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PIIGS / Europe's Debt Troubles


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#981 neel

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Posted 06 February 2012 - 11:08 AM

House prices in Athens are going down steeply ,although % information is not clear, since
there are very few transactions, market is dead, frozen. One of the reasons is that people
are taxed on the basis of Max(declared income, x), where x is an amount depending on individual
lifestyle, taking into account owned property, cars, swimming pools etc. Low income workers
who have inherited property are in trouble. Another reason is the recent 'property levy', included
in electricity bills, which may be as high as 600 Euros/year for a small apartment in Athens.
There are some people who borrowed heavily to buy an apartment. They have seen wages cut
by 15% so far ,another 20% looming, income taxes rise, tax rebates on their mortgage decrease,
new taxes on property introduced, insecurity on their job tenure increase.
Who in his right mind would like to invest in property, even if he could,
since new mortgages are hard to obtain, given the liquidity problems in banks.

It's amazing that the cumulative recession is nominal terms (not corrected for inflation) is ONLY 20% in 5 years.
Greece or Hellas is in a deadly deflationary spiral, where only the prices of necessary goods
remains stubbornly high. If the instructions of the Troica continue to be strictly obeyed, income will decrease to
0, taxes to 100% and still the national debt could not be repayed.

#982 DrBubb

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Posted 06 February 2012 - 11:22 AM

House prices in Athens are going down steeply ,although % information is not clear, since
there are very few transactions, market is dead, frozen. ...

It's amazing that the cumulative recession is nominal terms (not corrected for inflation) is ONLY 20% in 5 years.
Greece or Hellas is in a deadly deflationary spiral, where only the prices of necessary goods
remains stubbornly high. If the instructions of the Troica continue to be strictly obeyed, income will decrease to
0, taxes to 100% and still the national debt could not be repayed.

Thanks, Neel.

Wow, that's sounds like a horrid situation, but is what you would expect if you think it through. In fact, I cannot see how Greece can stay in the Euro. Those wage cuts are going to hammer property down, by maybe 50% or more from the top. And that will put the Mortgage lenders into a long term mess.

Wouldn't it be better to re-introduce the non-Euro Drachma, and avoid the deflation? Then those with big mortgages and the banks too might have a chance to survive. If they can maintain their incomes, then they may be able to afford to pay their mortgages, and the banks might get their loans back.

I'd be astonished if prices were not 50% off (the peak) from the middle class down anytime soon. I'd rather expect 70% down in the end. It should be worse than in Ireland.


I agree !

This SHOULD drive Greece out of the Euro. That should be obvious once you think through the implications of the deflationary path.
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#983 neel

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Posted 06 February 2012 - 11:42 AM

Wouldn't it be better to re-introduce the Euro, and avoid the deflation?


You mean re-introducing the drachma? A change in currency will probably save jobs, nominal asset prices and banks, at the expense of the purchasing power of the drachma. In real terms, asset deflation, i.e. the real value of houses compared for instance with other currencies should continue to decrease. I believe a change in currency is unavoidable, unless the Greek debt is cut by a very large percentage, which is unacceptable to the ECB, and Germany.

#984 DrBubb

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Posted 06 February 2012 - 02:10 PM

You mean re-introducing the drachma?

A change in currency will probably save jobs, nominal asset prices and banks, at the expense of the purchasing power of the drachma. In real terms, asset deflation, i.e. the real value of houses compared for instance with other currencies should continue to decrease. I believe a change in currency is unavoidable, unless the Greek debt is cut by a very large percentage, which is unacceptable to the ECB, and Germany.

Yeah, I meant Drachma. I will change it.

