Is Greek Crisis a Precursor to a “Global Margin Call”?

Two readers, Don B and Marshall Auerback, pointed to a Ambrose Evans-Pritchard story at the Telegraph which argues the the sovereign debt perturbations have the potential to have ramifications as serious as the subprime/Alt-A crisis. Now Evans-Pritchard has a tendency to the apocalyptic, but he also made some astute calls in 2007 and 2008 (as in not buying the commodities bubble and related resurgence of inflation theme, and seeing deflation as the real underlying risk).

And here he connects some important dots. It isn’t just that bond yields on Greece have spiked up; the other countries seen as being big external debt risks are facing bond rollovers soon:
The world risks a replay of the Lehman collapse if this runs unchecked, this time involving sovereign dominoes.

Barclays Capital says the net external liabilities of Greece are 87pc of GDP, or €208bn (£182bn). Spain is worse at 91pc (€950bn), and Portugal worse yet at 108pc (€177bn); Ireland is 68pc (€123bn), Italy is 23pc, (€347bn). Add East Europe’s bubble and foreign debts top €2 trillion.

The scale matches America’s sub-prime/Alt-A adventure and assorted CDOs and SIVS of the Greenspan fling. The parallels are closer than Europe cares to admit. Just as Benelux funds and German Landesbanken bought subprime debt for high yield with AAA gloss, they bought Spanish Cedulas because these too had a safe gloss – even though Spain’s property boom broke world records. They thought EMU had eliminated risk: it merely switched exchange risk into credit risk.

A fat chunk of Club Med debt has to be rolled over soon. Capital Economics said the share of state debt maturing this year is even higher in Spain (17pc) than in Greece (12pc), though Spain’s Achilles’ Heel is mortgage debt.

The risk is the EMU version of Mexico’s Tequila crisis or Asia’s crisis in 1998.

Both Evans-Pritchard and Simon Johnson regarded the G-7 response to the pressures building as insufficient. First Johnson:

The entirely pointless G7 meeting this weekend only served to underline the fact that Europe is again entering a serious economic crisis….

The Europeans with deep-pockets are doing nothing – except insist that all countries under pressure cut their budgets quickly and in ways that are probably politically infeasible. This kind of precipitate fiscal austerity contributed directly to the onset of the Great Depression in the 1930s.

The International Monetary Fund was created after World War II specifically to prevent such a situation from recurring…

Dominique Strauss-Khan, the Managing Director of the IMF, said Thursday on French radio that the Fund stands ready to help Greece. But he knows this is wishful thinking.

“Going to the IMF” brings with it a great deal of stigma. European governments are unwilling to take such a step as it could well be their last.

The IMF is supposed to provide only “balance of payments” lending. That doesn’t fit well when a country is in a currency union such as the euro, which floats freely and does not have a current account issue, and the main problem is just the budget.

Greece and the other weak eurozone countries need euro loans, not any other currency. If the IMF lent euros, that would be distinctly awkward – as this is what the European Central Bank (ECB) is supposed to control.

Sending Greece to the IMF would result in some international “burden sharing,” as it would be IMF resources – from all its member countries around the world – on the line, rather than just European Union funds. But is the US really willing to burden share through the IMF? After all, Europe has long refused to confront the trouble in its weaker countries, now known as PIIGS (Portugal, Ireland, Italy, Greece, and Spain)? How would the Chinese react if such a proposition came to the IMF?

Would the Europeans really want the IMF and its somewhat cumbersome rules to get involved – this would be a huge loss of prestige. It could also lead to some perverse outcomes – you never know what the IMF and the US Treasury (and Larry Summers) will come up with in terms of needed policies (ask Korea about 1997-98; not a good experience). The European Union (EU) has handled IMF recent engagement well in eastern Europe (from the EU perspective), but that was seen as the EU’s backyard. If the eurozone is in trouble, everyone will be paying much more attention – no more sweetheart deals.
The IMF gave eastern Europe amazingly good deals over the past 2 years (by IMF standards). Would this fly with financial markets in the sense of restoring confidence in the PIIGS and their medium-term fiscal futures?

Does the IMF really have enough resources to backstop all the PIIGS? …

The IMF could play a constructive “technical assistance role” alongside the European Commission, but everyone would want to keep this pretty low profile….

The IMF cannot help in any meaningful way. And the stronger EU countries are not willing to help – in part because they want to be tough, but also because they do not have effective mechanisms for providing assistance-with-strings. Unconditional bailouts are simple – just send a check. Structuring a rescue package that will garner support among the German electorate – whose current and future taxes will be on the line – is considerably more complicated.

