sovereign default

Global Financial Meltdown Redux

If you are wondering what's going on, think no more. The end of the world is upon us. All conspiracy theory aside, we are hitting phase 2 of the global financial crisis. Instead of the banks being insolvent, now nations are. No surprise since governments took on the follies of the Banksters and are now drowning in debt.

The long shadow on deficits hovers over the lack of real economic growth projected for the future.

Are markets pricing in a Greek default?

The bond market concluded that short-term risk on Greece has now hit crisis levels, as Moody's downgraded the country again.

(Bloomberg) -- Greek bonds plunged, driving two- year yields above 11 percent, after the European Union said the nation’s 2009 budget deficit was larger than previously stated and Moody’s Investors Service cut its credit rating one step.

Greek bonds hit 8%

The on-again, off-again bailout of Greece is running out of time, and the markets are getting nervous. This is reflected in the widening gap between yields on German and Greek bonds.

"I wouldn't bet on sharp decreases in Greek bond yields, especially those in the longer end of the maturity spectrum, given that the market will continue to reason that the risk of a default remains, even if the package is activated," he said, speaking by telephone from Amsterdam.

All Things Greek

Greece is getting a bail out. Well, not really, because they are getting loans, oops, wait, yes really.

The Wall Street Journal notices Greece will pay more in interest than if it had gone to the IMF. According to the Wall Street Journal the two possible rates for the €30 billion in loans is 5.33%, fixed and 4.14% variable.

Either way, the IMF is way cheaper. It uses it’s own interest rate as a base, and it levies different surcharges. The fund’s rate works out to 2.71%, as of last week, for a €10 billion package.

Now Bloomberg is reporting a €45 billion loan package, €30 billion from the Euro-Zone finance ministers and €15 billion from the IMF. Bloomberg is reporting the current Greek bond yield is 6.98%.

But this thing isn't over.

ECB Stark: 'Clear risk' of sovereign debt crisis

This isn't a new revelation. It's been said by others, but never by someone of such high profile.

There is a clear risk of a sovereign debt crisis in most advanced economies, European Central Bank Executive Board member Juergen Stark said Tuesday.
The crisis began as a financial crisis and evolved into an economic one, Stark observed. Now, there is a "clear risk that we will enter a third wave, a sovereign debt crisis in most advanced economies."
Though it is tempting for governments to suggest higher inflation in order to monetize debt, "calling on central banks to raise inflation rates permanently takes the focus away from the overriding problem, which is that, at present, unsustainable fiscal policies represent a threat to macroeconomic stability in nearly all advanced economies," Stark said.

Moody's Warns the U.S. of a sovereign credit rating downgrade

The Financial Times is reporting Moody's will warn the United States of a credit ratings downgrade due to it's debt.

Moody’s Investor Service, the credit rating agency, will fire a warning shot at the US on Monday, saying that unless the country gets public finances into better shape than the Obama administration projects there would be “downward pressure” on its triple A credit rating.

Examining the administration’s outlook for the federal budget deficit, the agency said: “If such a trajectory were to materialise, there would at some point be downward pressure on the triple A rating of the federal government.”

It projects that the federal borrowing is so high that the interest payments on government debt will grow to more than 15 per cent of government revenues, about the same by the end of the decade as the previous 1980s peak.


We're Gonna See a Bunch of Sovereign Defaults - Former IMF Economist

Harvard and former IMF economist Kenneth Rogoff Sees ‘Bunch of Sovereign Defaults’ :

Several countries are likely to default on their debt in coming years and investors will force the U.S. to pare spending, said Kenneth Rogoff, an economics professor at Harvard University.

Following banking crises, “we usually see a bunch of sovereign defaults, say in a few years. I predict we will again,” Rogoff, a former chief economist at the International Monetary Fund, said at a forum in Tokyo today.

He said financial markets will eventually drive interest rates higher, and European countries such as Greece and Portugal will “have a lot of troubles.” Global scrutiny of sovereign debt has risen as nations including Greece reveal fiscal deficits that have swollen in the wake of the worst global financial crisis since the Great Depression.

Greece and Swaps, the saga widens

Earlier we posted derivatives at the heart of the Greek crisis. Now the story widens and the saga continues.

First, Bloomberg reports Goldman Sachs, Greece Didn’t Disclose Swap. In other words Goldman Sachs helped Greece hide it's debt, mortgaging it's future in the process and also didn't tell anyone they had done so.

Goldman Sachs Group Inc. managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit.