I wonder what do you think? Who will first default? ( I know it’s not that important because after the first default the others will follow straight thereafter)
USA 15 trillions of debt
Greece 360 billions of debt
France 1.8 trillions of debt
Portugal (don’t know how much debts they have)
Germany (well beyond 2 trilllions)
other countries to your free choice?
Interesting question.
At the moment I think Greece is in the most immediate danger, for no other reason interest rates on their debt are so high and tax revenues are falling steadily. The country is increasingly becoming dependant on foreign aid money and a sizeable chunk of that money goes straight into debt servicing (meaning it goes to pay French and German banks overloaded with Greek bonds). Two months ago it was decided creditors were to take a 50% haircut on Greek bonds. Nothing has been done so far and the IMF now suggests the haircut to be 65%. In my opinion the French will bully their “partners” into keeping Greece afloat as long as possible, mostly because their banks are being bailed out indirectly. Germany has a stake in Greece too, though the real problem with German banks is Greek private debt: the situation somewhat resembles what we saw in Asia in the '90s, when Japanese banks were literally overloaded with loans from Thailand, Indonesia, South Korea etc which turned out to be bad loans. The Greek government is being bailed out, the private sector is not. How many bad loans from Greece do German banks hold? As is often the case accounting trickery and chicanery makes it impossible to know.
One country you left out of the list is Italy. Italy combines problems from Greece (in absolute terms it’s the third debtor nation in the world after the US and Japan) and Spain (high unemployment, too much reliance on housing etc) with something of her own thrown in. So far the industrialized North has carried the day but the draft horse is becoming old and tired. The non-elected EU imposed government is bleeding the country dry in an attempt to “run a tight ship”: problem is while taxes are being hiked public spending is not being touched because of the Keynesian mumbo-jumbo we discussed so many times before. In fact there are rumors yet another Japanese style public works program may be in the books. The markets (especially in Asia) are refusing to give Italy a break and still demand relatively high interests. Rating agencies are doing what they should have been doing a long time ago and keep on lowering rating. Somebody in New York must have a bad conscience after the Freddy Mac and Fanny Mae debacle.
Well since Greece basically said it default in the next few weeks unless the EU gives them the next bailout for free, I’d say Greece.
Well I wrote about it some time ago and well over and over again in my blog. My last entry to Greece was:
https://forum.freecapitalists.org/blogs/fdominicus/archive/2012/01/14/now-it-39-s-official.aspx
So I’m quite aware of the problems in Greece.
About the needed debt cut. Well I’m now convinced were are nearing the 80 %. Some months ago I wrote (attention in German)
http://fdominicus.blogspot.com/2011/10/das-ende-eines-staates.html
There I caluclated that more than 2/3 debt reduction is needed.
I also know it does not really matter in the end. The default of Greece will not be a “real” problem. Agreed some will bleed heavily. But you know the following bail-outs will be more dangerous. I also figure out that the US has increased their debts over 70 % in the last 3 and a half years. So the troubles of the US are at least as deep. Not even Greece was “able” to increase their debts that much…
Therefor I wrote “race to the bottom”. So let’s assume Greece will “win”, it will not be the end. so what may be a likely outcome?
I’m thinking currency wars are a real possibility. In which case there would be the potential for global hyperinflation.
Vladimir,
What do you mean by currency wars, and why do you think they are likely?
By currency wars I mean countries will devalue their currency relative to other currencies in order to gain a competitive advantage and then this starts a prcoess where everyone devalues there currency to try and gain the ‘‘advantage’’.
The reason I think they are likely is because countries like Greece will probably monetise their debt rather than repudiate. But even if country decide not to default there will be demands to devalue their currency in order to become competitive. And even if this doesn’t happen if the markets expect a devaluation, a country will have no other choice then revalue.
Sorry I didn’t mean to say Greece, but many countries will. Greece will most likely repudiate.
If he knew what the outcome will be I would have already planned accordingly. So far what I have been doing is starting to liquidate my assets to get liquidity and scanning around for the part of the world which will feel the squeeze the less and whose climate won’t kill me.
In your blog entry you rightly mentioned there’s a confidence crisis which is getting worse by the day. The big problem with this confidence crisis is investors are every bit as confused as politicians and bureaucrats on the matter. Investors are confused because they are a fickle lot and they don’t know exactly what they want. Many are clinging to the illusion we’ll get back to the Roaring Noughties after the system is slightly tweaked. We won’t. Despite being beaten into a pulp the free market has made a Rocky Balboa-style comeback and is demanding bad investments to be liquidated. To get back to the Roaring Noughties malinvestment has to be liquidated before and nobody wants to take the fall.
Public debt is a big part of the malinvestment that needs to be liquidated. Both investors and governments must man up and face the inevitable. For investors it means be prepared to write off billions in bad loans, for governments it means be prepared to accept the fact Japanese-style spending to “stimulate the economy” by using cheap credit is a thing of the past. No amount of ferociously enforced legislation will stop this for the simple reason there’s not enough money in the world to save a single one of the big three debtor nations.
Private debt is the other big part of the picture. As I said before we don’t know exactly how many Greek bad loans are in the German banking system. Now take that and multiply for Japan, Italy, France, Spain etc by a factor of every single nation on Earth. We still don’t know the entity of bad loans that almost cracked the Japanese banking sector in the '90s and this is much, much bigger. There’s no wonder banks are massing up huge amounts of liquidity instead of using it to provide “cheap credit” for “job creation”: liquidity is held as a hedge against the enormous mass of bad loans.
