Greek Debt numbers might be unreliable

[jacobdcoates]

Who would have thought a government would falsify statistics:rolleyes:

http://www.reuters.com/article/idUSLDE60B0WN20100112

[metalman]

Re: Greek Debt numbers might be unreliable

Who would have thought a government would falsify statistics:rolleyes:

http://www.reuters.com/article/idUSLDE60B0WN20100112

who would have thought there was a way to call them on it?

[jacobdcoates]

Re: Greek Debt numbers might be unreliable

Isn't technological progress grand, now if I could only get my VCR to work.

Honestly, I wouldn't have thought there would be a reliable way to do it. I wonder when Uncle Sams number gets punched?

I think that it provides the current government of Greece an excellent excuse to default on the debt, pin it on the old government and say no mas. The old "my predecessor lied and it is much worse that we thought, we have to....." bit.

[metalman]

Re: Greek Debt numbers might be unreliable

Isn't technological progress grand, now if I could only get my VCR to work.

Honestly, I wouldn't have thought there would be a reliable way to do it. I wonder when Uncle Sams number gets punched?

I think that it provides the current government of Greece an excellent excuse to default on the debt, pin it on the old government and say no mas. The old "my predecessor lied and it is much worse that we thought, we have to....." bit.

vcr? what's a vcr? :rolleyes:

[lsa420]

Re: Greek Debt numbers might be unreliable

Isn't technological progress grand, now if I could only get my VCR to work.

Honestly, I wouldn't have thought there would be a reliable way to do it. I wonder when Uncle Sams number gets punched?

I think that it provides the current government of Greece an excellent excuse to default on the debt, pin it on the old government and say no mas. The old "my predecessor lied and it is much worse that we thought, we have to....." bit.

The article says the revised Greek 2009 budget deficit is 12% of GDP. Thinking back to one of EJ's last articles (I think Asylum but I'm too lazy to look) weren't sovereign debt defaults/currency crises all triggered with deficits well below that level?? It would seem to me that some sort of default is imminent.

Does anyone know the effect that will have on the Euro and/or EUR/USD??

[ASH]

Re: Greek Debt numbers might be unreliable

The article says the revised Greek 2009 budget deficit is 12% of GDP. Thinking back to one of EJ's last articles (I think Asylum but I'm too lazy to look) weren't sovereign debt defaults/currency crises all triggered with deficits well below that level?? It would seem to me that some sort of default is imminent.

Does anyone know the effect that will have on the Euro and/or EUR/USD??

This recent Evans-Pritchard article includes a graph reproduced from work by Peter Bernholz on budget deficits prior to five historical hyperinflations. The historic range of budget deficits for the cases studied vary from 33-91% of total expenditures immediately before the period of hyperinflation. It would be interesting to know the Greek deficit relative to total government spending, rather than GDP, to make the comparison to Bernholz's work. In the Evans-Pritchard article that I link, he notes that Japan has been in this range for the past eight years without ill effect (but also cites the opinion of an analyst at Societe Generale that Japan won't be able to keep this up much longer).

[lsa420]

Re: Greek Debt numbers might be unreliable

This recent Evans-Pritchard article includes a graph reproduced from work by Peter Bernholz on budget deficits prior to five historical hyperinflations. The historic range of budget deficits for the cases studied vary from 33-91% of total expenditures immediately before the period of hyperinflation. It would be interesting to know the Greek deficit relative to total government spending, rather than GDP, to make the comparison to Bernholz's work. In the Evans-Pritchard article that I link, he notes that Japan has been in this range for the past eight years without ill effect (but also cites the opinion of an analyst at Societe Generale that Japan won't be able to keep this up much longer).

Ash

That was a great read, I appreciate the post and reply. AEP makes a compelling case in the article, and this topic has been discussed on iTulip as well. When I put all of this Japan info into perspective, and also take China into account, I can't help but think it's time to increase my allocation to gold.

[oddlots]

Re: Greek Debt numbers might be unreliable

The Ambrose Evans-Prichard piece is heavily reliant on another by a Soc. Gen. analyst called Grice that Zero Hedge linked to here:

http://www.zerohedge.com/article/upc...-japan-edition

Covers the same ground obviously but provides errrr... more charts.

Curious about a commenter's point that Japan has little external debt and a current account surplus so the idea of hyper-inflation taking hold is ludicrous. Does this make sense? The whole point of the article it seems to me is 1) Japan has only been able to run up this debt because it is internal (conservative, Japanese savers) so, 2) the removal of same through demographic shift seems to threaten a problem no?

Also highlights our perhaps subconscious dependance on the Japanese model as the worst case as we peer into our future as OECD countries. Quite alarming if the Japan's "lost decade" was only the prelude to some other nightmare, no?

[ASH]

Re: Greek Debt numbers might be unreliable

Curious about a commenter's point that Japan has little external debt and a current account surplus so the idea of hyper-inflation taking hold is ludicrous. Does this make sense? The whole point of the article it seems to me is 1) Japan has only been able to run up this debt because it is internal (conservative, Japanese savers) so, 2) the removal of same through demographic shift seems to threaten a problem no?

I agree with you. My take is that the reasons cited why Japan's recurrent large deficits will not be a problem are a rote recital of why they were not a problem before, rather than a response to the SG analyst's argument they will become a problem because times are changing.

