The IMF has recently released a white paper labeled "Strategies for Fiscal Consolidation in the Post-Crisis World". Here's a synopsis:

Introduction:

  • The fiscal state of the developed world is facing the question of solvency for the first time since WWII, and this time demographic trends are incredibly unfavorable.  See  Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! for explicit evidence.
  • Current fiscal models for the developed world see fiscal tightening starting in 2011 [in 8 months governments are going to start tightening liabilities? Possible, but I wouldn't hold my breath for this one]
  • The only G-7 economy with debt projected at <85% of GDP is Canada [True, but is that because it is temporally behind the curve? See Easter Weekend News Update:
    • Canadian Dollar Too Strong? Bloomberg.com:

    • Minority opposition in Canadian Parliament is growing over strengthening Loonie
    • Leaders fear fallout in exports from CAD nearly at parity with USD
    • CAD strength is directly tied to Chinese commodity demand (is the CAD bubblicious, too?)
  • Debts in emerging markets are beginning to look safer as they pare down stimulus packages plus old debt.

Potential Exit Strategies:

  • Inflating (debasing) one's own currency to pay off debt is too dangerous on a social level to be seriously considered, especially for emerging markets
  • Over the past three decades, the most successful method of managing debt and securing social safety has been to expand the primary balance surplus
Reference What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect

Click to enlarge... 

italy_-_ireland.png
  • Currently, the biggest step toward renewing primary surpluses in the developed world would be to phase out entitlement/pension funding or drastically modify payout schemes
 [But who really knows where all of the bodies are buried? Reference Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

The French 

In 1997, the French government received an upfront payment of £4.7 billion ($7.1 billion) for assuming the pension liabilities for France Telecom workers in return. This quick cash injection helped bring down France's deficit, helping the country to meet the pre-condition to join the Euro zone. You may reference the pdfLaurent_Paul_and Christophe_Schalck_study for a background on the deal. I don't necessarily concur with their conclusions, but it does provide some info  france_telecomm_transaction.png

For the record and according to the doc referenced above, according to the State balance sheet for 2006, total pension liabilities of civil servants have been estimated at 941 billion €, i.e. 53% of annual GDP in France.  An attempt to reform all special schemes in 1995 collapsed because of severe strikes on the railways. Sounds awfully Hellenic in nature, doesn't it??? I, for one, believe that Greece is getting a bad rap, and not becaue it is being falsely accused but because it is just a lot sloppier at covering up its shenanigans than its European neighbors.

Now, back to France. A transaction similar to the France Telecomm deal took place in 2006 with La Poste which still employs 200,000 civil servants, but is now facing the same evolution as France Telecom in 1997. But an important difference with France Telecom is the obvious insufficiency of the lump sum paid by the postal company (2 billion €) compared to the amount of pension liabilities transferred (70 billion € at the end of 2006).
  • Almost 1/5 of public spending stabilization could come without affecting public investment, and simply cutting wage and transfer payments
  • The IMF recommends setting up government institutions to enforce budget restrictions (the ridiculousness of one government entity stopping a handful of spendthrift entities is mind boggling)

Global Adjustments:

  • Emerging markets that have opted to inflate away debt have seen interest rates skyrocket for years, while other who opted to adjust the primary balance deficit have seen interest rates fall
  • The average G-20 nation will need to adjust its balance sheet 8.8% by the end of the decade to reach public debt targets [RIIIGHT!!!! Like the Maastricht Treaty which, after 18 years has been respected by exactly 0.000000% of its members, all of whom are well below the 3% debt to GDP threshold by about an average of negative 300%!!!!]
  • Over the past 30 years, Greece has made a "large fiscal adjustment" once (1995), where they had more success generating new revenue, andbarely managed to cut expenditures. Greece's inability to make any sort of cuts to preserve fiscal responsibility is going to embarrass the cheerleaders looking to save Europe without lifting a finger. Spanish and Italian efforts have yielded similar results

Long Term Growth:

