"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008

Monday, May 3, 2010

Really great links - Bailout chart - Krugman on Greece I & II - Global financial assets - Fiscal adjustment

Zero Hedge - Greek bailout chart - "Ignore for a second the sheer lunacy of anyone who thinks that the Greek government can grow GDP and decline the budget deficit in a straight line now that the country will see crippling strikes and rolling riots (not to mention blackouts) on a daily basis. But do note the black line, which shows the projected Debt/GDP ratio for the country as part of the bailout package. In essence Greece will go from having "only" a 133% Debt/GDP ratio to an insane 149% in 2013 before presumably dropping to 144% lower in 2014, still a good 11% higher than currently. Greece just got bailed out so it can get into even more debt!"

Paul Krugman - Greek bailout - "The EU has now, in effect, given up on trying to restore market confidence; instead, it’s going to break the death spiral by main force, providing Greece with all or almost all the financing it needs directly, at an interest rate much lower than the market was demanding.
        The plan still requires savage austerity on Greece’s part, and ensures a terrible few years for the Greek economy. But it does rise to the scale of the problem, and it might work."

Paul Krugman - How Reversible Is The Euro? - "For a long time my view on the euro has been that it may well have been a mistake, but that bygones were bygones — it could not be undone. I was strongly influenced by the view expressed by Barry Eichengreen in a classic 2007 article (although I had heard that argument — maybe from Barry? — long before that piece was published): as Eichengreen argued, any move to leave the euro would require time and preparation, and during the transition period there would be devastating bank runs. So the idea of a euro breakup was a non-starter.
        But now I’m reconsidering, for a simple reason: the Eichengreen argument is a reason not to plan on leaving the euro — but what if the bank runs and financial crisis happen anyway? In that case the marginal cost of leaving falls dramatically, and in fact the decision may effectively be taken out of policymakers’ hands."

Brad DeLong - Global financial assets - PowerPoint link - "
$80 trillion of global financial assets three years ago.
$60 trillion of global financial assets today.
Default, duration, risk, and information discounts.
Default discounts:
A $3 trillion increase from mortgages.
A $6 trillion increase from other forecast recession losses.
Duration discounts:
A -$4 trillion move by central banks.
What monetarist theories said you should do.
Risk and information:
A +$15 trillion increase in the discount on low-quality financial assets
That is a gauge of the magnitude of the imbalance in the market for high-quality investment assets"

Alcidi Cinzia, Daniel Gros - The European experience with large fiscal adjustments - "Fiscal adjustments of the size now required by Greece (and probably soon Portugal and Spain) have been possible in the past.
Adjustments of this size require time, typically at least 5 years; and the debt to GDP ratio keeps on increasing during the adjustment process."

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