The financial markets know all this and last week sharpened their swords. As we move into this week, expect more selling pressure across a wide range of European assets.

And Evans-Pritchard:

The EU’s refusal to offer Greece anything beyond stern words and a one-month deadline for harsher austerity – while admirable in one sense – is to misjudge how fast confidence is ebbing. Greece’s drama has already metastasised into a wider systemic crisis.

We do have a factor here that could get the reluctant Europeans, meaning the Germans in particular, to act, namely, that Eurobanks are still wobbly and are not doubt exposed directly and indirectly to a European sovereign debt crisis. There is no way to avoid rescue operations of some sort, it’s merely a matter of picking which poison. Do they want to face the ugly bailout of countries they see as profligate, or wait till it morphs into a crisis and have to put their banks on emergency life support? The problem is the latter is politically more palatable, even though ultimately more destructive, since a lot of collateral damage will occur in the wave that hits the banks.

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  1. gruntled

    If the G7 leaders are expecting Greece to immolate itself before the altar of global finance by implementing severe austerity measures, they’ll be disappointed. Strikes have already started and will spread quickly in response to belt-tightening attempts by the government.

    While the Greek government tries to deal with an unruly population that has already very little respect for authority, the rest of EU had better come up with a plan B. We’re entering another period of highly “interesting times.”

  2. Chris

    If this here Untied States were Europe, with just five states, California, Texas, Florida, Illinois, and New York accounting for over 40% of GNP (but less than 50%) I wonder what EP and Johnson would have to say. Of course, each of the states could adopt their own currency just as easily as Europe can adopt a unified bond issuing authority. But what that would do to the US triple AAA rating, who can tell? Moody’s probably wouldn’t have a problem. The default swaps would do real well. But who will be vulgar enough to come up with the Acronym for that collection. How about NITFYC (in honor of the greek y). Maybe there should be a competition.

  3. Fair Economist

    Stability has been much discussed lately but with little useful results. The real problem is not Greece, but that irresponsible finances in *one* medium-to-small country of no major international significance (not a banking center, source of a critical natural resource, etc.) threatens the world economic system. That is seriously unacceptable instability. If the survival of the world economic system requires that *every* country with a GDP larger than um, Massachusetts behaves responsibly at all times, we’re doomed.

  4. Reno Dino

    Here comes Civil Unrest and Paralyzing Strikes. Let’s send Sarah Palin to Europe to tell them to man up and pray. I don’t want to keep her all to ourselves don’t you know.

    1. faux news

      You could be onto something here. This could be her moment to let her foreign policy prowess loose.

      Cavuto- Ms. Palin, what is your view on what some are calling the PIIGS, and greece in particular?

      Palin- Well, now, back home in Alaska we love bacon, and I always save that grease and use it later. I know all of these liberals are trying to tell everyone that bacon is bad for you, and that you shouldn’t be allowed to eat it, but that’s just downright un-american.

  5. Michael Watkins

    Bill Gross recently vented his opinion that UK debt is sitting on a bed of nitroglycerine. I’ve not seen much commentary pick up on that and am not familiar with the UK’s debt issues in detail.

    Perhaps there is too much current focus on Greece et al and not enough on larger countries that *do* function as a centre for world finance.

    It seems to me that the UK itself harbours enough kinetic energy all on its own to turn what is currently seen as a “small country” problem into a much bigger international fiasco if the dominoes start falling in just the wrong way. Are there black swans already out there on the lake, ready to cross our paths in the near future?

    Some might say, rightly in my opinion, that we’ve never left the crisis stage, only that as investors we’ve become inured to the potential risks. That’s a kind way of saying our constant exposure to an unusually elevated level of risk over the past two years may be creating blind spots in our field of view.

    With all the talk of the euro lately I wonder if anyone else has noted that Sterling against USD last week broke down out of a range which has carried on for three quarters of a year.

    GBPUSD certainly has the potential to drop substantially and quickly if this becomes a newly emerging trend rather than a drop and pop.

    The flight of capital from one region of the world to another, when it happens quickly, is a sign that we ought to be demanding a much higher premium for our risk capital and indeed that is partly why equities have been quickly repriced of late.

    Smells like much more than just Greece or Spain to me.

