Private Bondholders asked to lose 53.5% of their Holdings in new Greek Bailout Agreement

Posted by PITHOCRATES - February 26th, 2012

Week in Review

Be thankful you don’t have any Greek bonds.  If you do you have nothing to be thankful about (see Greece submits its debt cut offer posted 2/24/2012 on BBC News).

Under the proposed debt swap, banks and other private creditors are being asked to take a 53.5% loss on their Greek bonds.

Ouch.  If you had your retirement savings invested in Greek bonds you won’t be able to retire as planned.  Imagine that.  Say you had saved $250,000 and put it into some of the safest investments out there.  Government debt.  Because unlike private corporations they have the power to tax.  And will always be able to repay their debt.  Until now, that is.  Instead of getting your $250,000 back you’ll only get $116,750 back.  That’s a worse hit than homeowners took during the subprime mortgage crisis.  Even though their mortgages are underwater at least they have a chance of getting their lost value back.  Not these Greek bond holders.  Once this deal goes through they lose their money forever.  And 53.5% is a lot to lose.

Will this solve their problems?  Not unless they severely cut their government spending.  And with Greeks in the streets rioting that will be easier said than done.  Which means they will continue to spend.  Run deficits.  And borrow money.  Putting them right back on the road they’re trying to get off.  And just who is going to take a chance on buying Greek bonds when the current bondholders just lost 53.5% of their holdings?  Here’s a clue.  It won’t be as many who bought them before the 53.5% write-down.

This will not likely end the Eurozone debt crisis.

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The Bank of England to Dabble in Quantitative Easing even though it Failed when the Americans Tried It

Posted by PITHOCRATES - February 12th, 2012

Week in Review

It appears that the Americans aren’t the only Keynesians to never say die when it comes to Keynesian policies.  Even though the American’s quantitative easing proved to be a failure it’s not stopping the British from trying (see Bank Of England Due To Announce More QE posted 2/9/2012 on Sky News).

The Bank of England is expected to unleash another multi-billion round of emergency support for the UK economy today…

Analysts believe it will extend its quantitative easing (QE) programme by another £50bn, taking the total to £325bn, in a bid to stave off a double-dip recession…

But further QE could spell bad news for pensioners.

It can fuel inflation, which would mean more gloom for retirees who have already seen the value of their pension pots eroded by the high cost of living and low interest rates…

“The game changer, however, is the euro. If the eurozone cannot come up with a solution to the debt crisis, the impact on the UK will be significant.”

People with debt love inflation.  People with savings hate it.  Anyone who owes money will find it easier to repay that money back when money depreciates and is worth less.  It’s like getting a discount.  If your money is worth 30% less when you repay your debt you save 30% in purchasing power.  The lender, though, loses 30% in purchasing power.  That’s why banks hate inflation.  And why people who borrow from banks love it.  And where do banks get the money to loan?  From a lot of pensioners.  Who have saved for their retirement.  Only to see the purchasing power of their retirement nest egg reduced during periods of inflation.

This is the dark side of inflation.  It’s like another tax.  A high tax.  And one no one can escape.  Especially those living on fixed incomes.  Because as prices rise their fixed incomes buy less.  But governments still like causing inflation.  Because if any of those pensioners bought any government bonds, it will be a lot easier to redeem those government bonds when they’re worth less.  Making it easier to tax, borrow and spend.  By making those least able to afford it pay for their spendthrift ways.

Worse, this quantitative easing (QE) will all be for naught if the Eurozone debt crisis doesn’t quickly go away without anymore bailouts.  Which means this QE will be for naught.  Because the countries in the Eurozone taxed, borrowed and spent their way into this mess in the first place.  And as can be seen governments are hard-pressed to give up their spendthrift ways.

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Fitch follows S&P and Downgrades Eurozone Countries which doesn’t Help the Eurozone Debt Crisis

Posted by PITHOCRATES - January 29th, 2012

Week in Review

First Standard & Poor’s.  Now Fitch.  Things are not looking up for the Eurozone (see Greek debt deal hit by eurozone ratings downgrades by Angela Monaghan posted 1/28/2012 on The Telegraph).

Following similar action from rival Standard & Poor’s (S&P) earlier this month, Fitch downgraded Italy, Spain and Slovenia by two notches and Belgium and Cyprus by one notch. Fitch took no action on France’s AAA credit rating despite S&P downgrading the country two weeks ago.

The rating agency warned that the eurozone crisis would only be resolved “as and when there is broad economic recovery” and with “greater fiscal integration”.

It was also being reported last night that the German government wants Greece to hand over control of tax and spending decisions to a ‘budget commissioner’ appointed by the rest of the eurozone, before the country gets its second bail-out.

The budget commissioner would have to power to veto decisions made by the Greek government, according to a proposal seen by the Financial Times, marking a significant step-up in the EU’s powers over the sovereign governments of member states…

Eurozone finance ministers said that while there were still considerable challenges ahead, they believed in the future of a united eurozone.

They’re still trying to save the Eurozone because they can’t save the Eurozone.  Greater fiscal integration?  Hand over tax and spending decisions?  Having a veto over other sovereign nations?  It sounds like to save the Eurozone will require some erasing.  Of the borders between these sovereign states.  Something that sovereign states don’t like.  Being conquered.  Only with Euros and debt.  Instead of artillery and bullets.  Or sword and lance.

So to save Greece all the Greek people have to agree to is to become a vassal of the greater power.  Sort of a step back in time.  To the days of feudalism.  Where the poorer states serve their lord.  Who serves their sovereign.  The new Eurozone structure.  Whatever that may be.  Where the stronger member states will be among the nobility and have greater privileges than the poorer states.  Who will be among the serfs.  Grateful for the generosity of their masters.  And showing due gratitude and obedience.

It’s a simple plan.  But knowing the history of Europe one that is not likely to work.  Not in an age when the trend is towards independence.  Not subjugation.  Hell, even Scotland is talking about their independence from the United Kingdom.  So to think the Greeks are just going to surrender their sovereignty is wishful thinking.  Not in the land where Western Civilization was born.  Not in the country that contains the once great city-state of Athens.  That inspired Alexander the Great.  And the Romans.  No.  That’s just a wee bit too much history for the Greeks to surrender.

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