  • Over the previous 15 years, a clear inverse relationship has developed between debt ratios and real GDP growth
  • Evidence on whether adjustments should be upfront (shock therapy 1990's) or gradual is inconclusive according to IMF staff
  • One of the easier methods of reducing public expenditures is to tighten and reform pension policy (the days of mandatory retirements, backloaded payouts based on final five years average salary, etc, are numbered)
  • Countries with higher domestic debt ownership are more likely to honor debt and have higher debt tolerances among citizenry (i.e. Japanese JGB hoarding vs. USA tea parties)

Conclusion:

            The IMF has an incredible data set to work with yet somehow continues to see a picture far rosier than what meets the eye.  The impacts of measures to manage sovereign debt loads seemed to be futile in the medium-long term.  The situation we currently see is similar to the 1950's in data only.  The demographic makeup of the world today (particularly in Europe) is one that is aging, dependent on entitlement programs, and underfunded pensions that are seeing falling/no incoming revenue.  This is a clear contradiction to the call for managing or reducing entitlement and wage expenditures at the government level (globally), and is a sign that fears over a global sovereign default among advanced economies is a legitimate threat over the next decade.

Related Subscriber Content:

  1. Spain public finances projections_033010 (Global Macro, Trades & Strategy)
  2. UK Public Finances March 2010 (Global Macro, Trades & Strategy)
  3. Italy public finances projection (Global Macro, Trades & Strategy)
  4. Greece Public Finances Projections (Global Macro, Trades & Strategy)
  5. Banks exposed to Central and Eastern Europe (Commercial & Investment Banks)
  6. Greek Banking Fundamental Tear Sheet (Commercial & Investment Banks)
  7. Italian Banking Macro-Fundamental Discussion Note (Commercial & Investment Banks)
  8. Spanish Banking Macro Discussion Note (Commercial & Investment Banks)
  9. China Macro Discussion 2-4-10 (Global Macro, Trades & Strategy)

 The Pan-European Sovereign Debt Crisis, to date (free to all)

1.     The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.

2.     What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect

3.     The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.

4.     The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries

5.     The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

6.     The Beginning of the Endgame is Coming???

7.     I Think It's Confirmed, Greece Will Be the First Domino to Fall 

8.     Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

9.     Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?

10.   "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! 

11.   Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...

12.   The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino

13.   As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis

14.   Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?

15.   Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

16.   Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

17.   Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

 

 

The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight

Grecian News and its Relevance to My Analysis

The IMF has recently released a white paper labeled "Strategies for Fiscal Consolidation in the Post-Crisis World". Here's a synopsis:

Introduction:

  • The fiscal state of the developed world is facing the question of solvency for the first time since WWII, and this time demographic trends are incredibly unfavorable.  See  Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! for explicit evidence.
  • Current fiscal models for the developed world see fiscal tightening starting in 2011 [in 8 months governments are going to start tightening liabilities? Possible, but I wouldn't hold my breath for this one]
  • The only G-7 economy with debt projected at <85% of GDP is Canada [True, but is that because it is temporally behind the curve? See Easter Weekend News Update:
    • Canadian Dollar Too Strong? Bloomberg.com:

    • Minority opposition in Canadian Parliament is growing over strengthening Loonie
    • Leaders fear fallout in exports from CAD nearly at parity with USD
    • CAD strength is directly tied to Chinese commodity demand (is the CAD bubblicious, too?)
  • Debts in emerging markets are beginning to look safer as they pare down stimulus packages plus old debt.

Potential Exit Strategies:

  • Inflating (debasing) one's own currency to pay off debt is too dangerous on a social level to be seriously considered, especially for emerging markets
  • Over the past three decades, the most successful method of managing debt and securing social safety has been to expand the primary balance surplus
Reference What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect

Click to enlarge... 

italy_-_ireland.png
  • Currently, the biggest step toward renewing primary surpluses in the developed world would be to phase out entitlement/pension funding or drastically modify payout schemes
 [But who really knows where all of the bodies are buried? Reference Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

The French 

In 1997, the French government received an upfront payment of £4.7 billion ($7.1 billion) for assuming the pension liabilities for France Telecom workers in return. This quick cash injection helped bring down France's deficit, helping the country to meet the pre-condition to join the Euro zone. You may reference the pdfLaurent_Paul_and Christophe_Schalck_study for a background on the deal. I don't necessarily concur with their conclusions, but it does provide some info  france_telecomm_transaction.png

For the record and according to the doc referenced above, according to the State balance sheet for 2006, total pension liabilities of civil servants have been estimated at 941 billion €, i.e. 53% of annual GDP in France.  An attempt to reform all special schemes in 1995 collapsed because of severe strikes on the railways. Sounds awfully Hellenic in nature, doesn't it??? I, for one, believe that Greece is getting a bad rap, and not becaue it is being falsely accused but because it is just a lot sloppier at covering up its shenanigans than its European neighbors.

