04-10-2011

The economic turbulence in the Western States, Europe and the USA causing wave disturbance all over the world. The USA tries to in flame the difficulties in other countries to enable themselves to stay afloat. The S&P rating lowering of Italy is one of those attempts. Problem is that the rating agencies are not being taken serious any more, then only in the Western world and then only by financial institutions who are using the rating agencies to make quick profits.

The slower economic growth throughout the Western world, the huge losses by major Western Banks special in the USA. Declining stock markets worldwide. A tightening of credit, making it harder for many borrowers to get loans. The financial institutions are concerned that Greece may default on its government debt, and the banking speculating economists are starting to map out possible outcomes. While no one knows for certain what will happen, it’s a given that financial crises always have unexpected consequences, and many predict there will be collateral damage.

Because of these fears, Greece is working frantically in concert with other European nations to avoid default, (not that they will have a great success in this) by embracing further austerity measures it has promised in return for more European bailout money to help pay its debts. However we have to bear in mind that the attitude from Greece and as well the attitude of the other Mediterranean except Turkey and Israel, is as such that money is no object if you do not have it borrow it worry about paying back comes later, too late!

However, some economists rightly believe default may be inevitable — and that it may actually be better for Greece and, despite a short-term shock to the system, perhaps eventually for Europe as well. As was advised in the early beginning the Mediterranean countries should never have been invited to the Euro system, they lack the discipline needed as the situation at this moment points out quit clearly. The same counts for Italy, Spain and Portugal. The other Euro countries are beginning to wonder whether the consequences of a default or a more radical debt restructuring, dire as they may be, would be no worse for Greece than the miserable path it is currently on.

A default would relieve Greece of paying off a mountain of debt that it cannot afford, no matter how much it continues to cut government spending, which already has caused its economy to shrink. The problem is however not only the problem created by Greece, the main cause of the increasing debt is due to the rating agencies and their financial instructors, the Banks. A lower rating means higher interest rates and more profits for the Banks and bond holders in general and Governments worldwide.

Ratings are always a primitive way of attracting money from countries, organisations or people, who are in financial trouble. Instead of easing the interest rate to give those Countries, organisations or people the chance to pay their debts back, they are charged such high interest rates that it is virtual impossible to get it back. It is a banker’s charger to get rich quick. Those bankers can be put into the same box as the money lenders on the UK and USA streets. Those money lenders give the money at absurd high pay back rates so that it is indeed virtual impossible for the people to pay it back. The only different is that those lenders can send in their henchman to beat the daylight out of the ones who cannot pay back on time.

With countries that situation differs, they can still default on their loans, which means they have to had a plan in place to come around with the money that the country brings in itself as no loans can be attracted for the time being. There is no Henchman who will beat the daylight out of those countries. Mind you with the NATO as a wild card of violence and destruction we would not pass beyond the Americans to instruct the NATO to organize a rebellion and take over the country just as they have done in Afghanistan and Libya. After all the American government has to protect their bankers, if they do not want their own ratings to be lowered. The rating lowering by S&P for the USA was just a shot for the bow of the USA to obey the Zionist wishes or be getting the trouble of a default themselves. As we have seen and will see the USA is indeed retracting and will not now allow a Palestinian state. Money may not talk but the holders of that do!

At the same time, however, there is a fear of the unknown beyond Greece’s borders. Merrill Lynch estimates that the shock to growth in Europe, while not as severe as in the aftermath of the financial crisis of 2008, would be troubling, with overall output contracting by 1.3 percent in 2012 have shown that this option is not on the agenda they prefer total destruction of the Euro above an smaller but more solid Euro country. While other countries have defaulted on their sovereign debt in recent times without causing systemic contagion, analysts weighing the numbers on Greece note that its debt is far higher, so the ripple effects could be more serious.

If we look at the British of near 1.2 trillion over 60 million people then the total Greek public debt of about 370 billion euros, or $500 billion over 10 million people is indeed absurd high and should be by comparison 3 trillion. If we know that Argentina’s debt was $82 billion when it defaulted in 2001; when Russia defaulted, in 1998, its debt was $79 billion. Then we see what kind of trouble countries like Greece and Great Britain are into.

