Are you watching Greece implode?

[StageLeft]

http://finance.yahoo.com/news/Greek...9.html?x=0&sec=topStories&pos=3&asset=&ccode=

Strikes in Greece and political wrangling in Portugal fed Europe's government debt crisis on Thursday, amid concerns that leaders in Athens and Lisbon would not be able to push through unpopular austerity programs to tame their ballooning deficits.

Customs are going to strike 48 hours which will lock up imports other than fuel and drugs. Truckers have been choking off the border for a few weeks, too.

http://www.telegraph.co.uk/finance/...re-but-for-the-grace-of-God-goes-Britain.html

Greece is indeed buried deep in the financial mire. At first gradually, and then with alarming speed, the country has lost credibility with investors to such a degree that it is now having to offer an interest rate of 7 per cent to persuade them to buy its debt, compared with 4.5 per cent a few months ago.

Some are saying Greece is in a debt spiral now and has reached that critical point at which they cannot get out, the only proper way out a gift--not a new loan--of money to relieve some of this debt.

I don't know the details of the "austerity plan" beyond what has been said in these articles but a fuel tax, public servant pay freezes, and expanding retirement age to me sound like very practical and fair ways to deal with an imploding economy.

The US is not Greece but parallels will be drawn, though even if valid I think many will ignore them.

 

[woolfe9999]

Yup, it killed the DOW this morning. It's just like with the news on Dubai from late last year where the market took a huge dump.

- wolf

 

[yllus]

Portugal next, possibly?

What I found interesting was a parallel The Economist drew between the gold standard and Greece's current predicament:

The tables in the last two posts show that Europe, and particularly its southern region, are at the heart of the current fiscal crisis. This is despite the fact that the US and Britain have much bigger primary deficits (the shortfall before interest payments on the current year's budget) than Greece, Italy or Portugal. The IMF gives its projections for 2010 primary deficits on page 24 of this report. The worst offenders on this measure, in descending order, are Ireland, Spain, Britain, Japan and the US.

But Britain, Japan and the US all have the luxury of issuing debt in their own currency, which they can devalue; the effect, as far as foreign investors are concerned, is a partial default. (As noted yesterday, the bulk of Japan's debt is owned by domestic investors.*)

The European nations have debt denominated in euros. They cannot print more euros to repay it. They cannot devalue their way out of the debt, without exiting the euro-zone. So in effect they have recreated the gold standard.

...

Mr Eichengreen shows that those countries that stuck with gold longest relied on tariffs to protect their industries. But eurozone members don't have that option either, which is good for the world in general but restricts their governments' options.

Greece is a modern test case. Under pressure from the EU, its government has announced an austerity package, including a freeze in public sector wages. But will the public accept such a deal? Is democracy compatible with sound finances, in the long run?

Of course, countries with fixed rates are just the first in line to face this problem. But those with floating rates, if they repeatedly opt for the devaluation option, are just postponing the issue. Eventually creditors will get wise and demand higher yields to compensate for the risk.

 

[dullard]

I'm watching since I intend to go to Greece this year. If things get bad, I'll bail and go somewhere else.

I wouldn't be surprised if Portugal was next. My trip there last fall was quite an eye opener with how much blight the cities had. Gorgeous buildings in the center town squares had windows bashed out and roofs caved in. Portugal HAD money, and they no longer do.

 

[soccerballtux]

Yup, it killed the DOW this morning. It's just like with the news on Dubai from late last year where the market took a huge dump.

- wolf

The new unemployment data killed the dow.
http://www.workforcesecurity.doleta.gov/press/2010/020410.asp
investor concern this will kill the recovery.

Greece issue more a euro:dollar thing IMO.

 

[StageLeft]

Portugal next, possibly?

What I found interesting was a parallel The Economist drew between the gold standard and Greece's current predicament:

That is very cool the assertion it's like a gold standard. The second article I linked to the guy said one of the four things working for UK is that they have their own currency so they can inflate it. A small country using money dictated elsewhere can't.

 

[werepossum]

The new unemployment data killed the dow.
http://www.workforcesecurity.doleta.gov/press/2010/020410.asp
investor concern this will kill the recovery.

Greece issue more a euro:dollar thing IMO.

I dunno, the DOW usually likes layoffs. Shedding workers is like printing money for your stock prices.

 

[woolfe9999]

The new unemployment data killed the dow.
http://www.workforcesecurity.doleta.gov/press/2010/020410.asp
investor concern this will kill the recovery.

Greece issue more a euro:dollar thing IMO.

I don't think so. Every week new jobless claim reports come out. Some are higher than expected; some lower. It typically causes a swing in the DOW of maybe +/-40. When the Dubai news hit last year, if memory serves the DOW tanked 150 points, in spite of the fact that it came at the same time as a *good* unemployment report.

Don't ask me why, but these foreign debts crises for some reason seem to clobber our market.

- wolf

 

[StageLeft]

You're both right? Finance yahoo says "stocks tumble on jobs data, European debt". We're almost back under 10k.

 

[Pocatello]

Viva La Revolucion!

 

[Thump553]

I haven't been following Greece much. I understand why Iceland is in the crapper, but not Greece. Any explanation? If its a simple matter of too much government spending unsupported by revenues, didn't the other EU countries have some input into this before it reached crisis level? From some news reports I've seen, failure of Greece could wreck the euro.

