hyperinflation - never happened / will never happen again, which?

The `Troika' Admits: This Bailout Won't Work


"Bailing out" a huge bubble of unpayable debt gets less successful each time the oligarchy tries it, as shown by the EC second Pyrrhic victory over Greece, a $170 billion bailout of Greece's creditors at the expense of its people's lives.


This time, even an internal report of the EC/ECB/IMF "Troika" to itself, leaked to the Financial Times and reported by the FT and The Economist today, concludes that the "deal" it just approved Monday night won't work. 


The 10-page internal "debt sustainability analysis" prepared by IMF economists says that the "orderly default" deal is likely only to postpone a Greek disorderly default by a year or so. 


According to the Economist account, the internal report shows that the Greek economy will go into so steep a plunge that it will not come near the target 120% debt/GDP ratio at any point. 


Essentially they describe the "deal" as an attempt to squeeze the Greek economy just to the brink of, but not into, a breakdown collapse -- but acknowledge that it will likely go across that line, into depression and chaotic default.


The "deal" is hardly arranged: none of the "bailout creditors" involved, including the IMF, has agreed on what it will contribute, let alone approved this legislatively; and there is desperate and still growing resistance in Greece to the deadly terms.


But even if all this were agreed, the immense unpayable global debt bubble means that each larger and larger bailout is less adequate to the demands for debt service. 


So, this "guarantee" by governments to the banks comes with a substantial lowering of interest rates and market values of sovereign bonds -- "losses north of 70%" -- which will spread to bonds of other European sovereigns and corporations, making the banks even more desperately dependent on the trillions in ECB money which is being funneled to them -- 


i.e., on hyperinflation. 


The Wall Street Journal reported today its calculation that the "big 8" European megabanks alone, have now parked nearly $1 trillion at central banks around the world, triple the amount of one year ago -- essentially, stuffiing the money in mattresses even as the ECB and Fed print it and lend it to them.


But the disaster of this "deal" is clearest in Greece itself. London and Brussels forced the Greek "technocrats" to agree that {the Greek Constitution is to be amended to place external debt payment explicitly before public welfare}. 


This is pure and brutal imperialism, never before done to a "developed industrial country" -- as if London (post-Versailles) had ordered Germany to remove the guarantee of the "social state" principle from its Basic Law and insert "corporate state" instead. 


This is to ensure that Greece will completely segregate -- in fact, not touch -- the bailout funds intended for her creditors. The EC statement on the "deal" even speaks of the EC controlling the Finance and other ministries with "administrators [like boots] on the ground,"


Secondary snags and explosion triggers abound. The "CDS time-bomb" is small for Greek debt but will become very large when Italy's turn comes. 


The International Institute of Finance (IFF) which magnanimously accepted the 70-75% "haircut" on the value of its Greek debt holdings, represents 32 of the world's biggest banks, which hold about 25% of Greek external debt. 


But {95%} "voluntary" acceptance is specified in the agreement. The IIF will not be able to line up 95% agreement; the Greek Parliament is then supposed to compel 100% acceptance, by inserting a "collective action clause" into the new bonds. 


This is involuntary default, and sets off CDS derivatives-market explosions. In addition, the ratings agencies will give Greek debt a "default" rating, triggering other derivatives blowups.

BONUS ARTICLE:


Rather Than Surrendering to the EU, Greece Should Follow Icelandic Model  


Prof. Boyan Durankev, of the University of National and World Economic Studies at the University of Sofia, Bulgaria, said in an interview with Sofia news station Focus Radio yesterday that if people want to get a real idea about the situation in Greece, they should not rely on what the media generally tell them: 


"Suffice it even our listeners to read the letter of Mikis Theodorakis -- the famous Greek composer -- who shook Greece and suggested that a triad of corrupt Greek politicians, plus corrupt foreign banks, plus foreign corrupt gun dealers have led Greece to this crisis. 


And of course -- the policy is not to make former corrupt governments to pay, corrupt banks and sellers of firearms to pay, but the ordinary Greeks shall pay."


"Plus one more little thing," Durankev said, "If you look at the so-called 'Misery index' which is calculated by the {Economist} -- that is the sum of the rates of unemployment and inflation in a country -- we will immediately notice that Greece is in a very dangerous situation, as well as Spain, and Britain and the U.S., but the unemployment rate in Greece is above 21% and the percentage of young people is over 40. 


So only the conclusion of an agreement to reduce wages for the loan of 130 billion, the new one that will put Greece in even greater crisis to reduce the minimum wage by 22% and pensions by 12% -- it will not solve the problem."


Durankev added that, naturally, a Greek exit from the Eurozone and return to the drachma would bring economic hardships: 


"But look, on the other hand, Iceland, which had an extremely poor rating since it was the first bankruptcy. The Icelanders managed to hold a referendum extremely convincing -- 93% of them voted against paying the debt. The IMF froze all credit lines to the state and yet in the fourth year, Iceland is coming out of the crisis and at the moment its credit rating is increasing."


In an earlier interview with the same radio program, in which Durankev characterized the financial crisis as a systemic one that cannot be solved for a long time to come, if at all, he also said he is confident that the protest spirit seen in the Occupy actions, will also spill over to Bulgaria and the other crisis countries, and that he is not pessimistic about the future: "Perhaps optimism is that when people understand that those who govern them can not govern them properly, they will not want to live that way any longer, and then surely would find new solutions and new recipes."