Thursday, March 11, 2010

Explosive debt path? Pshaw.

By the end of 2011 Greece’s debt will be around 150 percent of its gross domestic product. ...

Imagine if Greek interest rates rise to, say, 10 percent. This would be a modest premium for a country with the highest external public debt/G.D.P. ratio in the world, a country that continues (under the so-called austerity program) to refinance even the interest on that debt without actually paying a centime out of its own pocket... At such interest rates, Greece would need to send at total of 12 percent of G.D.P. abroad per year, once it rolls over the existing stock of debt to these new rates (nearly half of Greek debt will roll over within three years).

This is simply impossible and unheard of for any long period of history.

German reparation payments were 2.4 percent of gross national product from 1925 to 1932, and in the years immediately after 1982 the net transfer of resources from Latin America was 3.5 percent of G.D.P. (a fifth of its export earnings).  Neither of these were good experiences.

On top of all this, Greece’s debt, even under the International Monetary Fund’s mild assumptions, is on a non-convergent path even with the perceived “austerity” measures.  Bubble math is easy.  Hide all the names and just look at the numbers.  If debt looks as if it will explode as a percent of G.D.P., then a spectacular collapse is in the cards.
--Peter Boone and Simon Johnson, NYT, on impending Greek tragedy

Most international travel was halted, and public services thrown into disarray on Thursday as thousands of Greek workers protesting austerity measures staged a general strike.

All scheduled flights into and out of the country were canceled, international trains were not operating, bus and subway service was suspended, and ferries remained in their ports. Tax offices and courts shut down, and hospitals were operating with emergency staff. The streets, eerily empty early in the morning ahead of three scheduled protest rallies, were littered with mounds of trash as a strike at the city’s main landfill entered its sixth day. Hundreds of demonstrators clashed with police Thursday afternoon in central Athens and at least nine were detained, The Associated Press reported.
--Niki Kitsantonis, NYT, on the difficulty of rolling back spending even in the face of disaster

Students staged raucous rallies to protest education funding cuts on college campuses nationwide Thursday, but some demonstrations got out of hand as protesters threw punches and ice chunks in Wisconsin and shut down a major freeway in California during rush-hour traffic. ...

In Northern California, rowdy protesters blocked major gates at two universities and smashed the windows of a car.
--Terence Chea, Associated Press, on an example closer to home. U.S. federal government deficit as % of GDP: 10.6%. Greek government deficit as % of GDP: 12.7%.

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