    1. Ignim Brites

      “Are there black swans already out there on the lake, ready to cross our paths in the near future?” Seems to me like economic evolution as accelerated so much that the truly startling and upsetting event would be the sighting of a white swan.

  6. run75441

    Hi Yves:

    Actually Rebecca Wilder had made some comments along the lines you are suggesting for Europe in December. Its not only Greece, “This week’s Greek tragedy”

    “Second, if investors do start to question the ability of governments to service debt (recently in Greece), financing costs in other struggling countries, like Spain, Portugal, or Italy (and some of the others circled above), could rise swiftly and pressure budgets further.”

  7. r cohn

    Let the Europeans handle this on their own.If the IMf is involved the USA will provide %17 of the funding while Germany,France and England combined will provide %16.I am sick and tired of my money being paid to bail out stupid bankers and greedy unions.Many propsals were made to rein in credit default swaps,but nothing has been done due to the greed of the international bankers

    1. Skippy

      Re: video link, American is the most dynamic and innovate country in the world.

      Can I just get out my dessert spoon for more SIVs, CDOs and CDS investment opportunity’s and when I pass gas spook the entire global bond herd right of the cliff…ROFL…but wait there is another investment strategy now too.

      Skippy…boys its been a good 8 hour feed (circa 1700/1800 hundreds), time to pass the chamber pot around under the table, relive your selves and pass gas, break out the cards for the last hands of the generational game. Butler could you please secure the pot in the buffet and refresh our vinaigrettes, its taking away our spirits for the game afoot…

      1. Keenan

        Cheers, Skippy.

        Mr. Ferguson ought to have mentioned to the Bloomberg host that it was just such dynamic innovation in the financial sphere that put the world in this pickle.


        WASHINGTON (AP) — Treasury Secretary Timothy Geithner (GYT’-nur) says the U.S. government “will never” lose its sterling credit rating despite big budget deficits and a newly increased debt limit that now tops $14 trillion.

        One would think that the man who was laughed at by Chinese students for articulating a similar boast would have learned his lesson, eh ?

      2. Anonymous Jones

        I’m in favor of chamber pots. I know I could use indoor plumbing, but what fun is there in that?

        I’d love to have servants take care of the chamber pot daily. Seriously, who wouldn’t? It’s my dream. I’m going to make this happen. You watch!

  8. Armin

    Hi Yves,

    I believe you are seriously miscalclating the current mood and political situation in Germany. First and foremost, services and especially the FIRE sector, do not play as much of a role, at least what public perception of the health of the economy is concerned. If the choice in Germany where to save Deutsche Bank but let VW die, the response would probably be: good riddance to Deutsche, we´ll buy the name rights and some of the assets and merge it with the KfW; and we´ll hang on to VW(the same probably holds true for Siemens, Bosch and a number of other companies in the “real part of the economy, just witness the discussion about Opel and compare it to what happend to GM/Chrysler in the US).

    Secondly the discussion within Germany is very different from the common perception of Germany abroad. The current discussion in Germany is, whether it is affordable to incur additional debt of €20-30 billion to simplify the tax system and promote growth and the consensus, even within the governing coalition is, that an increase in debt is not the way to go. The dicussion in Gemany, and the main argument for imposing austerity meausures and reforms in the social sector has been that of international competitivness first and foremost with regards to China,India and eastern Europe.
    Whilst Germany may be perceived as an economic powerhouse abroad, most Germans focus on the lack of cost competitiveness with emerging powers from the developing world(especially China and India). Additionally there hasn´t been a bubble in asset price or consumer credit volume to temper this perception.

    Thirdly, there has been a change in government at the end of last year. During the the financial crisis of 2008/2009 the governing coalition comprised the two major parties with more than a 2/3 majority. Any decision, how unpopular it may have been was essentially made by represantatves that were the elected represantatives of German public opinion. This situation has very much changed. Ever since the last election we have a centre/right[CDU]&(neo)liberal[FDP] government, of which the (neo-)liberal half has already lost about half of its votes in opinion poles. Much like the Democrats will probably not be able to implement a health care reform on their terms in the US(given Mass/Brown election) any bailout for Greece is politically out of the question in Germany.
    Furthermore Germany is in the last throws of a 1.5trn “bailout” for what used to be the GDR(Eastern Germany), I would be very suprised to see a repeat performance any time soon.

