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Commentary on The Capital Markets- Category [International]

This is amusing.

Greece had a 750 million Euro payment due to the IMF today.  They "made" it by writing a check to the IMF funded by "SDR" funds held at..... the IMF!

Participating nations deposit money in the IMF's SDR fund to be aggregated so the IMF can make loans.  What Greece effectively did was "take back" their IMF SDR deposit in order to pay the IMF.

If you take from this that they took $20 out of one pocket and put it in the other, and by doing so claimed to have "paid" the $20, you're right.  Yes, we're into the realm of the insane my friends....

This sort of crap is the same thing that governments do all the time when they spend in deficit and give the money out in social programs; they "claim" that the funds "help" the people but the act of diluting the currency through deficit spending takes the very same value back out at the very same time!  In other words while specific people might be helped the net economic impact is at best zero and due to inefficiency is factually negative.

In Greece's case it's much worse because the half a billion Euros they moved around has to be replenished within 30 days.  They have no means to do it, and no expected income to do it with, unless Europe gives them the last 7.5 billion Euros in their "bailout package."  But even then the problem just gets moved, because they have bond redemptions they must fund and they'll still be sucking on a dry hose.

The bottom line remains the same: Deficit spending must stop, now, in order for Greece's budget to stabilize.  In fact they must either default on the debt or run a big enough surplus to service and retire it; the latter appears to be flatly impossible, so that makes default the only rational act.  But irrespective of default or not the deficit spending must stop right here, right now.

This is no different than what we face in the United States, with one exception: Our back is not yet up against the wall as is the case for the government of Greece but it will be if we don't cut the crap here, exactly as it is there.

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2015-05-10 14:28 by Karl Denninger
in International , 171 references

So says Bloomberg....

German Chancellor Angela Merkel is coming under growing pressure from within the ranks of her own party bloc to give up on Greece for the sake of the euro.

Members of Merkel’s Christian Democratic bloc are openly challenging her stance of keeping Europe’s most-indebted country in the 19-nation currency region. Even some officials in the Finance Ministry are leaning toward the conclusion that the euro area would be better off without Greece, two people familiar with the matter said.

The problem, of course, is that they can't force Greece out of the European Union -- and in my opinion the best option for Greece is to default and stay in the common currency.

Yes, this would mean an immediate halt to all their so-called "loan support" -- that is, the government would have to immediately cease spending more than it takes in via taxes.

But -- it would also stop paying any of those alleged "debts" too, which would make it quite a bit easier!

Further, Greece would retain the trade benefits of being in the union and there is nothing any of the other nations could do about it.  If Greece leaves they would be subject to tariffs on their goods and services, and you can bet nations would try to recover whatever they lost via the default through that backdoor method.

So I say stay in the Euro, but give Merkel and the rest of the "institutions" the finger -- and watch the pretty fireworks from afar, because you know damn well that the banks and others have tendered this crap to the ECB and have derivatives written against it that suddenly become worth 100 cents on the dollar in the event that a default looks to be a total loss scenario as opposed to some sort of temporary "haircut."

There is no long-term future for any government that cannot live within its ability to tax.  This is true for Greece, it is true for France, it is true for Japan and it is true for the United States.  You can pretend and extend, especially with central bank support, and by doing so you simply make the damage more-severe and more difficult to live through.  In an extreme case you will collapse both the economy and society, and get to experience all the bad things that come with that outcome.

But the fact is that arithmetic cannot be changed, and it is flatly impossible to have a stable economic environment and stable government finances so long as continual deficits are being run on a cash accounting basis.

That's what must stop -- here and everywhere else -- and the sooner we get on with it the better.

PS: The impact on the markets from such an event is likely to be..... interesting.

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