Now, back to France. A transaction similar to the France Telecomm deal took place in 2006 with La Poste which still employs 200,000 civil servants, but is now facing the same evolution as France Telecom in 1997. But an important difference with France Telecom is the obvious insufficiency of the lump sum paid by the postal company (2 billion €) compared to the amount of pension liabilities transferred (70 billion € at the end of 2006).
  • Almost 1/5 of public spending stabilization could come without affecting public investment, and simply cutting wage and transfer payments
  • The IMF recommends setting up government institutions to enforce budget restrictions (the ridiculousness of one government entity stopping a handful of spendthrift entities is mind boggling)

Global Adjustments:

  • Emerging markets that have opted to inflate away debt have seen interest rates skyrocket for years, while other who opted to adjust the primary balance deficit have seen interest rates fall
  • The average G-20 nation will need to adjust its balance sheet 8.8% by the end of the decade to reach public debt targets [RIIIGHT!!!! Like the Maastricht Treaty which, after 18 years has been respected by exactly 0.000000% of its members, all of whom are well below the 3% debt to GDP threshold by about an average of negative 300%!!!!]
  • Over the past 30 years, Greece has made a "large fiscal adjustment" once (1995), where they had more success generating new revenue, andbarely managed to cut expenditures. Greece's inability to make any sort of cuts to preserve fiscal responsibility is going to embarrass the cheerleaders looking to save Europe without lifting a finger. Spanish and Italian efforts have yielded similar results

Long Term Growth:

  • Over the previous 15 years, a clear inverse relationship has developed between debt ratios and real GDP growth
  • Evidence on whether adjustments should be upfront (shock therapy 1990's) or gradual is inconclusive according to IMF staff
  • One of the easier methods of reducing public expenditures is to tighten and reform pension policy (the days of mandatory retirements, backloaded payouts based on final five years average salary, etc, are numbered)
  • Countries with higher domestic debt ownership are more likely to honor debt and have higher debt tolerances among citizenry (i.e. Japanese JGB hoarding vs. USA tea parties)

Conclusion:

            The IMF has an incredible data set to work with yet somehow continues to see a picture far rosier than what meets the eye.  The impacts of measures to manage sovereign debt loads seemed to be futile in the medium-long term.  The situation we currently see is similar to the 1950's in data only.  The demographic makeup of the world today (particularly in Europe) is one that is aging, dependent on entitlement programs, and underfunded pensions that are seeing falling/no incoming revenue.  This is a clear contradiction to the call for managing or reducing entitlement and wage expenditures at the government level (globally), and is a sign that fears over a global sovereign default among advanced economies is a legitimate threat over the next decade.

Related Subscriber Content:

  1. Spain public finances projections_033010 (Global Macro, Trades & Strategy)
  2. UK Public Finances March 2010 (Global Macro, Trades & Strategy)
  3. Italy public finances projection (Global Macro, Trades & Strategy)
  4. Greece Public Finances Projections (Global Macro, Trades & Strategy)
  5. Banks exposed to Central and Eastern Europe (Commercial & Investment Banks)
  6. Greek Banking Fundamental Tear Sheet (Commercial & Investment Banks)
  7. Italian Banking Macro-Fundamental Discussion Note (Commercial & Investment Banks)
  8. Spanish Banking Macro Discussion Note (Commercial & Investment Banks)
  9. China Macro Discussion 2-4-10 (Global Macro, Trades & Strategy)

 The Pan-European Sovereign Debt Crisis, to date (free to all)

1.     The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.

2.     What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect

3.     The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.

4.     The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries

5.     The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

6.     The Beginning of the Endgame is Coming???

7.     I Think It's Confirmed, Greece Will Be the First Domino to Fall 

8.     Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!