    Apart from these points, most people here seem to ask, what is the big deal, the last Greek bond auction was oversubscribed, even if they raise a billion or two less, they can cut back or we can loan them precisely that amount, but currently this is far from being the case and given the debt levels that Japan is supporting, this seems like a storm in a teacup.
    I do believe that most Germans, if push comes to shove, would be prepared to help the Greeks, I just dont believe that anyone is prepared to bail out banks who have overextended themselves in CDS speculations.

  9. fourteen

    “…our constant exposure to an unusually elevated level of risk over the past two years may be creating blind spots…”

    So true; yours is so big that you failed to notice the elevated level of risk over the last 14 years.

  10. velobabe

    Ilargi: My take starts off something like this: What I see reported on the problems in Europe, lately especially Greece and to a lesser degree Portugal, comes to a large extent from American and British media. And it’s been clear for a while now that the English will go out of their way to make anything related to the Euro look bad and ridiculous. Their writings are certainly entertaining, but they have such a degree of -increasing- bias that you can’t realistically file them under news. The Telegraph’s Ambrose Evans-Pritchard is but the leader of the pack in what might best be called continent bashing.

    1. Yves Smith Post author

      Ahem, did you read the post? It isn’t just Evans-Pritchard who is of this view, it’s also a former chief economist of the IMF.

      And we are also having a “secret” meeting of global central bankers in Australia this weekend….

      1. velobabe

        yes i read everything that is posted on the automatic earth, as naked capitalism. i wanted to inquire about your comment that you didn’t see jpm/dimond being so innocent on anything. i personally know david bonderman with TPG. are you familiar? well he had an emergency trip to beijing last thursday. everything is so incestuous. WaMu/TPG/JPM/GS chinese national banking.

  11. sam hampster

    The Greek issue is the pricking of the confidence bubble,…that the global recovery is right around the corner.

    I want to see it pop. I want to see devastation in the markets. Nothing makes me happier than deep fall in the value of the DOW. Some people like sunrises, some kittens and puppy dogs. I like arrows that point down, frenzied selling and crying men in immaculate, black suits.

    Fortunately, I will have much to be happy about in the days ahead. Our schools and churches who taught us how to live are now being exposed for the hypocrites that they are. Their is no love of truth and ethic of the meek. They taught those things, but they each gained their positions by greed and competition. They produced hypocrites like themselves and the rest is history.

    Pull it down. Pull it all down! Go PIGS!!

  12. Hugh

    I often write about how America’s elites have failed. Well, it is not just America’s elites. What I see missing from this discussion is the piss poor job Europe’s financial and political elites have done, and more importantly will do. There are many parallels with us. The real condition of the Eurobanks is unknown because no one seems to want to lift the lid and really look at the damage. But if you take into account the gearing and likely exposures, they are probably as insolvent as their American counterparts. Same thing for the political elites. Just like ours they are completely incapable of effective action. Indeed even more so. Ours bailed out the casino when it went bust deferring but not precluding a subsequent collapse. The Europeans seem incapable of even delaying their crisis. This is where the real danger comes from. Hard as it is to believe the European elites may be even more incompetent than our own.

  13. Hubert

    I find both Johnson´s and E-P´s pieces not convincing.
    The problem will not be the roll-over of Greece Bonds. They will be rolled – this time at somewhat higher interest rates. I also think that Brussels/ECB will build a bridge for Greece to walk on.
    That leaves the following problems:
    1) Will Greece walk or drown in strikes and protests ?
    2) Even if they walk, how often will the bridge hold? Has anybody any idea how this could work longer-term ? Somebody thinking here the Greek will cut back the corruption-sector and start paying taxes ?
    3) German finances are not as solid as pundits and commentariat assume. Germanys banks, mostly the state-owned ones, just dropped a few hundred billion Euros (my personal guess is 250 billion plus minus 100 billion). This shortfall will be held off-balance sheet in some state agency – but do not kid yourselves: it is real. So we simply cannot afford to pump money into Greece, then Portugal, Spain and Ireland. We are all bankrupt just in different degrees, in different calender terms.
    4) Also important and most forgotten: The problem of banking assets. E-P always names gross forein assets. Most of them in Eastern Europe and the Baltics are banking assets. So he makes an exaggerated case. But it could become a real one: IF the deposits walk away from their home country into cash or the German / French / Dutch banking systems or into physical gold or whatever – what happens then? Who covers the shortfall ? If this wave starts it will be too big for the ECB. I do not know if these things are discussed behind doors and what kind of solutions politicians might search or find. I have no idea – even currency controls now would not work, Europe is too interconnected by now.
    5) The role of speculation and CDS in the aformentionned. I think it is no accident that Anglo-Saxon media push this theme for weeks now. This has NOT errupted in Europe. People were very nonchalant about it up to two weeks ago. So who might profit by bringing the crisis on earlier ? Bear, Lehman, AIG, they all hit the wall at a certain point in time when the US power elite (=not the sitting president) found it convenient.
    If CDS induced interest rate rises and media panic mongering forces deposits in the PIIGS to flee, they will have won – though I am not sure how they want to collect their winnings then.
    Again, I understand this speculation and it only brings forward in time what would happen anyway later. But there is a case to be made to forbid CDS or only allow it for hedging physical exposure and it has been made by Yves and others. Unfortunately, I think European officials do not understand this context.
    Let´s see….

