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(Fox Business)   Fitch slices Greece's long-term credit rating to CCC from B-, citing its continued membership in the eurozone as being DOA   (foxbusiness.com) divider line 27
    More: Interesting, Greece, credit rating, Greek, eurozone  
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526 clicks; posted to Business » on 17 May 2012 at 4:32 PM (1 year ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2012-05-17 02:59:34 PM
Eurozone should boot them out before Greece causes a global depression
 
2012-05-17 03:15:34 PM
But hey, I'm sure threatening to default on our debt won't cause any problems.
 
2012-05-17 03:29:59 PM
If they Greeks leave the Euro and start printing drachmas can they inflate their way to solvency on those bonds, or are the bonds denominated in Euros?
 
2012-05-17 04:44:24 PM

Aarontology: But hey, I'm sure threatening to default on our debt won't cause any problems.


Absolutely not. Just like there aren't a whole bunch of people in Washington with a vested interest in creating economic problems for political gain in an election year.
 
2012-05-17 04:48:19 PM
if Greece gets ousted from the Euro club, does that mean there will be alot more Euros per Euro member, and wouldn't that cause massive inflation for those members?
 
2012-05-17 04:54:58 PM

Mr_Fabulous: Aarontology: But hey, I'm sure threatening to default on our debt won't cause any problems.

Absolutely not. Just like there aren't a whole bunch of people in Washington with a vested interest in creating economic problems for political gain in an election year.


Perish the thought
 
2012-05-17 05:01:42 PM
Anyone else sick to death of this story? Why wont this zit pop already??!!!
 
2012-05-17 05:13:16 PM
This is the first point I've been actually frightened. There may be major bank runs happening and there is little reporting on it in English language media. One of the biggest banks in Spain is having to assure people their deposits are safe and the ECB has cut off Greek banks.
 
2012-05-17 05:32:49 PM
Just wait until the EU has to deal with Spain, Italy, Portugal, and a few others. Fun times ahead, all because the banks were bailed out and the government has no money left.
 
2012-05-17 05:36:43 PM
I'm not making any moves in the market until I hear what Abercrombie also has to say about them.
 
2012-05-17 05:51:35 PM

Rapmaster2000: If they Greeks leave the Euro and start printing drachmas can they inflate their way to solvency on those bonds, or are the bonds denominated in Euros?


The bonds are backed by the full faith and credit of the Greek government. So they're denominated in whatever the Greek government says they are.

But that's really what lies at the heart of this issue. The bonds were originally denominated is euros, even though they were only backed by the Greeks, not by the Eurozone. But many investors assumed that because they were denominated in Euros that the rest of the Eurozone would stand behind them. But Greece and the rest of the Eurozone haven't been able to reach an agreement that would put the official backing of the EZ behind the Greek debt. Nor does it appear that will happen.

The motivation of the EZ to back the Greek debt is that some investors also assumed that bonds issued by other Eurozone governments (Ireland, Italy, Spain Portugal for example) were also backed not just by those governments but by the Eurozone as a whole. So if the Eurozone doesn't help the Greeks with their debt, investors will assume that those four countries are on their own as well, and the value of their bonds will decrease accordingly.

Under normal circumstances, if a government issues more debt than it could repay, it would have the option of inflating its currency to pay off the debt, rather than defaulting. Greece doesn't have this option because Greece doesn't control the Euro. So if Greece wants to inflate their way out of the problem they have to first leave the Eurozone, converting all their Euros to new currency in the process, and then inflate the new currency to cover the debts.

The problem is that there's no orderly way built into the system for Greece to exit the Eurozone. So instead of a nice orderly transition we'd get the financial equivalent of a bomb going off in the middle of the Eurozone. What we're seeing in Europe right now is the response to the fuse being lit. Capital is fleeing the country while it can still be denominated in Euros because the assumption is that soon all the capital in the country will be frozen and converted to something the Greeks can deflate.
 
2012-05-17 05:52:37 PM

Rapmaster2000: If they Greeks leave the Euro and start printing drachmas can they inflate their way to solvency on those bonds, or are the bonds denominated in Euros?


Their debt is in Euros. Drachmaization is a necessary step after default.
 