9.     Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?

10.   "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! 

11.   Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...

12.   The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino

13.   As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis

14.   Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?

15.   Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

16.   Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

17.   Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

 

 

The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

How BoomBustBlog Research Intersects with That of the IMF: Greece in the Spotlight

Grecian News and its Relevance to My Analysis

The IMF has recently released the results of their staff consultations with Greece. Some may find it interesting, particularly where it intersects with relevant BoomBustBlog research. Let's not mince words here. Greece is going to effectively default on its debt, one way or another, and it is probably going to do it relatively soon. Shall we walk through the IMF findings from LAST YEAR and how they are actually optimistic compared to the facts that my team and I have dug up?

IMF Consultation: Greece (2009)
Context:

·    After joining the EU, the income gap between Greece and the Eurozone fell on lower interest rates and the resulting “demand boom”
·    Through the boom, fiscal deficits stayed at >95% of GDP, fiscal condition continues to aggravate 10 year spreads & contributes to credit downgrades (arguably a lagging indicator)
·    Private Greek debt is below the Eurozone average, as is the case for non-financial corporations (governments and financial services therefore must be the source of Greek leveraging)
·    Even as output has dropped, Greek wages have remained comparably high, and saw a 12% nominal increases in from 2008 - 2009
·    Quality of assets on Grecian balance sheets continues to erode with end of credit based consumption in Southeastern Europe (SEE)
·    Household and corporate credit growth has slowed, probably due to rising interest rates causing the opportunity cost of taking on new debt to be unmanageable (directly causing revenue shortfall at the government level)

Projections:
·    IMF forecasted uncertain, and potentially negative growth from 2009 through 2010 on stagnant trade and policy based mistakes
·    The EU had a much rosier forecast, citing a rise in tourism, lower dependency on trade, and government based infrastructure projects (that are paid in money taken from bond offerings and paid to construction workers at far greater than average Eurozone wages)

I have sourced the accuracy of both the IMF and the EU's forecasting in "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!. If your well being relies on this stuff, you would be well served to subscribe to our research services. Let's take a visual perusal of what I am talking about in regards to Grecian GDP, the IMF and the EU.

image005.png

The EU/EC has proven to be no better, and if anything is arguably worse!

image031.png

Here are our considerably more realistic forecasts (premiums content: Greece Public Finances Projections). 

The IMF has recently released the results of their staff consultations with Greece. Some may find it interesting, particularly where it intersects with relevant BoomBustBlog research. Let's not mince words here. Greece is going to effectively default on its debt, one way or another, and it is probably going to do it relatively soon. Shall we walk through the IMF findings from LAST YEAR and how they are actually optimistic compared to the facts that my team and I have dug up?

IMF Consultation: Greece (2009)
Context:

·    After joining the EU, the income gap between Greece and the Eurozone fell on lower interest rates and the resulting “demand boom”
·    Through the boom, fiscal deficits stayed at >95% of GDP, fiscal condition continues to aggravate 10 year spreads & contributes to credit downgrades (arguably a lagging indicator)
·    Private Greek debt is below the Eurozone average, as is the case for non-financial corporations (governments and financial services therefore must be the source of Greek leveraging)
·    Even as output has dropped, Greek wages have remained comparably high, and saw a 12% nominal increases in from 2008 - 2009
·    Quality of assets on Grecian balance sheets continues to erode with end of credit based consumption in Southeastern Europe (SEE)
·    Household and corporate credit growth has slowed, probably due to rising interest rates causing the opportunity cost of taking on new debt to be unmanageable (directly causing revenue shortfall at the government level)

Projections:
·    IMF forecasted uncertain, and potentially negative growth from 2009 through 2010 on stagnant trade and policy based mistakes
·    The EU had a much rosier forecast, citing a rise in tourism, lower dependency on trade, and government based infrastructure projects (that are paid in money taken from bond offerings and paid to construction workers at far greater than average Eurozone wages)

I have sourced the accuracy of both the IMF and the EU's forecasting in "Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!. If your well being relies on this stuff, you would be well served to subscribe to our research services. Let's take a visual perusal of what I am talking about in regards to Grecian GDP, the IMF and the EU.

image005.png

The EU/EC has proven to be no better, and if anything is arguably worse!

image031.png

Here are our considerably more realistic forecasts (premiums content: Greece Public Finances Projections). 