  14. Swedish Lex

    I agree that there is precious little time left for the EU and the Member States to roll out whatever solution they (hopefully) have been working on. One can be assured that there is, as always, a fierce fight going on behind the scenes as to who should do what, how and when. Perhaps something will emerge at the EU summit this week.

    Calling in the IMF would clearly send a signal that the Europeans are monetary adolescents and would, probably, be the beginning of the end for the euro.

    Ambrose is right in a way that some Germans may be re-considering the value of the euro in light of what is happening this year and what will happen in the cooming years. Do however not forget that Germans treasure orderly procedures more than oxygene and would hate to see the euro crash and burn (as Ambrose is hoping for?). Should the Germans, one day, wish to exit the euro, there will be a PLAN for that. Münchau has a good take on things:

    1. Swedish Lex

      There is not really anything new in what Ambrose is laying out. It is the global deleveraging entering the next phase. We had better get used to it and to adapting our policies and institutions to a few years of harsh diet.

  15. attempter

    With every single mechanism that was supposed to spread out and lessen risk, from this to CDSs (and as Simon says in his post, CDS will be engaged here as well, so it’s really always one big circle), nobody seems to have understood that it doesn’t work unless you leave free the resilient space such measures are supposed to create. The point is supposed to be to create redundancy, slack.

    But to go with the example of securitization, it doesn’t work if you take the “space” left over by spreading out your risk and use it as the pretext to lobby for lessened reserve requirements, so you can ramp up your leverage. Risk-wise you just end up right back where you started.

    And so it is with the international system. Debt is always ramped up as far as it can go until the system collapses, as we’re experiencing today, and all the alleged risk management precautions built into the system were really only pseudo-precautions.

    The fire brigade set up to deal with one burning building at a time is going to have some trouble when the whole city’s burning down.

    But then the whole growth ideology, in theory and practice, has always denied the very existence of systemic risk, even though that’s precisely what they were erecting. The Tower of Babel is systemic risk incarnate.

    I just said “even though”, but it’s really no mistake. Everything which was claimed to have diminished risk was really a sham, and every such claim a con.

    The criminals who perperated these frauds were simply all operating under the “I’ll be gone” mindset.

    It was always impossible that any alleged risk management measure would really be used to manage risk rather than to justify taking on more leverage. That’s the pathology of growth capitalism – it can never stop short of destruction. It’s literally totalitarian. It never stops hearing and obeying the siren call, “Go on! Go On!”

    So the lies are not just intentional but structural, endemic.

    And so we enter the next stage of the Great Unwind…

  16. M.G. in Progress

    It would appear that the bailing out of Greece has the same level of moral hazard and systemic risk implications for the financial markets of Lehman and AIG crisis.

    Is history repeating itself as the financial crisis is not over and deleveraging is still ongoing and ponzi schemes unwinding?

    The bail out of Greece (and other PIGS) is necessary, but probably not sufficient, to save its banking counterparts and avoid snowball effects in the financial markets, including the famous Credit Default Swap one.

    I still contend that the roll over of sovereign and public debt is a kind of Ponzi scheme not simple “debt hysteria” as James Kwak and also Krugman wrote few weeks ago.
    Of course there might be some big speculators behind sovereign defaults but that does not change the features of governments Ponzi schemes particularly in the case of Greece. An we are again in a market for lemons, this time of sovereign debt.

  17. a

    “The Europeans with deep-pockets are doing nothing – except insist that all countries under pressure cut their budgets quickly and in ways that are probably politically infeasible. This kind of precipitate fiscal austerity contributed directly to the onset of the Great Depression in the 1930s.”