2012-05-17 05:53:05 PM

Rapmaster2000: If they Greeks leave the Euro and start printing drachmas can they inflate their way to solvency on those bonds, or are the bonds denominated in Euros?


I would be nearly certain they're in Euros, period. I doubt there's any language in the bonds dealing specifically with Greece leaving the EMU.

If Greece were going to default anyway they could offer drachmas at a fixed exchange rate and claim they're not really defaulting. They don't have the hard assets to defend such a position, however.

I'm headed to Europe next month and I'm trying to figure out what to reasonably expect the Euro to be. To be honest, I thought last fall it would be south of 1.20 right now - but I thought the Greek situation would come to a head faster. I don't think it's going much of anywhere until another major market mover occurs - imho this is the June 17 elections now.
 
2012-05-17 06:14:20 PM
A Greek default is the most likely event that could cause Obama to lose come November (since if the Greeks default, Europe goes into recession again, and if Europe goes into recession again the United States probably will as well), not that Obama can do a damned thing to prevent the Greeks from being stupid. He also can't do anything about American voters being stupid and blaming him.
 
2012-05-17 06:14:43 PM

cman: Eurozone should boot them out before Greece causes a global depression


I think if it was that simple, they would have done it already. Greece is far too integrated into the European financial system.
 
2012-05-17 06:27:51 PM
I wonder how large AIG's CDS exposure will be if/when Greece drops out of the EZ and defaults?

Are we looking at another $100B+ bailout?
 
2012-05-17 07:29:50 PM
Those Greeks, always being such drachma queens.

/groan
 
2012-05-17 08:15:39 PM
Post your predictions:

Mine is that sometime between now and the end of the June, the Greek Government will impose capitol controls, barring the transfer of money from Greece to foreign banks and limiting cast withdrawals, they will exit the Euro next, nationalize all banks, and exchange all funds in bank accounts from Euros to the Greek New Drachma at 1:1 and reissue all outstanding bonds in GND; the exchange rate will immediately plummet to more than 10 GND to 1 EUR.

The Greek people get farked; Greek bondholders get farked; and the US banks that issued CDSs on Greek sovereign debt skate.
 
2012-05-17 08:17:08 PM

Lupine Chemist: This is the first point I've been actually frightened. There may be major bank runs happening and there is little reporting on it in English language media. One of the biggest banks in Spain is having to assure people their deposits are safe and the ECB has cut off Greek banks.


It's remarkable to me that people don't think bank runs are already happening. Money has been pouring out of Greece for quite some time now.

Welcome to austerity.

Greece has two choices: Stay in the eurozone and listen to the incompetent Germans whose beggar-thy-neighbor policies helped cause the crisis, slowly bleeding the economy dry with no hope of turning things around. Or drop out of the euro, suffer a few years of pain, and then have some shot at recovery.

Anybody who says there's any other choice at this point is delusional. Merkel's not going to change course. The ECB won't allow Greece to to stop bailing out the banksters without leaving the euro.

I hope Spain drops out, too. And then Italy. And then I hope a core country goes down. Not France. That could be scary. But -- oh, I dunno -- Belgium, perhaps. Then maybe, just maybe, the Krauts and their Friar Tuck-looking fuhrer might get the message. But by then, there'll be no one left to export their shiatty cars to.

This was a "fun" test of two different theories about the economy. Keynesians vs Austrians. Pegged currencies and fark all else vs surplus recycling mechanisms. And the results are obvious to anybody who isn't an imbecile: Keynesians won. Again.
 
2012-05-17 09:09:02 PM

RickyWilliams'sBong: Lupine Chemist: This is the first point I've been actually frightened. There may be major bank runs happening and there is little reporting on it in English language media. One of the biggest banks in Spain is having to assure people their deposits are safe and the ECB has cut off Greek banks.

It's remarkable to me that people don't think bank runs are already happening. Money has been pouring out of Greece for quite some time now.

Welcome to austerity.

Greece has two choices: Stay in the eurozone and listen to the incompetent Germans whose beggar-thy-neighbor policies helped cause the crisis, slowly bleeding the economy dry with no hope of turning things around. Or drop out of the euro, suffer a few years of pain, and then have some shot at recovery.