There is an ancient Greek legend describing the education of the common man Damocles. You see, Damocles exclaimed that, as a great man of power and authority, Dionysius (the current ruler) was truly fortunate. Thus, Dionysius offered to switch places with him for a day, so Damocles could taste first hand that fortune which he savored so fervently. Later that night during a lavish banquet Damocles indeed

 
 Earlier installments of the Reggie Middleton's Pan-European Sovereign Debt Crisis

  1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.
  2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect
  3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.
  4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
  5. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

  6. The Beginning of the Endgame is Coming???

  7. I Think It's Confirmed, Greece Will Be the First Domino to Fall

  8. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
  9. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?

 

did savor being waited upon like a king. Only at the end of the meal did he look up and notice a hand sharpened sword hanging directly above his head by a single strand of horse-hair. Damocles immediately lost all taste for the amenities of royalty, pomp and circumstance and asked leave of the tyrant, saying he no longer wanted to be so "fortunate" [adapted from Wikipedia].[1][4]

Little did Damocles realize that what he experienced was of value, significant value. He simply failed to recognize the value as we has blinded by the fair maidens who served him hand and foot.  The moral to this BoomBustBlog telling of the Sword of Damocles is that: "When one sits on the Throne, the true value of the sword is not that it falls, but rather, that it hangs." Recent history has given weight to this moral as Greece has fed high on the hog for nearly a decade, while being totally oblivious to the value held within that single strand of horse hair, protecting it. Till this day, that strand, although dwindling, has yet to snap. 

On that note, we have this headline from Bloomberg: Greek Crisis Is Over, Rest of Region Safe, Prodi Says
"The worst of Greece’s financial crisis is over and other European nations won’t follow in its path, said former European Commission President Romano Prodi.
“For Greece, the problem is completely over,” said Prodi, who was also Italian prime minister, in an interview in Shanghai today. “I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.”" 

Reggie says "Liar, Liar, Pants on Fire". In all seriousness, while I don't truly believe Mr. Prodi is lying, he is also obviously ignoring the facts as they currently exist, whether purposefully or in error. Let's walk through a few excerpts from the most recent addition to the Pan-European Sovereign debt crisis. BoomBustBlog subscribers can download the full15 page analysis here, which contains more than enought evidence to throw serious doubt on the ability of Greece to come anywhere near their stated goals: pdf  Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb/. The report also makes clear why Germany is so hesitant to contribute funds to a Greek bailout.

 

The Austerity Package, in a Nutshell

 

The revenue measures include increasing tax rates, reducing tax evasion and some one-off measures while the expenditure measures consist of salary reduction, freezes in hiring and salary hikes as well as cutting other public sector expenditures. According to the Stabilityand Growth Program, January 2010, the government is aiming to reduce its fiscal deficit from 12.7% of GDP in 2009 to 8.7% in 2010. However, if the impact of the additional measures that were estimated at 2.5% of GDP is also added, the fiscal deficit is expected to come down to 6.2% of GDP in 2010, based on government's estimates. The government further envisages additional proceeds from the sale of stakes in some of the government-owned entities as well as proceeds from the payback of financial assistance provided to the Greek banks, which will be used to reduce the massive government debt of around 113% of GDP in 2009. However, there is strong evidence to support the assertion that the budgeted impact of these measures is grossly overstated, since a) The Greek government's base casescenario for the economy is overly optimistic when compared with analystexpectations, and  b) the dynamics of the announced measures shall lower the total projectedimpact.