    What nonsense. There is a sovereign debt crisis in Greece – so the solution is that the Germans (who are the only Europeans with deep-pockets) come to their rescue so that the Germans themselves can find themselves in a sovereign debt crisis two or three years down the road. All using the excuse of weapons of mass destruction in Iraq – oh, whoops that was another time and place and crisis – I mean, the onset of another Great Depression.

    Economists are clueless. Don’t listen to them.

  18. IF

    “A fat chunk of Club Med debt has to be rolled over soon. Capital Economics said the share of state debt maturing this year is even higher in Spain (17pc) than in Greece (12pc), though Spain’s Achilles’ Heel is mortgage debt.”

    All AEP is saying here, is that the average duration of Spain and Greece debt is in the 6 to 8 years range, which sounds normal compared to other countries (say US).

  19. London Banker

    The best thing the Germans and French could do is nothing. They should let the crisis roll, let the banks take the hits, let the bonds from Greece, Spain and Portugal collapse, let the panic force cut backs in budgets. Then when the bonds are trading at deep discount, they should quietly buy them up through their own banks. As owners of the debt, they can then negotiate with Greece, Spain and Portugal on repayment terms if they like, or otherwise soften the conditions in secret. Meanwhile, as conditions stabilise, the bonds will recover value and German and French banks will be relatively better capitalised, secure in their leadership of euro finance for decades to come.

    Rumour has it that Abu Dhabi and Dubai bought Dubai debt at the deepest point of the crisis there, and made a very tidy profit when the bailout was announced.

    Germany and France would do well to learn from the eastern example.

  20. Vinny

    I don’t know, my friends… But since I moved to Greece, I haven’t noticed any crisis. The spanakopita and the ouzo are just as good, the frappes just as refreshing, family and church are still number one, and most importantly the siestas just as restful (somehow I sense Germany might have a problem with this last item). Nothing really changed.

    My friends, what you fail to understand is that here we value what is known as “lifestyle”. Things like productivity, competitiveness, efficiency are for the blond-haired blue-eyed Europeans. They’re not for us, never have bedn, and chances that youbcould ever domedticate us into submission to your rules are zero. As such, please kindly send us your most generous bailout, because we need it to maintain our lifestyle. In exchange, we’ll clean up the beach and the ruins before you come down on vacation. Fair trade, eh?


    1. Vinny

      Oh, I forgot go mention, but the Greeks here have invested all their Euros in physical gold bullion we keep under our mattresses. So, when all is said and done about this crisis, we’ll be the ones in a position to bail out our friends, Germany, France, Italy, Spain, and maybe even Turkey. But not Britain ana the US…


  21. charles

    Via a send to the FT, a worth-reading proposal, in the
    knowing that the idea of the issuance of euro-bonds was
    negated by several EU member states, and the NYT referring
    today as Mr Trichet / ECB as President de facto of Europe.
    Quelle mauvaise surprise !
    Towards a Euro Monetary Fund ?

  22. Thomas Barton, JD

    Yves, Zero Hedge has a post saying that 2 big banks Deutsche and another have shut Greece out of the Repo market. How does this development affect your analysis of which approach the Germans will find more palatable ? Cheers.

  23. gigi


    Your blog is my favorite. The quality of posts and comments both is very high and I always leave with a better understanding of whatever the topic might be.

    On this post I get the impression that you agree with the opinion that if something isn’t done quickly, the Greek crisis will spread and that is a bad thing.

    I don’t understand this position. I look at a world that is awash in debt. The countries doing the bailing out are in debt themselves. We just bailed out the banks and put all the debt on the sovereigns who were already straining under massive debt. Sooner, rather than later, all this debt will be defaulted upon as it cannot be serviced. The only option is whether we have a quick default or a long money printing inflationary period that eventually leads to default (since I think we have exceeded the limits where a little inflation can save us but that is my opinion).

    So what is the advantage of baling out Greece and trying to continue a game that can only end in one result? What is the harm in finally letting defaults happen and cleanse the system of the burdens that are holding back economic activity?

    Respectfully, this seems like cutting a dog’s tail a bit at a time and thinking that it will be less painful for the dog.

    1. M.G. in Progress

      “We just bailed out the banks and put all the debt on the sovereigns who were already straining under massive debt”. Right then the sovereign debt (public debt) is being sold back to the banks which sometimes cover it with CDS.
      It’s a nice Ponzi schemes.
      Definetly “market structures helped overcome information asymmetries and sustained the development of sovereign debt”, which is being sold to banks and used by them to create liquidity. What a Ponzi scheme…

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