The Economist: A Greek bailout, and soon?

tomterm8

blueboy43 wrote: »

Am I just the only one who wonders if this recession is really that much worse than the 1979-1981 recession.

1) The deficit is worse
2) GDP has fallen by a tiny bit more.

Yes. It really was much, much worse than the 1979-81 recession. The GDP fall is how you define the severity of a recession.

Governments can chose to buy lower employment in the short term. The labour government bought lower unemployment than the 1981 recession by exercising deficit spending of 13%, and by monetary easing equivalent to approximatly 15% of GDP. When you add all this up, it comes down to the fact that without these measures you would have been looking at a GDP fall of at least 12%, in my view.

Read that last paragraph again: we, as a society, have postponed a load of pain. But the methods we used to do so are not free from costs. And, as Greece is finding out, the markets can say no more.

blueboy43

tomterm8 wrote: »

Yes. It really was much, much worse than the 1979-81 recession. The GDP fall is how you define the severity of a recession.

Governments can chose to buy lower employment in the short term. The labour government bought lower unemployment than the 1981 recession by exercising deficit spending of 13%, and by monetary easing equivalent to approximatly 15% of GDP. When you add all this up, it comes down to the fact that without these measures you would have been looking at a GDP fall of at least 12%, in my view.

Read that last paragraph again: we, as a society, have postponed a load of pain. But the methods we used to do so are not free from costs. And, as Greece is finding out, the markets can say no more.

I agree with some of what you say, but how in GDP terms can it be described as much, much worse ?

GDP fell between start Q3 79 and end Q1 1981 by exactly 6%.

This recession has seen GDP fall by 6.03% (so far).

It is interesting to note that the growth in each quarter when the recession ended was very similar.

Generali

Rochdale_Pioneers wrote: »

The markets disagree with you. They act like a predator, picking off the weakest. We're now talking about Greece falling over with suggestion of which other weak countries would then come under massive market pressure before their own collapse. Exactly what we saw when we fell out of the ERM - a swarm of Pirhana nibbling chunks off various currencies before realising Sterling was the weakest.

Try thinking about it another way.

Why do you think Greek bond yields are rising/prices falling (it's the same thing)? Most investors that are active in the market for Greek bonds will be long term holders of Greek debt: banks, insurance companies and pension funds for example.

Now AIUI, it is very difficult to short sell in Greece due to weak repo markets which means that investors are not making money from the fall in Greek bond prices for the most part . The rise in yields will mostly be caused by a lack of buyers and some minor investors who have been chasing yield getting cold feet.

If you decide you don't want to buy, you aren't being predatory, you are just making an investment decision. There are a lot of assets out there, why buy into Greek bonds right now when there are so many being sold you can probably pick them up cheaper tomorrow? The same could well happen to Gilts - there isn't a glut right now due to QE but when/if that ends there will be plenty on the market and perhaps investors will decide to buy tomorrow rather than today at some point.

There is certainly no compelling reason to but Gilts that I can see - the pound looks quite weak right now (although not as weak as some investors would have you believe), yields are low so if you buy long-dated Gilts you are likely to lose some of your capital as interest rates rise and the Government has shown that they are happy to print money but have so far not shown any idea about how to cancel that new money.

Degenerate

tomterm8 wrote: »

Not to mention, if you look at UK bank assets, they are very strongly linked with other european economies, which means if the european economies collapse, then... well... we are in for another banking crises.

The devil is in the detail with this one. The UK was one of the "consumer" nations that ran a large trade deficit and borrowed (Government, corporate and personal) during the boom times. Our strong currency and high interest rates*[1] attracted large net inflows of capital from creditor nations which supported this debt. The consequence of this is that whilst our banking system is certainly international and has fingers in many pies, our direct exposure to crises in other countries is low. The impact of the US sub-prime fiasco, Lehman's collapse and subsequent events was mostly felt indirectly via the freezing of the credit markets and panic-induced fire-sale discounting of entire asset classes, with no regard to the crucial underlying question: how much money has been lent to people who will not be able to pay it back? The answer to this was very different on opposite sides of the Atlantic.

The sudden flight of a big chunk of this hot money is what caused the huge depreciation in Sterling at the turn of 08/09, and part of the reason interest rate cuts alone were insufficient (they had the perverse effect of making more money flow out) and QE necessary to fill the void in money supply.

The upshot of this is that British banks are unlikely to make significant asset losses as a result of an economic collapse in southern or eastern Europe, because they mostly sold assets to Europe, rather than bought from them. The secondary effects are obviously of concern, but the actions of our central bank and movement of out currency may well have de-coupled our banking system from these shocks to a large extent. Indeed, when everyone is bailing out of these nations, that money will be looking for somewhere else to go, and it's even possible that some of it may come our way.

