Sunday, May 22, 2011

Oooh, the burn!

Via Zero Hedge, comes Ice Cap Management's assessment of the fiscal situation in Greece. It includes these two pearlers:
To put the situation into perspective, the yield on a Greek 2 year bond is about 25%. It may actually be cheaper for Greece to fund their deficit using their VISA and Master Cards instead.
Reasons why the EUR will escape crisis:   [This page intentionally left blank]
Double Zing!

Zero Hedge also makes a plausible case for what will happen when (not if) Greece defaults. Some highlights:
  • Every bank in Greece will instantly go insolvent.
  • The Greek government will nationalise every bank in Greece.
  • The Greek government will forbid withdrawals from Greek banks.
  • To prevent Greek depositors from rioting on the streets, Argentina-2002-style (when the Argentinian president had to flee by helicopter from the roof of the presidential palace to evade a mob of such depositors), the Greek government will declare a curfew, perhaps even general martial law.
  • Greece will redenominate all its debts into “New Drachmas” or whatever it calls the new currency (this is a classic ploy of countries defaulting)
  • The New Drachma will devalue by some 30-70 per cent (probably around 50 per cent, though perhaps more), effectively defaulting 0n 50 per cent or more of all Greek euro-denominated debts.
Read on for more.

Sadly I can't see much to argue with in this analysis. The ultimate problem is the same as elsewhere in Europe - the current round of 'austerity measures' isn't even enough to close the budget deficit, merely to reduce the rate of issuing new debt. And even this has caused near riotous levels of dissent. Short of miraculous 10% per year economic growth and/or a magic infinite German Chequebook (which is, as far as I can tell, is the current ECB plan), the money just isn't there, and sooner or later this is going to become apparent.

This slow-motion train-wreck has been coming for some time. The only reason it's been slow-motion is the desire of all concerned to just keep rolling over the debt and buying time until the inevitable has to happen (ideally on some other politician's watch). I think the author of the second post is right - the sensible thing at this stage is to start figuring out what happens next. People differ on specifics, but the first commenter at Zero Hedge gets the big picture right:
So it's bullish for stocks...
Yeeaaahhh.. About that...

By the way, at the risk of congratulating myself, I did enjoy the title of that earlier post "Greece - Circling the Drain, Fiddling with the Second Derivative of 'Screwed' with respect to 'Time'".

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