Agreed. They would do better to change the currency, and allow the Euro price to fall while the Drachma price holds up better.
The market is "bipolar", swinging back and forth from a focus on Inflation to Deflation. Bet on swings; and stay flexible. What are bipolar markets? See: http://tinyurl.com/GEI-Manix

#985 G0ldfinger

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Posted 06 February 2012 - 06:58 PM

It's quite interesting what's going on in Greece. Somehow, it is a deflation, but then it's not. More like a zombie deflation. The reason being of course that the ECB bought huge amounts of Greek financial crappola and hence prolonged the agony (congrats to the little Einsteins, especially to Jean-Claude). Now, as they're stuck in these way too large currency boots, necessities stay stubbornly high. A reasonable amount of hyper-inflation by re-introducing the Drachma would do wonders, would re-distribute wealth while keeping the system going (at least for a while, if it does not totally get out of control). As always, hyper-inflation is the (at least short term) socially more acceptable "solution". I am quite confident we'll see it in Greece.
You can't tax deflation.
“Currency Induced Cost-Push Hyperinflation” vs “Demand-Pull (non-hyper) Inflation.”
The "no income --> no inflation"-thesis is as wrong as the "price control --> inflation control"-thesis.
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#986 G0ldfinger

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Posted 06 February 2012 - 08:16 PM

There's gonna be a "Dolchstosslegende" in Greece: all the Papas that sold out the country will be haunted by it. The deflationary contracts will be thrown overboard to hyper-inflate. Just as Germany did after WWI.

EDIT: The Papas will push it through against the will of the people. Then German money will flow. Then an election will take place, and outright 100% default and return to the Drachma will be decided. And all the German Euros will have gone the way of the Feta - disappear with no trace left behind.
You can't tax deflation.
“Currency Induced Cost-Push Hyperinflation” vs “Demand-Pull (non-hyper) Inflation.”
The "no income --> no inflation"-thesis is as wrong as the "price control --> inflation control"-thesis.
Don't TRADE gold! You might lose your shirt in the biggest bull run ever. That would be embarassing. © possibly by Swampy
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Gold, silver, property, currencies, commodities charts.

#987 G0ldfinger

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Posted 07 February 2012 - 12:36 AM

Man, it drives me nuts: to "stave off default" they want private lenders to accept a 70% haircut. 70% will not be paid so there is "no default". WTF no default??!!?? Please, just drive a piece of wood through this zombie's heart and bury it deep, so everyone can live in peace. FFS.

And don't get me started on Merkozy. "Bankruptcy is no option", FFS! THEY ARE BANKRUPT, don't you see it, stupid Sarko!!??!! I really want this thing to blow up in their faces I am so angry, and the Greek people need to get their dignity and sovereignty back.
You can't tax deflation.
“Currency Induced Cost-Push Hyperinflation” vs “Demand-Pull (non-hyper) Inflation.”
The "no income --> no inflation"-thesis is as wrong as the "price control --> inflation control"-thesis.
Don't TRADE gold! You might lose your shirt in the biggest bull run ever. That would be embarassing. © possibly by Swampy
Posted Image
Gold, silver, property, currencies, commodities charts.

#988 John Doe

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Posted 07 February 2012 - 02:24 PM

Man, it drives me nuts: to "stave off default" they want private lenders to accept a 70% haircut. 70% will not be paid so there is "no default". WTF no default??!!?? Please, just drive a piece of wood through this zombie's heart and bury it deep, so everyone can live in peace. FFS.

And don't get me started on Merkozy. "Bankruptcy is no option", FFS! THEY ARE BANKRUPT, don't you see it, stupid Sarko!!??!! I really want this thing to blow up in their faces I am so angry, and the Greek people need to get their dignity and sovereignty back.


I guess a 70% haircut is OK if they are paying the full yield and 30% of the original loan, when that yield was at "Greek" levels that is :rolleyes: .
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#989 G0ldfinger

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Posted 07 February 2012 - 04:18 PM

Exodus: Irish Urge Children to Leave Amid Job Losses
http://www.bloomberg...-lost-jobs.html

That's what happens when a credit bubble creates the wrong incentives. Boom, over and out.
You can't tax deflation.
“Currency Induced Cost-Push Hyperinflation” vs “Demand-Pull (non-hyper) Inflation.”
The "no income --> no inflation"-thesis is as wrong as the "price control --> inflation control"-thesis.
Don't TRADE gold! You might lose your shirt in the biggest bull run ever. That would be embarassing. © possibly by Swampy
Posted Image
Gold, silver, property, currencies, commodities charts.