As far as the stock market goes, for the past week or so it's been in a cycle where (generally) bad news is greatly overemphasized and good news ignored. Things will cycle back eventually.

 

[Special K]

I dunno, the DOW usually likes layoffs. Shedding workers is like printing money for your stock prices.

Yeah, but if 70% of GDP is consumer spending, then a high unemployment rate can't be good for business in the long run, can it?

 

[woolfe9999]

You're both right? Finance yahoo says "stocks tumble on jobs data, European debt". We're almost back under 10k.

Yup, it is certainly a combination of the two, though I suspect based on past patterns that the foreign debt issue is the larger factor.

Either way, understanding this is a little above my pay grade. I just don't get why debt in places like Greece, Portugal or Dubai has such a crushing impact on our own market. I know we're interdeprendent with everyone, but this sort of thing seems like an over-reaction in the market to me.

- wolf

 

[dullard]

I haven't been following Greece much. I understand why Iceland is in the crapper, but not Greece. Any explanation? If its a simple matter of too much government spending unsupported by revenues, didn't the other EU countries have some input into this before it reached crisis level? From some news reports I've seen, failure of Greece could wreck the euro.

Greece has overspent like much of the rest of the world in the last couple of decades. Greece was just one of the worst cases of overextended government without properly taxing to pay for it. I think the Economist said that they have one of the highest government employee / civilian employee ratios (I'm too lazy to look it up now).

Greece wants to cut back spending and just at the exact same time the farmers and other workers decide that they want MORE protectionism and entitlements from government. The farmers are blocking roads with farm equipment. The truckers and customs are blocking imports. Basically the Greece population is going to destroy their economy in an attempt to preserve and in fact worsen the unsustainable overspending.

Europe is in negotiations to bail out Greece. I'm just wondering if it is too little, too late, because Europe can't really afford the bailout in this recession.

 

[Fear No Evil]

So how did Bush manage to destroy the economies of all these EU countries as well as our own?

 

[juiio]

You're both right? Finance yahoo says "stocks tumble on jobs data, European debt". We're almost back under 10k.

The European debt that contributed to today's drop was Portugal's not Greece's. Portugal had a failed bond auction. They wanted to auction off 500 million Euros worth of bonds but only found buyers for 300 million. Greece's collapse has been known about for a while, but I think the failed bond auction was a wake-up call.

That being said, yes Greece is a mess. The only question at this point is whether they default or get bailed out by Germany.

Greece, Iceland, and Portugal are not the only European countries in trouble. Spain, Italy, and United Kingdom are in bad shape too. They could provide a temporary reprieve for the dollar as people scramble away from the Euro.

 

[werepossum]

Yeah, but if 70% of GDP is consumer spending, then a high unemployment rate can't be good for business in the long run, can it?

I don't think a high unemployment rate is good for anyone. The reaction of stock prices to layoffs has always amazed and befuddled me, as purchasing stock is literally betting on the future of the company. If the company is laying off workers it's obviously not thriving, and with less workers it can probably produce less product in the future.

 

[Special K]

I don't think a high unemployment rate is good for anyone. The reaction of stock prices to layoffs has always amazed and befuddled me, as purchasing stock is literally betting on the future of the company. If the company is laying off workers it's obviously not thriving, and with less workers it can probably produce less product in the future.

One thing I have started to wonder about as this recession drags on and unemployment remains high is whether 10% (or even 8%, or 7%) U3 will become the new "normal", and businesses will learn to adapt and be profitable in this new environment.

 

[BarneyFife]

Debt per capita

UK $172k
US $41k
Greece 35k

How come the UK isn't being singled out?

 

[DanDaManJC]

The US is not Greece but parallels will be drawn, though even if valid I think many will ignore them.

I think that's fair, but the US also has the advantage of being a world-power. We may be broke, but our govt probably has a few more tricks up its sleave than greece

 

[cwjerome]

So how did Bush manage to destroy the economies of all these EU countries as well as our own?

Not Bush, Keynes.

 

[rchiu]

Yup, it is certainly a combination of the two, though I suspect based on past patterns that the foreign debt issue is the larger factor.

Either way, understanding this is a little above my pay grade. I just don't get why debt in places like Greece, Portugal or Dubai has such a crushing impact on our own market. I know we're interdeprendent with everyone, but this sort of thing seems like an over-reaction in the market to me.

- wolf

Well short term stock market movement like today's drop is usually more to do with investor confidence, or put it more bluntly, what investor is guessing other investor will do. So while this foreign debt problem will hardly affect US economy, people are selling because they afraid others will sell on the bad news. Yeah, this is in part over reaction, but market is build on investor confidence, so anything that hits investor confidence, no matter if it will actually impact underlying economy, will hit the market.

 

[StageLeft]

Debt per capita

UK $172k
US $41k
Greece 35k

How come the UK isn't being singled out?

I don't think UK debt is that high at all.

 

[BarneyFife]

I don't think UK debt is that high at all.

http://hubpages.com/hub/External-Debt

 

[tommo123]

oh yea it is. we're fucked and getting raped with taxes. worse part is, we get nothing back. the NHS sucks ass, our roads are crappy and for a supposedly 1st world country talking about achieving a target of 2mbit broadband speeds as a min by 2012 is pathetic!

OK, i like my internet and the last point really sticks in my craw