Anybody who says there's any other choice at this point is delusional. Merkel's not going to change course. The ECB won't allow Greece to to stop bailing out the banksters without leaving the euro.

I hope Spain drops out, too. And then Italy. And then I hope a core country goes down. Not France. That could be scary. But -- oh, I dunno -- Belgium, perhaps. Then maybe, just maybe, the Krauts and their Friar Tuck-looking fuhrer might get the message. But by then, there'll be no one left to export their shiatty cars to.

This was a "fun" test of two different theories about the economy. Keynesians vs Austrians. Pegged currencies and fark all else vs surplus recycling mechanisms. And the results are obvious to anybody who isn't an imbecile: Keynesians won. Again.


This is completely correct because the incompetent Germans are not the richest nation in Europe and the Greek government followed Austrian principles to the letter.
 
2012-05-17 09:25:22 PM

Lupine Chemist: This is the first point I've been actually frightened. There may be major bank runs happening and there is little reporting on it in English language media. One of the biggest banks in Spain is having to assure people their deposits are safe and the ECB has cut off Greek banks.


I heard a story about massive (@ 1 billion) Euro cash withdrawals from Greek banks on an American radio station, so there's some coverage in English language media.
 
2012-05-17 09:43:32 PM

jjorsett: Lupine Chemist: This is the first point I've been actually frightened. There may be major bank runs happening and there is little reporting on it in English language media. One of the biggest banks in Spain is having to assure people their deposits are safe and the ECB has cut off Greek banks.

I heard a story about massive (@ 1 billion) Euro cash withdrawals from Greek banks on an American radio station, so there's some coverage in English language media.


To continue:
What you're seeing is a bank run as people realize Greece is going to exit the Euro. This is because whatever replaces it, call it the New Drachma, even if issued at 1:1, will immediately depreciate sharply vs the Euro, call it 50%. If, as seems likely, all pre-existing financial instruments and contracts are redenominated in ND at the 1:1 introduction rate, that means one's assets will lose a big chunk of their value almost overnight. Hence, people are getting their cash out in Euros while the getting is good. You'll probably also see a complete freeze of the business and financial sectors as people avoid entering into any position that could be redenominated in ND. I also expect to see existing ND-exposed assets offered at fire sale prices in order to liquidate them and get the money out of the country.
 
2012-05-17 11:08:57 PM

RickyWilliams'sBong: And the results are obvious to anybody who isn't an imbecile: Keynesians won. Again.


Hmm.. all the Austrians I've ever heard express an opinion on the matter have said "Greece debt can never be repaid and needs to default ASAP" and they've been saying that for years. Clearly I am an imbecile as I don't see how current reality discredits that suggestion in any way.
 
2012-05-18 04:31:54 AM
Remember when "investing in canned goods and shotguns" was a joke?
 
2012-05-18 05:39:31 PM

RickyWilliams'sBong: This was a "fun" test of two different theories about the economy. Keynesians vs Austrians. Pegged currencies and fark all else vs surplus recycling mechanisms. And the results are obvious to anybody who isn't an imbecile: Keynesians won. Again.


You're a moron.

The only thing that's been discredited by this entire sham is the idea that you can have a fiscal union without a political union, or that you can have a centralized monetary policy and a decentralized fiscal policy. This result was predicted from the outset by the Austrian school economists, because they recognized the inherent problems of a monetary union without a fiscal union. The Keynesian view was that this was not a problem.

Which is partly why Keynesians like Krugman are desperate to paint this as a problem with 'austerity.' You can argue all you want about whether or not austerity has made the crisis better or worse, but it's ultimately irrelevant. Austerity has been the response to the crisis, not the cause. The cause what the structure of the Eurozone itself, this outcome was inevitable from the beginning, and these results were predicted by the Austrians back in '99.
 
2012-05-18 11:03:57 PM

Talondel: The Keynesian view was that this was not a problem.


[citation needed]
 
2012-05-19 10:00:31 AM
If you didn't care what happened to me,
And I didn't care for you,
We would zig zag our way through the boredom and pain
Occasionally glancing up through the rain.
Wondering which of the countries to blame
And watching for PIIGS on the wing.
 
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