Banks are the main reason this Depression won’t go away. As much they are partners in crime to governments they are junior partners. Government will bail itself out first and then, if there’s still something, bail out the friends. Banks are frozen solid at the moment, and hence are not performing their duties as financial intermediators. I don’t know if they are simply trying to slowly liquidate toxic assets without taking too much damage in the long run (and it may take a decade or more) or they simply lack an exit strategy and are just kicking the can. Either way it’s not going to work because capital is being slowly chipped away as more and more of it is syphoned from the productive private system into the inproductive public system through a variety of means.
If the reasons for the present Depression can be well explained by Austrian Economics, how it will play out is something nobody can really say. This is much, much bigger than anything mankind has ever seen before.
“If he knew what the outcome will be I would have already planned accordingly. So far what I have been doing is starting to liquidate my assets to get liquidity and scanning around for the part of the world which will feel the squeeze the less and whose climate won’t kill me.”
Well that’s what I have done and am doing. I opened accounts in diverse countries and am trying to get out of “assets” like houses. I know people say it’s their insurance against inflation. (And that is partly true) but we also know there are housing bubles and in the end the whole mess started with malinvestmens in housing and throwing out credit to not creditworthy creditors. Now the first round of “saving” has made the debts for countris even less unbearable. But that’s another story.
Now back to houses. The problem I see with any housing in any country is that the defrauders will get after the house owner if the system crashes. That was done in the past and is the “normal” way for the deledefs. Just see they treat as if all the income in a country may be accessible to them. The madness is that the debt is measured against GIP and not the income/expenses of states. This surely is that my personal debt would be put on all my neighbors and I can say well not too bad my debt is jut 10% of the income of the inhabitants of this street.
I also have bought a lot of precious metals. And placed that physically in different places. But in honest which countries can be trusted? I don’t think it’s anywhere in the US, the complete Euro zone ist just a mine field. South amerika is more or less broken by “construction” . Just see the raising money inflation in Brazil, Argentina etc. China has it’s own kind of troubles (ghost towns are not what I understand under a “sound” investement") Japan is broken by any means also. So one coudl asked the other way which county is not broke and which country will not break of the bigger counties will default. I’m afraid the anwer is. Everyone will suffer and the really bad thing is that this probably will end in violence.
The “Roaring Noughties” came about not because of liquidated malinvestments, but because of even more malinvestments fueled by artificial expansion of money and credit.
If they’re junior partners to governments, how are they the main reason the depression won’t go away? It sounds to me like governments are the main reason for that.
I’m also afraid of this. The way I see it, the US government will stop at nothing to maintain its hegemony over the world. I think the powers that be are getting ready (if they’re not ready yet) to go “all in”. You know what that means: WWIII. And this time, the US takes the role of Nazi Germany.
Autolykos,
What will the US gain by going all in? What will the US try to acheive by a world war? And how will they pay for it, feed the troops, etc?
TPTB’s thinking could be that there’s a chance they’ll win (i.e. be the last ones standing). Otherwise, if they lose, they’ll make sure everyone else loses too. I see their mentality as that of Mondego in the recent movie version of The Count of Monte Cristo. Near the end, he decides to fight Dantes to the death, because he says that he couldn’t bear to live in a world where Dantes had everything and he had nothing.
As far as paying for stuff, I think the US would undergo total war mobilization. This would essentially mean that everyone in the US and the territories it occupies is enslaved. In other words, the US government wouldn’t really pay for stuff, as it would already control everything.
IMHO the problem is mainly the central banks and fiat-money. Which makes it easy to make so many debts so long and so fast. The US, would not have been able to do that all with “real” money. You see all this debt avalanches start “really” after introducing the fiat-money. I just can hope that it will be not that bad, but one can not bet on half “sane” deledefs. They are always looking for a scape goaat and the world is ful of them ;-(
Greece is already repudiating half of all of its outstanding debts. If that’s not a default I don’t know what is.
If I had to guess then I’d say the United States or Greece, but so long as the EU continues then the larger/stronger nations of the union, Germany and France, will stay strong
#1 The main difference between this Depression and the previous ones is malinvestment is not being liquidated on a scale never seen before. Bad loans are staying on the books (either the governments’ or the banks’) and are not even “swept under the rug” like China did in 2001. Not everybody agrees to our view that cheap credit generates bubbles and bursts but most agree malinvestments need to be liquidated to create the climate for further “growth”.
#2 Simple. They are not lending. Without lending there cannot even be a conventional bubble that would allow for lower interest rates (based on economic outlook) increased taxation revenues (allowing to better service the debt), albeit for a short time.
Banks are the main reason this Depression won’t go away. As much they are partners in crime to governments…
They are not lending. Without lending there cannot even be a conventional bubble that would allow for lower interest rates (based on economic outlook) increased taxation revenues (allowing to better service the debt), albeit for a short time.
I dunno. The point of having a bank is to make money, right? And you do that by lending it at interest, right? So have they forgotten what their business model is all about? Are they that stupid?
I imagine there is something going on, mainly that there is an old adage that I just made up, better to get a smaller return on a sound investment than a larger return on a wild, irresponsible loan to a crackhead [=because you might get one or two interest payments , but never get back the principal]. In other words, every loan has an element of risk. In unceratin times like these, a prudent banker goes for the sure thing, meaning lending it to the govt. Why is it criminal to do this? He is saving himself from exactly what happened to Lehman Brothers, for the same reason.
"I dunno. The point of having a bank is to make money, right? And you do that by lending it at interest, right? So have they forgotten what their business model is all about? Are they that stupid?
"
In principal right, but first job is tot say in business. A broken bank does not handle anything any more. It’s gone. So it seems they are tryiing to get at least enough money to “surivie” the coming defaults. I think it will not work because if you just need 9% equity. Chances are slim that one survives the smallest problem. But then we do come back to fiat-money. So bankrupt States will gurantee the debts of bankrupt banks.