#990 G0ldfinger

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Posted 07 February 2012 - 08:47 PM

Minsky's theory was for private borrowers. We'll have to adapt it to sovereign borrowers. Here is the original idea:

http://en.wikipedia....lity_hypothesis

Understanding Minsky's financial instability hypothesis
...
He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.

The "hedge borrower" can make debt payments (covering interest and principal) from current cash flows from investments. For the "speculative borrower", the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat. Because of the unlikelihood of most investments' capital gains being enough to pay interest and principal, much of this type of finance is fraudulent.

Below, I try to translate this into the language suitable for a sovereign borrower:

The "hedge borrower" can make debt payments (covering interest and principal) from current cash flows from investments taxation. For the "speculative borrower", the cash flow from investments taxation can service the debt even in adverse financial and/or economic environments, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The "Ponzi borrower" borrows based on the belief that the appreciation depreciation of the value of the asset debt by inflation will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments taxation under current circumstances; only the appreciating asset depreciating debt value can keep the Ponzi borrower afloat. Because of the unlikelihood of most investments' capital gains benign inflationary environments being enough to pay interest and principal, much of this type of finance is fraudulent must lead to hyper-inflation, or a catastrophic deflationary collapse of the Ponzi financing scheme.
You can't tax deflation.
“Currency Induced Cost-Push Hyperinflation” vs “Demand-Pull (non-hyper) Inflation.”
The "no income --> no inflation"-thesis is as wrong as the "price control --> inflation control"-thesis.
Don't TRADE gold! You might lose your shirt in the biggest bull run ever. That would be embarassing. © possibly by Swampy
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Gold, silver, property, currencies, commodities charts.

#991 callmejoe

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Posted 07 February 2012 - 09:00 PM

http://latimesblogs....-austerity.html

Romanian government collapses amid public outrage over austerity



#992 warpig

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Posted 08 February 2012 - 12:57 AM

GGGB1YR:IND 528.38400 :ph34r:

Greece Govt Bond 1Year Yield





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#993 Odd Job

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Posted 08 February 2012 - 09:14 AM

Exodus: Irish Urge Children to Leave Amid Job Losses
http://www.bloomberg...-lost-jobs.html

That's what happens when a credit bubble creates the wrong incentives. Boom, over and out.


Very poor reporting in my opinion. The reporter interviews a guy standing in line for social welfare payments who says he's trying to get his son to move to Australia. This then generates a bloomberg headline "Irish Urge Children to Leave Amid Job Losses"..

What I find most interesting about the article is that even though this guy is receiving social welfare payments he said he'd send money over to his son every month.
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#994 neil324

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Posted 08 February 2012 - 09:47 AM

Central News(Birmingham) ran a piece just before Christmas. Charities in Birmingham are experiencing record numbers of Irish people who have come over to look for work and not finding any requesting help.

#995 G0ldfinger

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Posted 08 February 2012 - 09:58 AM

Triple post.

"... When a Ponzi scheme can no longer grow, it collapses."

Correct. BUT the very, very important and crucial thing to understand is that if the "asset" promised by the Ponzi scheme operator is something he can produce at zero cost, the collapse will be a hyper-inflationary one.

Why have so many people problems understanding this???
You can't tax deflation.
“Currency Induced Cost-Push Hyperinflation” vs “Demand-Pull (non-hyper) Inflation.”
The "no income --> no inflation"-thesis is as wrong as the "price control --> inflation control"-thesis.
Don't TRADE gold! You might lose your shirt in the biggest bull run ever. That would be embarassing. © possibly by Swampy
Posted Image
Gold, silver, property, currencies, commodities charts.

