Greece Is Not Under Control

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Includes: FXE, IGOV, TBT, TLT
by: Karl Denninger

Those who believe it is are delusional:

Most eurozone nations are prepared to offer loans at 4 to 4.5 per cent, the rate paid by the eurozone’s other other big debtors, Ireland and Portugal, EU officials told the Financial Times. But Germany says Athens should pay 6 to 6.5 per cent, the rate it pays on its 10-year bonds.

There's no particular reason for Greece to get funds from the eurozone "directly" in this case irrespective of anything else. If there's no rate advantage why not just sell into the market?

This is the problem with debt spirals, you see. Trying to borrow and spend your way out of recession runs the risk of interest costs exceeding cash tax inflows. If that happens you're done, and the market will react to the possibility long before it actually happens.

That of course forces severe austerity measures which then brings to the forefront the reality of your GDP curve.

Why do I keep seeing this in my head ()?

Contrary to popular belief we aren't any better off than Greece is. We've been at the same game they played for the same amount of time, basically - we embarked on our "borrow and spend to lie about GDP" in 2003, and we have maintained that level of borrow and spend ever since, until it blew out to where it is now in 2008.

Those who refuse to learn from what others have done (and blew up in their faces) are destined to have to go through it themselves.

We cannot mask a 10% GDP deficiency for very long. We've gotten away with it for two years, with the first of those years coming on the back of an all-on stock market collapse that fed the bond market with fear-driven money, and the second half with "QE" and similar shenanigans.

But now both of those influences are gone - and we're still trying to spend and borrow the same way, continuing to lie about our GDP circumstances.

We had better stop it and get behind some concrete block before Greece goes up in smoke - from what I can see from here, which is an admittedly-imperfect picture, the only two ways out for them are an outright default or departure from the euro; the latter would allow them to issue in massive quantity and thus effectively devalue.

Nothing else is going to work - they're too far down the hole - and if we don't cut this crap out right now we're going to follow them down the bowl.