It will have no doubt that a Greek default could put further pressure on Italy, the euro zone’s third-largest economy, which, though solvent, is struggling to enact austerity measures and find a way to stimulate growth. Moreover, Italy’s government debt is five times the size of Greece’s, and concerns about Italy’s ability to meet its obligations could grow if Greece defaults. There is an increasing possibility that after the war on Libya by NATO is finished and the Italian bases are not needed any more the rating agencies will be told to lower the ratings to attract a higher interest rate from Italy and with this an higher profit for the bankers and bond holders. The fact that S&P cut Italy’s credit rating by one notch to A, citing its economy is open for an bankers attack on which their will be a limited political response as such a response will further lower the rating and screw up the interest rate.

In part, what would happen in the wake of a Greek default, depend on whether European leaders could create a firewall to control the damage from spreading widely? That would require officials to come together in ways they so far have not been able to, because it is politically unpopular in some countries to spend many billions more bailing out Greece. A situation that is for some countries an almost impossibility due to their own precarious financial situation. The wisest thing to due would be to let Greece default and set up a fence to avoid the situation to be created again. Such a fence would stop the rating agencies to influx quick rating alterations for quick money as the risk of a default would be riskier then the lowering of the rating.

In particular, work on transforming Europe’s main financial rescue vehicle, the 440 billion euro European Financial Stability Facility, would have to be fast tracked so that it would be in a position to buy European bonds and, crucially, provide emergency loans to countries that need to inject money into capital starved banks. Problem here is that there are no starving banks. Any Bank that has liquidity problems has created this them selves by over lending without proper securities. It fails to see why EU should save those bankers.

Bailing out the banks will be crucial if Greece either defaults or imposes a hard restructuring, whereby banks would be forced to take a larger loss on their holdings compared with the fairly benign 21 percent losses that they are now being asked to accept as part of the second, 109 billion euro bailout package set for Greece in June. However, since when are banks forced to make a loss on loans installed by others to save the others own skin. This is an economic absurdity and the main reason that the bankers had the problems which started the recession in the first place. British, German and French Banks would be hit hard if the debt restructuring fails and the EU bank losses could be as high as 600 billion for those banks. It could be higher as smaller banks will be hit due to the inter banking loan scheme.

A Greek default also would be costly to the European Central Bank, to help prop up Greece; the central bank is believed to have bought about 40 billion euros in Greek bonds at much higher prices than where they now trade. If the central bank were forced to take a major loss on its Greek bonds, it too would need a capital infusion. And the burden would most likely fall on Germany. Analysts also say the seriousness of the crisis will depend on whether Greece stays within the euro common-currency zone or is forced to leave it, and return to the drachma as its national currency.

While technically a default, the loss would not be an outright repudiation of Greece’s debt and the contagion could, in theory, be contained. One big unknown revolves around the fact that, unlike other countries that have defaulted on their debts in the past, Greece does not have its own currency that point could cost the EU dearly. The potentially more dangerous default outcome is if Greece decides to leave or is forced to leave the euro. Then, the debt write-off would approach 100 percent and the effects on international markets could be much more serious.

It is the fact that leaving the euro zone and re-adopting the drachma would enable Greece to devalue its currency versus the rest of Europe, and help it become more competitive, perhaps spurring economic growth. It would better the economic situation in Greece and give them a better control of their Country. However, for the moment, Greek officials are adamant that neither a default nor a euro exit and devaluation are in the cards. But close followers of Greece’s budget dynamics point to the fact that, despite the country’s deficit woes, by next year Greece is likely to have achieved a primary budget surplus, meaning that after taking out the high levels of interest it pays on its debt, it will be running a surplus. Adding that the interest high profit rates should not have been there in the first place as by doing such the rating agencies are acting as the money changers in the Jerusalem Temple at the time of Christ which he called swindlers.

History shows that a country tends only to take such a drastic step as cutting ties with its international lenders when it has tightened its belt enough to achieve a budget surplus, and it is only payments to its bankers that is keeping it in the red. Such was the case in most of the recent country defaults, including Argentina, Ecuador, Indonesia and Jamaica, economists at the I.M.F. found in a paper published last year that addressed when a country finds its interest is served by default.