The Greeks are finding out that EuroBureaucrats talking and shaking hands isn't making much of a difference.
April 1 (Bloomberg) -- Europe’s week-old rescue plan for Greece has so far failed to do what its leaders predicted: reduce borrowing costs for the region’s most indebted country.Until the Greeks get their act together, which will require deep pay cuts for the unions and cuts in social services (compassion!), or the Euros actually fork over wads of cash to the Greeks, nothing has really changed.
The yield on 10-year Greek government bonds has increased 25 basis points since EU leaders agreed to the aid blueprint on March 25, reaching a one-month high of 6.529 percent yesterday. The yield eased to 6.525 percent today, still more than double the rate on comparable German debt. Seven-year bonds sold by Greece on March 29 fell for a third day today.
“What they were hoping for was to set up some sort of arrangement that never has to be used,” said Phyllis Reed, head of bond research in London at Kleinwort Benson, which manages about $32 billion. “The markets have sniffed that out and it seems like we’re heading back to square one.”
By the way, the IMF can handle supporting Greece if it starts to slide into default. It's big enough to do that. What if the UK does? What if the US does?
Can the US make a debt so big that even the US can't pay it off?
4 comments:
I think trying to trick the bond market is a very short term strategy at best.
This appears to be the consensus way forward for Britain though. No matter who wins the election the preferred plan appears to be to implement modest immediate cuts in public spending (meaning continued massive deficit spending) allied with a promise that "boy are we really going to get tough on spending when things start to recover, yes-sir-ee, it's going to be a spending bloodbath, you just wait and see, when things recover..you can trust us".
These kinds of cons won't work. If Govt's won't cut now because it's politically unpopular why on earth would you expect things to be any different in 6 months or a year or 2 years time?
Mark, that is spot on. The problem with Greece (and the rest) is not that this year's deficit is 12% of GDP, it's that next year's won't be much better regardless of growth and the year after that the same and so on into the future. At some point, you just can't borrow any more money.
“Can the US make a debt so big that even the US can't pay it off?” Answer: NO.
Nearly all the national debt of countries which issue their own currencies (US, UK, Japan, etc) are denominated in those currencies. These countries cannot go bankrupt in that they can simply resort to printing press to pay of creditors. Inflation may be result, but bankruptcy: no.
The UK national debt is nowhere near half where it was (as a multiple of GDP) just after WWII and just after the Napoleonic wars over a century earlier. In neither case was this debt a big problem. Much the same goes for the US (except of course that the US didn’t fight Napoleon!).
But I’m not suggesting that large national debts are a good idea: they are not.
Musgrave, of course you are correct in a technical sense. I was referring to paying it off in a real sense, not simply printing money. My point is that the IMF can bring stability to an otherwise floundering nation by distributing money of real value. The US is so large that even if they were distributing funds denominated in, say, Yuan after we had wrecked the Dollar, they wouldn't have anything like what it took to restore stability.
If the US goes down, everything else is going down with it.
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