Financial topics

[Trevor]

Remember, not everyone thinks that a Greek default will have a major impact. We all know its coming and some believe that if preparations are made, they could survive it. That would be true if Greece was the only one in this situation. However, they're just first in line, with Portugal a few months behind.

What also has to be considered is public opposition. Germany's people are tired of bailing out all these countries and let's not forget how much anger there was when we bailed out all the companies facing bankruptcy. If we decide to help bail out Europe as well... we've already adding 1.5-1.6 trillion a year to our national debt and spending money to bail others out will fan the flames more.

[Marc]

Remember, not everyone thinks that a Greek default will have a major impact. We all know its coming and some believe that if preparations are made, they could survive it. That would be true if Greece was the only one in this situation. However, they're just first in line, with Portugal a few months behind.

What also has to be considered is public opposition. Germany's people are tired of bailing out all these countries and let's not forget how much anger there was when we bailed out all the companies facing bankruptcy. If we decide to help bail out Europe as well... we've already adding 1.5-1.6 trillion a year to our national debt and spending money to bail others out will fan the flames more.

Relevant issues, all. Further bailouts and backstops are apt to need to be stealthier and stealthier in order to make them politically possible, assuming they can indeed be pulled off. And yes, the likely "domino effect" with the PIIGS (and likely with other nations to follow) is certainly part of the equation, especially with ministers of finance, central bank heads, and investors. Thanks for pointing all these things out. —Best regards, Marc

[Trevor]

I've talked to people who think that it would be a disaster and others who think we'd shrug it off. There's no way to know for sure until it happens. I think it's somewhere in between. Greece itself isn't enough to collapse everything, but it would start the process and grow beyond the control of their neighbors.

Hey, if I were in their position, I wouldn't want to bail them out. They're showing no signs of being willing to cut anything at all and we've done this twice already. There comes a point where most are just going to say: "Screw it, they're on their own" and prepare to shore up the banks.

Btw, I think I may have identified the crisis war for a portion of the south before the revolutionary war: the Yamasee war, fought from 1915-1918.

[Marc]

I've talked to people who think that it would be a disaster and others who think we'd shrug it off. There's no way to know for sure until it happens. I think it's somewhere in between. Greece itself isn't enough to collapse everything, but it would start the process and grow beyond the control of their neighbors.

Hey, if I were in their position, I wouldn't want to bail them out. They're showing no signs of being willing to cut anything at all and we've done this twice already. There comes a point where most are just going to say: "Screw it, they're on their own" and prepare to shore up the banks.

Btw, I think I may have identified the crisis war for a portion of the south before the revolutionary war: the Yamasee war, fought from 1915-1918.

I kindly agree that Greece probably isn't enough to collapse everything, either, but also agree that it would start the process of severe economic crisis being launched. And yes, I can see the Germans and others getting plenty tired of bailing out Greece.

The Yamasee War (1715–1717) is a most interesting phenomenon. It was allegedly even bloodier than King Philip's War, and had a devastating effect upon South Carolina. Perhaps the amalgamation of the 13 American colonies into the United States somehow obfuscated the normal saecular effect of the Yamasee War if it was indeed a crisis war. Thanks again for all the information. —Best regards, Marc

[Trevor]

What a greek default can do, though, is make Portugal's situation worse and they're falling apart as well; they're second in line. If France and Austria have been downgraded, no one is safe.

Yeah, I need to do more research on that, but based on preliminary analysis, it seems to fit the profile.

[Trevor]

However, if either Italy or Spain collapses, that will be enough to collapse the economy. Italy's the 8th biggest economy in the world; I think Spain is something like the 11th. What adds to the problem is that they are also too big to bail out.

[Marc]

However, if either Italy or Spain collapses, that will be enough to collapse the economy. Italy's the 8th biggest economy in the world; I think Spain is something like the 11th. What adds to the problem is that they are also too big to bail out.

You're probably talking a few trillion dollars (or whatever the Euro equivalent of that is) to cover the sovereign-bond debt of both Italy and Spain; the Fed could probably bail all of it out if it absolutely had to. However, the kicker, just like in America, is all the unfunded liabilities and off-the-balance-sheet items, as well as the allied European private debt and private derivatives. There will no doubt be further can-kicking down the road for all of this, but obviously it can't go on forever. Thanks for the relevant follow-up. —Best regards, Marc

[Trevor]

Not only do we have sovereign countries, we have the banks, where one major bank after another is proving to be insolvent, so they end up being rescued as well, draining yet more resources from the bailout attempts. We've reached the point where the money has run out and that you can't carry on evading reality. We're in better shape than most of Europe, but we'd still have enormous difficulty bailing them out and not taking the public rage into account.

The one crucial difference I think between this and the depression is that we have not had a trade war, at least not yet.

[aedens]

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way. new york times 2011.

I will leave that to its own merit of inertia to its funtion to utility and convey that it is what puts you at ease of preference since I like oranges and you may like apples. Since debt is a future claim to labor and the government will not ever pay it off in reality from there own history and the very words they choose to consume the fruit salad from taxes that in Fisher's and Romers own work conveys the Consumer who is the final arbiter does indeed spend or defer to saving for future consumption. They both suggest in there orthodoxy of mental work which we have forumed the realism was $1 consumer spent was $3 benefit to economy at large change. Nobody denies the current effective tax rate on record to date but the nonlinear rate debt models given us the face value nature to what we already know.

[Higgenbotham]

I've talked to people who think that it would be a disaster and others who think we'd shrug it off. There's no way to know for sure until it happens. I think it's somewhere in between. Greece itself isn't enough to collapse everything, but it would start the process and grow beyond the control of their neighbors.

The other day I mentioned that when the market figures out, on balance, that Greece will default, that will be some kind of tipping point, and you responded that everyone knows Greece is going to default. I think there are a few nuances that I didn't mention. First, there's the idea that even if the market does on balance think that Greece will default, most probably think it can be shrugged off, as you mention. Second, market participants today seem to only begin to really worry when something is right in front of them. It used to be said that markets look out 6 months into the future. I believe the survivors of the last crisis did do that, but current participants are reactive rather than proactive, and that's why we're in the mess that we're in! So if/when news of an imminent Greece default hits the wires, it may be like Ohio Life after all; Ohio Life was a small part of the economy - I believe the Ohio Life default was approximately $7 million in 1857. However, I am also keeping in mind that, unlike Ohio Life, there are plans in place to wall the effects of Greece off from our market and just how effective they will be we don't know. Subprime was contained until it wasn't, I would add.