Euro Bail Out for Dummies
Last week Europe Circus was like reading press releases from Pink Sheet Gold Exploration companies.
“We (think we) have found Gold. We are confident we will explore it and dig it to the surface. We have no machines (yet), but we will get them soon. There is quite some Gold, but we are not sure how much yet. It looks like good quality, but we are not sure. The best is that we have a buyer in China, you know, they buy all the Gold in the World. We haven’t asked them about it yet, but we will call them first thing in the morning and offer them Gold, we don’t have, yet”.
And the Euro Bail Out explanation for Dummies.
Halloween getting Scary
Guest Post by Macro Story.
It’s only fitting that on Halloween we discuss a rather scary proposition. On Wednesday evening European leaders announced a “plan” details will come “later” to expand the aid to those in need.
In lieu of physical capital which doesn’t seem to exist somehow these magicians will take nothing and turn it into something. Through the power of magic they will turn approximately 200 billion euros into 1 trillion.
So before you book tickets to Europe to experience this new found utopia perhaps it’s worth a look “under the hood” at some potential problems. In fact each potential problem actually builds upon one another creating a much more immediate risk. Did leaders in trying to solve one problem actually fast forward the pace of many more?
Things That Make You Go Hmmmmm
Another must read Hmmm report;
The mathematics behind the much vaunted 50% reduction in Greece ’s debt is far more curious than the headlines would have us believe and, the ultimate writedown on the total amount actually turns out to be a far less conclusive 16%. How so, I hear you ask? Well, let’s take a look at the numbers:
Greece’s debt is roughly €350 billion. Of that, approximately €150 billion is held by the ‘Troika’ (including the €75 billion held by the European Central Bank) and this €150 billion is NOT subject to the haircut imposed on private holders of the debt. So that leaves us with roughly €200 billion. Greek banks and pension funds account for (give or take a billion or two) another €85 billion and, though many number-crunchers apply the haircut to this slice of the debt pie, my own feeling is that it is untouchable as, if they are NOT ring-fenced these holders will be bust should they be forced to take the proposed haircut. By my calculations, that leaves €115 billion needing to be ‘forgiven’. Apply the haircut to that number and you are left with a reduction in Greek debt of €57.5 billion – or 16%.
Suddenly, that 50% haircut and the subsequent reduced debt burden doesn’t seem quite so drastic after all, does it?
Full must read Hmmm October 30 2011
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