#996 G0ldfinger

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Posted 08 February 2012 - 09:59 AM

Central News(Birmingham) ran a piece just before Christmas. Charities in Birmingham are experiencing record numbers of Irish people who have come over to look for work and not finding any requesting help.

You have to go where the jobs are. Oil/gas fields in North Dakota or Canada, mining in Australia would be first things to think of for people with useless degrees.
You can't tax deflation.
“Currency Induced Cost-Push Hyperinflation” vs “Demand-Pull (non-hyper) Inflation.”
The "no income --> no inflation"-thesis is as wrong as the "price control --> inflation control"-thesis.
Don't TRADE gold! You might lose your shirt in the biggest bull run ever. That would be embarassing. © possibly by Swampy
Posted Image
Gold, silver, property, currencies, commodities charts.

#997 John Doe

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Posted 08 February 2012 - 09:59 AM

GGGB1YR:IND 528.38400 :ph34r:

Greece Govt Bond 1Year Yield


528% x 30% (after 70% haircut) = 158.4% (+30% of original bond price)

Can't be that easy to fleece them? :rolleyes:
"Hey - don't worry, don't be afraid, ever, because, this is just a ride..." Bill Hicks

Just as I start getting my head together, my body starts falling apart (anon).

#998 neil324

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Posted 08 February 2012 - 11:14 AM

You have to go where the jobs are. Oil/gas fields in North Dakota or Canada, mining in Australia would be first things to think of for people with useless degrees.


I suppose age is a factor, under 30 then yes you can pick and choose. If not it's more difficult.

#999 halight

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Posted 08 February 2012 - 06:41 PM

Stocks Drop on Concern Greek Debt-Accord Efforts to Fail; Euro Fluctuates


Link http://www.bloomberg...-oil-gains.html



The Dow lost 35.23 points, or 0.3 percent, to 12,842.97 and the Standard & Poor’s 500 Index fell 0.2 percent at 12:17 p.m. in New York. The euro was little changed at $1.3270 after yesterday reaching an almost two-month high. Ten-year U.S. Treasury yields increased less than one basis point to 1.98 percent. The S&P GSCI Index of commodities reversed an earlier 1 percent rally as crude oil pared its advance.




European Central Bank policy makers are still divided on what contribution to make as part of a Greek debt restructuring, Reuters reported, citing two unidentified monetary-policy sources. Greek Prime Minister Lucas Papademosbegan negotiating with political parties supporting his government on measures needed to qualify for rescue funds after postponing the meeting yesterday.

“Regardless of all the deal making, in the final solution, Greece, its leaders and its people are not going to agree to anything unless there is a silver lining and a return to growth,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. “It’s not credible to think they’ll agree to measures that have recession as far as the eye can see.”
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#1000 halight

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Posted 08 February 2012 - 06:42 PM

Greek Premier Pushes Party Leaders on Deal

Link http://www.bloomberg...ut-delayed.html




Greek Prime Minister Lucas Papademos began negotiating with leaders of the political parties supporting his caretaker government as he tried to make up for lost time to secure a second aid package.

Papademos met with the chiefs in Athens today after delaying the gathering for a second time in as many days as Greek officials and international creditors haggled over terms. He held an unscheduled meeting late last night with the so- called troika of the European Commission, the European Central Bank and the International Monetary Fund, to put final touches on a 130 billion-euro ($172 billion) rescue plan.

Yesterday’s delay was yet another hitch in completing a package that’s been on the table since July. The Greek government, facing a 14.5 billion-euro bond payment on March 20, is struggling to arrange financing to avert a collapse of the economy, risking a new round of contagion in the euro area.

“The situation is getting more problematic for Greece day by day,” Michael Meister, the deputy floor leader and finance spokesman in parliament for Chancellor Angela Merkel’s party, said today in a telephone interview. “A day wasted in failing to tackle Greece’s administrative, budget and competitive problems is a bad day.” Greeks need to reform “not for Brussels, Berlin or the IMF, but for their own sake.”
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