Tag Archives: financial crisis

Huge Protests Inspired by Suicide of Greek Pensioner – How Much More Can Greece Take?

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A 77 year old Greek pensioner took his own life outside the Greek parliament building on Wednesday morning. Retired pharmacist Dimitris Christoulas shot himself in the head with a handgun. In a suicide note, Christoulas linked his tragic act to the country’s economic crisis. In the note found by his daughter he wrote, ‘I have no other way to react apart from finding a dignified end before I start sifting through garbage for food,’

The act immediately sparked widespread sympathy and anger. An impromptu anti-austerity rally was launched on the same day and there were clashes with police. Police clashed with around a thousand protesters for a second day on Thursday. Some were blaming politicians and EU leaders for the death. The protestors chanted, ‘Killlers!, Killers!’.

Christoulas is thought to have attended anti-cut protests the previous year and has been described as politically active. Sympathisers called his actions, ‘A clear political act … he was giving his life to change the situation’.

Suicides in Greece have doubled since 2009 having previously been the lowest in Europe. Greece is struggling to cope with the heavy austerity measures which have been forced upon in by the bigger European economies in exchange for bailout funds.

Already the recent bailout is looking like a distant memory. As I mentioned in an earlier article  it was extremely disappointing that EU leaders did not attempt to solve the problem once and for all. Already we are getting suggestions that a third bailout will needed. The Greek growth predictions are extremely optimistic given the levels of austerity it will need to bear. Yields on the new Greek PSI bonds (the bonds investors were forced to swap their existing holdings for) have soared to over 21% in the last couple of days.

As the actions of Christoulas show, the EU leaders and economists, have underestimated the Greek people. There is only so much the Greek people will take. The real crunch point is likely to come in June when cuts worth about 7% of GDP are expected to be announced. How much more will the Greek people take?

My guess is that we are close to the breaking point. Christoulas’s tragic act may be the symbolic trigger which sets everything off. One of the major issues Greece faces (which people often forget) is that Greek banks, pension funds and other Greeks hold most of the Greek government debt. This is why some in Greece are so reluctant to leave the Euro. Nevertheless something will have to give.

 

 

US Loses Triple AAA Credit Rating

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One of the world’s three leading credit agencies has downgraded US debt. Standard and Poors cut the US credit rating one notch to AA+ with a negative outlook.

The agency argues that the deficit reduction plan passed by congress didn’t go far enough in addressing the US deficit. Whilst the US debt to GDP ratio is already high at 65.2% of GDP, total government liability is actually far greater when including government agencies such as Medicare and Fannie Mae and Freddie Mac.

The two main other credit agencies said last night that they had no plans to downgrade US debt in the near future.
Officials in Washington were furious with the decision and claimed to have uncovered a two trillion dollar error in the agencies analysis. The impact on the markets remains to be seen. Given the panic of the last week investors have been piling into US government bonds pushing yields to record lows despite the US government debt problems. This latest downgrade couldn’t have come at a worse time but we will have to wait until Monday to see the impact it has on the markets.

Investors will be worried that the downgrade may impact the wider economy, president Obama has already warned of the impact a downgrade would have. The downgrade threatens the dollars status as the world’s reserve currency. The instability could have severe consequences for the world as a whole.

Debt Talks Collapse as Republicans Walk Away

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Debt talks in Washington reached a crisis point today as negotiations collapsed ahead of the August 2nd deadline. House speaker Republican John Boehner walked out of negotiations accusing president Obama of moving the goal posts by demanding bigger tax increases.

An angry Obama has said he and other Republicans are puzzled as to why a deal couldn’t get done. The president was offering to slash a $1 trillion in discretionary spending as well as cutting $650bn from Medicare and other entitlements.

People will be disappointed to hear Boehner just walked away at this time of crisis. Walking out at this stage cannot be constructive. It’s also extremely irresponsible with the spectre of a potentially disastrous US debt downgrade looming, to say nothing of a possible default. Republicans generally are starting to look increasingly rash as they unrealistically refuse to except tax increases.

If US debt were to be downgraded, even slightly, this in itself could have huge consequences. Many pension funds worldwide are required to only hold AAA securities and many currently hold large amounts of US government debt. In the event of a downgrade they would all have to sell this debt which could have a huge impact on the US dollar and the price of US debt, possibly causing a downward spiral, as yields rise and the US has to pay more interest on its debt in the future. The effects on the global economy and jobs could be huge.

A default is of course unthinkable and would lead to a worldwide financial meltdown.

It’s time for the politicians to stop thinking about themselves for once and to start thinking about the man in the street. It’s time to get this thing sorted. Each US taxpayer now owes almost $130,000