[c1ue]

Re: Greek Debt numbers might be unreliable

Japan's debt being internal means there won't be an external cause to the eventual crisis: balance of payments thus not the issue.

The debt of course is not good - the Japanese government at some point must either start paying down this debt or start borrowing from abroad, or both.

But due to cultural factors (re: South Korea devaluation/revaluation precedent), there are additional paths available which are not options in most nations.

Don't forget that in this sense, Japan's demographics is a plus: the same generation which built Japan up post WW II is the one which has most of the money now. The political/social impact may be negative for foreigners though...

[metalman]

Re: Greek Debt numbers might be unreliable

The article says the revised Greek 2009 budget deficit is 12% of GDP. Thinking back to one of EJ's last articles (I think Asylum but I'm too lazy to look) weren't sovereign debt defaults/currency crises all triggered with deficits well below that level?? It would seem to me that some sort of default is imminent.

Does anyone know the effect that will have on the Euro and/or EUR/USD??

itulip lists the variables & thresholds... then uses a decision tree approach...

The paper measures several dozen variables that relate to debt crisis, but only nine are conditions that apply to the U.S., as shown below. This is where the U.S. stands, with thresholds exceeded in red and those not exceeded in black.

As you can see, the U.S. exceeds seven of the nine thresholds, and grossly exceeds five of them: total external debt, short-term external debt, public external debt to revenue, and overall balance. The U.S. shines with respect to tax revenues as a percent of external debt (not shown above), and cost of debt service due to low interest rates.

Here are the conditions that lead to a debt crisis presented as a binary recursive tree. The U.S. case is printed in blue boxes in red if the U.S. meets the criteria to continue to the next level of the tree and black if not.

Click to enlarge

How far down the tree does the U.S. go presently?

Asylum Markets of the post FIRE Economy – Part II: Breaking the Rules - Eric Janszen

[ASH]

Japan's debt being internal means there won't be an external cause to the eventual crisis: balance of payments thus not the issue.

I see a linkage between the export orientation of Japan's economy and the ability of its workers to generate savings that ties the domestic market for Japanese government debt to the condition of external export markets and trade.

But due to cultural factors (re: South Korea devaluation/revaluation precedent), there are additional paths available which are not options in most nations.

My crib notes version of the South Korean example is that the Korean citizenry pulled together, sold their jewelry, and hastened the recovery of national currency and finances after the Won went into the toilet. I read that South Korea's debt-to-GDP ratio went from 13% to 30% during the crisis. It seems that Japanese cultural unity might similarly help them emerge from a crisis, but it doesn't necessarily mean it will avert a crisis... and it seems to me that they are in a hole that is quantitatively much deeper.

Don't forget that in this sense, Japan's demographics is a plus: the same generation which built Japan up post WW II is the one which has most of the money now. The political/social impact may be negative for foreigners though...

I would prefer to be positive, because I like my Japanese relatives.

[c1ue]

Re: Greek Debt numbers might be unreliable

I see a linkage between the export orientation of Japan's economy and the ability of its workers to generate savings that ties the domestic market for Japanese government debt to the condition of external export markets and trade.

Keep in mind, however, that the export orientation of Japan is a relatively new phenomenon.

The savings phenomenon in Japan existed before the export trend (70s) and is a cultural artefact.

Certainly it is true that the Japanese savings pool is no longer growing - in fact may be shrinking.

But the point I'm trying to illustrate is that at present the savings is being used poorly to prop up specific outlying segments of the export economy. This savings could be used for other purposes; for example even a return of Japan to true self-defense would itself generate a lot of jobs.

My crib notes version of the South Korean example is that the Korean citizenry pulled together, sold their jewelry, and hastened the recovery of national currency and finances after the Won went into the toilet. I read that South Korea's debt-to-GDP ratio went from 13% to 30% during the crisis. It seems that Japanese cultural unity might similarly help them emerge from a crisis, but it doesn't necessarily mean it will avert a crisis... and it seems to me that they are in a hole that is quantitatively much deeper.

More or less correct. The point again was that South Korea was able to quickly recover from a balance of payments crisis via its homogeneity and cultural gung ho (or whatever the Korean equivalent is).

Japan does not necessarily have to go through the same balance of payments crisis as it simply has far more savings than South Korea; Koreans and Japanese are not so dissimilar once you get past that the Koreans are far more openly aggressive and more individualistic, whereas Japanese are far more 'wa' oriented. Cain and Abel, so to speak ;)

My point again is that in Japan, the recognition that there is a problem is growing quite widespread. The fall of the LDP is a good example of this.

Now that the problem is recognized, the Japanese will determine a way out - and they have tools which many other nations do not.

For example: I've noted before that there is a significant group of people who are thinking hard about the demographic situation. One subsegment of these believe very strongly that Japan must open its borders to young workers of other nations; the way this is being done is via schools in nations like Thailand to train foreigners in being Japanese - or at least Japanese enough to render services.

Whatever happens I am seeing a lot of activity associated with evaluating the present situation and seeking ways out other than what Big Brother Uncle Sam wants.

In a very real sense the Meiji Restoration is a good example: Japan's demographic position vs. Korea and China was becoming untenable such that a radical Westernization/industrialization was undertaken more or less by fiat.

Reading/Watching about the travails of the Samurai classes in the Meiji era is educational on the lengths to which Japanese society is willing to change/sacrifice in the face of need.

The shift of Japan's war industries post WW II is another interesting example.