There is an ancient Greek legend describing the education of the common man Damocles. You see, Damocles exclaimed that, as a great man of power and authority, Dionysius (the current ruler) was truly fortunate. Thus, Dionysius offered to switch places with him for a day, so Damocles could taste first hand that fortune which he savored so fervently. Later that night during a lavish banquet Damocles indeed

 
 Earlier installments of the Reggie Middleton's Pan-European Sovereign Debt Crisis

  1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.
  2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect
  3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.
  4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
  5. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

  6. The Beginning of the Endgame is Coming???

  7. I Think It's Confirmed, Greece Will Be the First Domino to Fall

  8. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
  9. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?

 

did savor being waited upon like a king. Only at the end of the meal did he look up and notice a hand sharpened sword hanging directly above his head by a single strand of horse-hair. Damocles immediately lost all taste for the amenities of royalty, pomp and circumstance and asked leave of the tyrant, saying he no longer wanted to be so "fortunate" [adapted from Wikipedia].[1][4]

Little did Damocles realize that what he experienced was of value, significant value. He simply failed to recognize the value as we has blinded by the fair maidens who served him hand and foot.  The moral to this BoomBustBlog telling of the Sword of Damocles is that: "When one sits on the Throne, the true value of the sword is not that it falls, but rather, that it hangs." Recent history has given weight to this moral as Greece has fed high on the hog for nearly a decade, while being totally oblivious to the value held within that single strand of horse hair, protecting it. Till this day, that strand, although dwindling, has yet to snap. 

On that note, we have this headline from Bloomberg: Greek Crisis Is Over, Rest of Region Safe, Prodi Says
"The worst of Greece’s financial crisis is over and other European nations won’t follow in its path, said former European Commission President Romano Prodi.
“For Greece, the problem is completely over,” said Prodi, who was also Italian prime minister, in an interview in Shanghai today. “I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.”" 

Reggie says "Liar, Liar, Pants on Fire". In all seriousness, while I don't truly believe Mr. Prodi is lying, he is also obviously ignoring the facts as they currently exist, whether purposefully or in error. Let's walk through a few excerpts from the most recent addition to the Pan-European Sovereign debt crisis. BoomBustBlog subscribers can download the full15 page analysis here, which contains more than enought evidence to throw serious doubt on the ability of Greece to come anywhere near their stated goals: pdf  Greece Public Finances Projections 2010-03-15 11:33:27 694.35 Kb/. The report also makes clear why Germany is so hesitant to contribute funds to a Greek bailout.

 

The Austerity Package, in a Nutshell

 

The revenue measures include increasing tax rates, reducing tax evasion and some one-off measures while the expenditure measures consist of salary reduction, freezes in hiring and salary hikes as well as cutting other public sector expenditures. According to the Stabilityand Growth Program, January 2010, the government is aiming to reduce its fiscal deficit from 12.7% of GDP in 2009 to 8.7% in 2010. However, if the impact of the additional measures that were estimated at 2.5% of GDP is also added, the fiscal deficit is expected to come down to 6.2% of GDP in 2010, based on government's estimates. The government further envisages additional proceeds from the sale of stakes in some of the government-owned entities as well as proceeds from the payback of financial assistance provided to the Greek banks, which will be used to reduce the massive government debt of around 113% of GDP in 2009. However, there is strong evidence to support the assertion that the budgeted impact of these measures is grossly overstated, since a) The Greek government's base casescenario for the economy is overly optimistic when compared with analystexpectations, and  b) the dynamics of the announced measures shall lower the total projectedimpact.

Thursday, 01 January 2009 18:00

The banking backdrop for 2009

To follow up on the post that I scribble together at 3 am, undedited, the other day -A few grim thoughts for the New Year, as I reflect upon the past year, I want to refresh the memory of my readers, particularly in regards to why I was so bearish on many name brand banks last year. This may require some re-reading of the Asset Securitization series. So, before we get started on the major value drainers of 2009 (believe it or not, still mortgages, consumer and corporate loans) I want to provide a few links of interest that put things into perspective.

Yes, I know its a lot of reading, but that is why I have the confidence to short heavily into a rising market, and it is what has powered my returns thus far. Confidence in the fact that I have performed more comprehensive, more diligent, and more accurate research than those that I am selling shares to.

Now, that we have caught up on the happenings of last year, let's look forward to what we can expect this year.