Friday, Apr 02, 2010
UK default: better first than last?
The Telegraph: The IMF should impose default on Greece to end the charade
I just had lunch with Carmen Reinhart, author of `This Time is Different: Eight Centuries of Financial Folly” and a world authority on sovereign defaults.
Suitably, she was wearing a medallion of a Spanish silver coin dating from 1580, celebrating Philip II’s third default in eighteen years.
These magnificent defaults did not stop Spain launching the Armada against Elizabethan England a little later, or attempting to roll back the Protestant Reformation in a last maniacal attempt to impose Habsburg-Papal absolutism on free thinkers, but it did cripple some great European banking dynasties — about 20 in all.
Posted by devo @ 10:24 PM (935 views) Add Comment
12 Comments
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1. devo said...
commenter michael jones says...
I think default is inevitable. If Greece refinances at over 6%, that implies at least 8% of GDP going in interest payments, largely to foreigners. The deficit target for 2010 is 8.5%. That means they plan to balance the budget ex interest! Not possible, particularly as a huge reduction in Government spending in a recessionary environment implies a huge fall in GDP. I think the debt figures given out are misleading and EU leaders who try and verbally reassure investors, are being criminally irresponsible.
2. devo said...
setantii on the forum says...
I am a firm believer that all our current economic woes are the result of a financial system that is based upon the creation of money as debt.
I'm currently reading 'The Grip Of Death' by Michael Rowbotham and everything he says rings true to me at least. I was wondering if anybody on these forums actually believes that allowing private banks to create money as debt 'out of thin air' is a good thing? If anybody would like to defend the current state of affairs in regards to money creation I'd be most interested in trying to understand their reasoning. Perhaps there is some serious flaw in the rationale of the money reformers that I'm missing - at the moment I'm firmly of the position that this legalised fraud must end.
3. devo said...
don't worry girls,
flashman will be along soon to calm your frayed nerves
4. uncle tom said...
The problems faced by Greece, Ireland and the rest of the PIIGS can be solved, in theory, without a default.
The issue is that these theoretical solutions are becoming steadily less credible.
The ECB and the federalist conspiracy are behaving in an absurdly blinkered manner. No-one wants to discuss the possibility that the eurozone's structural weaknesses are gradually coming home to roost, and that it might be a better idea to re-vamp the single currency project before it goes belly-up of its own accord.
The critical failings of the euro project were the notions that a) it was OK for member countries to have a budget deficit, and b) that there was no need to work towards the aligning of per capita sovereign debt.
The 'big bang' approach to the euro's creation was also an exercise in arrogant folly. It would have been better to have formed a web of bi-lateral currency pegs, that could be periodically reveiwed to release tensions in the system. Banks could have been forced to accept deposits in currencies other than their own, and also make ATM payments, without a conversion charge.
But that was just too sensible and boring...
As it is, there is a major problem to solve. My favourite solution is for Greece to break away from the ECB, so that Greek euros have a different value to euros from other countries. Ireland, Portugal etc. would probably follow suit in short order.
This is not a revolutionary solution, and has plenty of historical precedent. Ireland, for example, broke its link with Sterling in 1979..
5. devo said...
"My favourite solution is for Greece to break away from the ECB, so that Greek euros have a different value to euros"
may i suggest their notes and coins have the word 'drachma' printed on them, to avoid any confusion?
6. uncle tom said...
[i]"may i suggest their notes and coins have the word 'drachma' printed on them, to avoid any confusion?"[\i]
Every euro note has a letter prefixing the serial number to identify which country it belongs to; in the case of Greece it's the letter Y
A break with the ECB is therefore quite simple. Greece could then replace its notes with new designs at its leisure.
7. alan_540 said...
So devo, are you thinking that a US default is on the cards? And if so, that it doesn't matter as long as their stick is bigger than China's?
8. devo said...
"are you thinking that a US default is on the cards?"
a global default is underway
we are currently in the 'extend and pretend' phase
what else would you expect them to do?
9. d'oh said...
So, UT, those urban legends of Germans refusing to accept Greek euros may turn out to be true...
I'm sure some people will be checking the prefixes of their notes.
10. devo said...
I'm sure some people will be checking the prefixes of their notes.
and playing hot potato with them
11. devo said...
Jack's alive, but unlikely to live
If he dies in your hand, you've a forfeit to give.
12. devo said...
i do the same with scottish money