John Mauldin at Seeking Alpha has an excellent piece up on the Greek financial crisis entitled “Sovereign Default: stuck between dire and disastrous”. Today, the Greek Finance Minister, George Papaconstantinou, set the crash in motion by refusing to agree to fiscal cuts necessary to move any agreement with other EU countries forward just prior to this week’s meeting with other European finance ministers. he also compared their economy to the Titanic. Not the best of analogies.
Already in Greece, public sector unions have been protesting nonstop and the situation is threatening to careen out of control. There is no will at any level in the country to reign in the excesses and corruption which have gotten them into the current mess. So far, the government has only offered fig leaves, trying to delay a plan into March or April. One way or the other, it is likely the current government will fall as the situation degrades. The choices, as Mauldin points out, are dire or disastrous.
But it gets worse. The Greek government knowingly and aggressively went to Wall Street with a cooked set of books to borrow even more. Working with Goldman Sachs and other firms, they then issued derivatives that were kept off the books by the government . The full extent of the mess is still not known. So far they are up to somewhere north of 250 Billion Euros in debt with an immediate need to refinance 64 Billion this year. What they are doing is rolling over the interest on the debt. Greece, to put it bluntly, is using payday loans to keep disaster from the door while they cover their ears and eyes to try and ignore the problem. Bernie Madoff ’s got nothing on this scam.
In addition to this, Dubai World has floated a tentative offer to pay back their debt ($50 Billion+) at 60 cents on the dollar, sticking their investors for up to $20 Billion. The Chinese government is also rumored to be considering allowing the RMB Yuan to float more freely in order to brake the economic bubble in that country. This would increase costs of Chinese goods in export markets which, coupled with inflationary pressures to devalue currencies such as the Euro might set off a stagflation.
The fireworks will begin this week as hedge funds and traders digest the news and act. While many Asian investors are celebrating the Year of the Tiger, money never sleeps. Right now, it’s like Wile E. Coyote trying to tiptoe away from the box of Acme explosives tied to his tail.
No comments:
Post a Comment