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Bear Week Begins
If you’re just waking up, chances are you’re waking up to the news that you’ve lost money.
The Greece crisis is being likened to an economic Sarajevo. The markets are sinking faster than I can type. Asian stocks began tanking hours ago. (Last I checked, the Shanghai Composite Index was down 3.7%; the Nikkei 225 down 2.4%; Hang Seng down 2.7%; Sydney’s S&P ASX-200 down 2.3%; Seoul’s Kospi … well, you get the drift. By the time I hit “publish” these numbers are sure to be down further.) The European markets opened a few hours ago and … wow. Stampede city.
Yesterday, Puerto Rico — well, I’m sure you heard:
The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the United States.
Puerto Rico’s move could roil financial markets already dealing with the turmoil of the renewed debt crisis in Greece. It also raises questions about the once-staid municipal bond market, which states and cities count on to pay upfront costs for public improvements such as roads, parks and hospitals.
For many years, those bonds were considered safe investments — but those assumptions have been shifting in recent years as a small but steady string of U.S. municipalities, including Detroit, as well as Stockton and Vallejo in California, have tumbled into bankruptcy.
Now, seems to me the world has exhausted its monetary ammunition, so what next? How bad is this going to get?
The sinking euro means I just got a raise, in effect; but this is clearly a short-term blessing. Not that I’m not counting my blessings. Believe me, I am. But obviously this personal rising tide won’t be enough to lift all boats — including mine, ultimately — so I’m not celebrating.
So, Ricochet, how’s the day going for you, financially?
Published in Economics, General
Claire,
A serious question. My understanding is that the whole Greek bailout of a few years back was actually an effort to save French banks that had heavily invested in Greek bonds. (When they knew they shouldn’t have).
Have the French banks sufficiently divested themselves of their Greek investments? Were all the bonds held by the banks just swapped out to the ECB or IMF? I suspect the only reason Putin hasn’t intervened is that the Russians are nearly as broke as the Greeks. Do you see Putin trying to find some other way to meddle in the Greek crisis? If so, how?
We are being assured almost every minute that they have. The more assurances we receive, the less I believe it. French banks are hugely exposed, especially Crédit Agricole.
That’s the more interesting question. Phrases like “It is especially unclear how much individual states would lose under ECB-operated programmes if Greece were to default” don’t really tell us much, do they?
Like this.
So, the Russians say to the EU, “If you are interested in helping Greece, you should pay for a pipeline so that our natural gas doesn’t have to go thru the Ukraine.”
I have to admire that move. Say what you want about Putin, but he isn’t stupid.
If you still hold Greek bonds and wish to unload them today at a fair price, I have an in with the Nigerian Minister of Finance who will purchase them from you for reasons I don’t have time to explain.
Send me your bank account and brokerage information in a private message right away.
I normally don’t read a lot Krugman for much in the way of economic insight. I find his opinions long ago turned to the political and not economic. I scanned over his article today wherein he recommends that the Greeks vote No on the referendum and face the hard economic realities.
http://www.irishtimes.com/business/economy/greece-should-vote-no-and-confront-the-unthinkable-1.2266744
This line almost made me choke on my lunch:
“But the situation in Greece has now reached what looks like a point of no return. Banks are temporarily closed and the government has imposed capital controls – limits on the movement of funds out of the country. It seems highly likely that the government will soon have to start paying pensions and wages in scrip, in effect creating a parallel currency.”
Let’s see… no more Euro’s forthcoming, the Drachma is in the tank. So, let’s pay everybody in Monopoly money. Wait, we’d have to actually print that and the cost of doing that can’t be paid for. Oh wait, let’s pay everyone in seashells. After all, that’s where currency started. Seashells, yeah. Let’s pay everyone in seashells.
Egad.
I don’t either, but I think a much more serious case — from the more-leftward side — is made by Dani Rodrik, here. It’s not so much a case for the Greeks voting “no” as it is a statement of the underlying problem, which is perhaps what’s underpinning Krugman’s argument, if we’re charitable. Or perhaps not, if we’re not. Either way, it’s worth reading.
If you think Grexit is a cause to worry, just think about this: much of the world economy, we’re constantly told, is driven by China.
China has a dictatorship in charge that releases GDP numbers that indicate a steady growth rivaled only by Bernie Madoff’s investments.
Part of their GDP, from 20% to 10% depending on who you believe, is based on construction.
They’re building cities no one wants to live in. Whole cities.
How long before the global economy tanks based on the fact that they’re banking on figures from a Communist dictatorship?
The Shanghai stock exchange is down 20% since June 12th. Of course, that comes after an enormous climax run over the past 6 months.
Claire,
Greece owes €131 billion, €100 billion of which is carried by the Troika (ECB, EU & IMF). They could forgive much of that debt to stabilize Greece, but politics and a misunderstanding of the Greek economy is preventing it.
Troika continues to demand Greece implements higher taxes, labor reforms and more cuts to government spending. Besides the higher taxes, I would normally agree with this approach. However, Germany doesn’t get Greece, and neither do most Western onlookers.
Greece is not a manufacturing power. Their output is primarily shipping and refining petroleum, neither of which are wage sensitive.
Under the Troika debt programs, foreign investment would never set up shop in Greece while there is a constant threat of financial crisis and potentially losing their EU free-trade status.
The only real solution (not politically popular, especially in Germany) is to allow Greece to stay in the EU, but going to the Drachma and remaining a tariff-free partner to EU markets. Foreign investors would appreciate the Drachma depreciation while Germany would take less of a loss if Greece remained part of the EU. Foreign investment for manufacturing would increase and we would see a more solid footing going forward.
I was driving in the car listening to The Howard Clark Show, an awesome financial adviser, who advises everyone on how to get mean credit collectors off your back to where to put investments, he’s really good. He stated that regarding the Greek default, they have been in “serious talks” with Russia, and if you think the cold war is over, think again. Putin wants Greece in his sphere and they are considering it – he said the Greeks during WWII fought fearlessly for their freedom – now all that could change, and yes, it will be very bad for the EU and US militarily.
I am not believing the headlines these days – unreal.
http://www.clarkhoward.com/
Aw com’on Claire lighten up would you. If SSM is Marriage then Janet Yellen’s old dental floss is legal tender.
What could go wrong?
Regards,
Jim
Can you ALL STOP WHINING about the global economy?! Didn’t you hear? Bruce Jenner’s a woman and gay marriage is legal, so everything is fine now.
End of discussion.
You might be interested in Tim Worstall at Forbes’ take. Paul Krugman may be right and not for the usual “Paul Krugman is always right (and never lies)” reason. At least he has a lot of people agreeing with him who normally don’t.
As for the question: fine. My father was fond of quoting General MacArthur: There is no security, only opportunity. A friend’s advice in distressful moments was: maintain body temperature. All mammals should heed this. I take both to heart. Of course, I do find this equanimity I’m experiencing very worrying.