately these ministers are not directly elected and when the inevitable consequences of their decisions hit the pockets of all eurozone citizens, they will blame it on each other, even though they were unanimous, or on that mythical entity "Brussels".

No 70 NorthSeaHalibut wrote:

"Debt isn't a crime, debt is a its a reality, bad debt write off is not the same as default. People in debt haven't broken any laws, they haven't conned or deceived banks (well not everyone)they have played by the rules that the banks imposed at the time. These very same banks are now concerned about their exposure to not just private but sovereign debt and have changed the rules of the game, again I say it's not the people's fault yet you want them on the streets."

I'm afraid #58 John From Hendon is correct.

The trouble with our economy right now is that the market corrections badly needed to sustain our economy have not yet happened. This includes overpriced mortgages, PFI etc. People knew that they were paying over the odds for their house but still went ahead and bought the property anyway on the deluded self belief that prices would just continue to rise. Others were watching in disbelief and putting their money way while waiting for the crash to come. Trouble is, it hasn't come yet, and prices have been artificially sustained until after the General Election.

As Dempster correctly states: "Bad debts have to be written off".

My guess is that they will be. Very soon. Just as soon as we are told the truth about our huge debt.

#87
"The Tories have "Discounted" themselves out in Europe by their own foolish Actions, for it is David Cameron himself who has moved his Party onto a Far - Right fringe Grouping within the European Parliament and this WILL marginalise the UK Conservatives should they win the next General Election."

This should worry any floating voter.

Will the real Call-Me-Dave stand-up. Is it the likeable, articulate Old Etonian. What does he really stand for. Is he a fool.

I suspect he is a PR (Public Relations) front for a party that is still very nasty indeed.

God help this country if the Conservatives get an overall majority. They just need an 'opportunity' (they already have 'motive') to cause chaos. In 1979 the opportunity were the unions, in 2010 it is the deficit.

#88
"Sounds far fetched - wait and see - Many Germans are not happy at being Europe's banker of last resort."

Very far fetched.

The Benelux countries are economically relatively sound with low unemployment and manageable deficits.

The most likely worst scenario is an inner EU comprising Germany, France, Austria and the Benelux countries and, possibly, Poland.

#86 ChangEngland

I'm only a lowly pleb myself, but one thing I do notice from UK national statistics is that the richest 2 percent of households alone have something like a trillion pounds just in their pension funds. Plenty of money there to pay off the national debt. Does the same apply to Greece and the others PIGS?

I can't see how austerity and high unemployment ever help a country to get out of a debt situation. But I do see how redistribution of wealth can solve the problem.