I really don't see how the alternative hypothesis of "contagion" would apply to us - the problems of the southern European economies are not just about govenment debt levels, (which are much worse than ours anyway), but about these debt levels being combined with a lack of any monetary policy levers to pull to break out of their downward spiral. The Euro is the problem, and thank God we're not in it.


*[1] Despite the "rates were too low" nonsense spouted by many of the housing bears, we actually had the highest base rate of the major world economies for most of the last decade.

Generali

Degenerate wrote: »

*[1] Despite the "rates were too low" nonsense spouted by many of the housing bears, we actually had the highest base rate of the major world economies for most of the last decade.

The UK has had to have consistently higher rates than countries such as the USA, Germany and France. It is a legacy of inflation and devaluations in the 1960s and especially the 1970s IMO for the most part.

Degenerate

Generali wrote: »

The UK has had to have consistently higher rates than countries such as the USA, Germany and France. It is a legacy of inflation and devaluations in the 1960s and especially the 1970s IMO for the most part.

This was true through the 80s until the early 90s recession, but pretty irrelevant after that. Granted, it probably is what gives the aforementioned bears their skewed perspective of what constitutes "too low" interest rates though.

harryhound

http://www.bbc.co.uk/worldservice/business/2009/03/000000_business_daily.shtml

Pathetic the outgoing government has simply fiddled the figures, not even as subtle as the Enron fraud.

Now let me see, are we going to have the same problem in May? PFI & quango off balance sheet financing anyone?

This is just like the Act of Union; when we "rich" English people had to bail out the Jocks, in exchange for them giving up trying to impose their despot kings on our throne.

These German people we now have doing the job, are so much more realistic.
Perhaps we should send Phil the Greek out there, so his tact and respect for the poor and slightly different fellow citizens, could help pull the strings together.

Well we all stand back and wait for Turkey to make them an offer:rotfl:

European Union Membership anyone?. Dual sovereignty over Cyprus?

Only prostitutes can walk about dressed as black skittles?

We send the Olympic athletes out to Greece on a day return ticket with Ryanair as we cannot afford to complete all those building projects in East London?

We could make an offer for Corfu and buy that back - do they still play cricket on the square and drink ginger beer?
We could pretend it is part of Britain; a bit like Alaska, and have another Gibraltar in the eastern Med. That would stop our chavs spending all our money in Spain?

All our cruise ships could call in on their way to making a mess of TV reception in Venice.

Its just a win win win situation.

No problems only opportunities.

May you live in interesting times, as the Chinese curse goes.

harryhound

Degenerate wrote: »

This was true through the 80s until the early 90s recession, but pretty irrelevant after that. Granted, it probably is what gives the aforementioned bears their skewed perspective of what constitutes "too low" interest rates though.

When we became a petro currency, interest rates fell. OMG there was talk of paying off the national debt.:T:T:T:T
We are heading back towards trying to stand on our own two feet, no longer acting like a bunch of western Arabs, and as proved in the 1970's we are not very good at it.

Kohoutek

harryhound wrote: »

Now let me see, are we going to have the same problem in May? PFI & quango off balance sheet financing anyone?

They're hiding £32 billion, according to this article in an accountancy journal from September 2009. That's equivalent to the entire budget for policing, the fire service, prisons and the courts (see http://www.wheredoesmymoneygo.org/)

http://www.accountancyage.com/accountancyage/news/2249604/darling-32bn-ruse

harryhound

When I had a 9 to 5 (ha ha ) job, I worked for a Plc that reported profits of (say) fifty million.

The fixed assets were getting older and older (It was debatable "should we be reinvesting/expanding rather than trying to pay increasing dividends?")

One year the accountants got excited, as there had been a change in the rules for depreciation, if the directors realised that their assets had a longer useful life than originally anticipated.

It was my job to write programs to make these old assets last longer. When I had finished the job, I had produced a "magic" 3 million of extra profits.

So far so good, BUT when the annual report came out, there was not mention of my little "scam".

I did think about going along to the AGM. When the chairman stood up and congratulated himself on managing to maintain the dividend in difficult times out of more or less the same level of profit perhaps I should have said "He is talking b0ll0cks, 6 percent of those profits were manufactured overnight by a computer programmer, nothing to do with trading in difficult times".

So where are we now, about 15 years later.

The Plc has done a Cadbury and sold itself to a larger expanding rival, with a different financing model and there are not many UK jobs left, however the takeover company is publishing losses like a mini General Motors?:eek: