Geithner on “Sustaining the Unsustainable”; Bill Gross, Robert Mundell say Sovereign Default Likely Inevitable
by ilene - May 26th, 2010 3:46 pm
Geithner on "Sustaining the Unsustainable"; Bill Gross, Robert Mundell say Sovereign Default Likely Inevitable
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Courtesy of Mish
Sustaining the Unsustainable
Treasury Secretary Tim Geithner had me laughing out loud over his statement yesterday in Beijing where he took part in the two-day U.S.-China Strategic and Economic Dialogue.
"European leaders face the difficult challenge of trying to restore sustainability to an unsustainable system."
Yes Tim, that challenge would indeed be "difficult", in fact, impossible by definition.
It is a contradiction in terms and thus logically impossible to suggest it is possible to "sustain the unsustainable". Geithner needs math lessons or logic lessons, most likely both.
Sovereign Default Inevitable
With Geithner focused on the impossible, others have a more practical outlook. For example, Bill Gross and Noble Prize winning economist Robert Mundell say Sovereign Default May Prove Inevitable for Nations.
Pacific Investment Management Co.’s Bill Gross said restrictive lending rates and austerity measures that slow growth may leave default as the “only way out” for some sovereign borrowers dealing with mounting debt and deficits.
“Credit and equity market vigilantes are wondering if in many cases sovereigns haven’t already gone too far and that the only way out might be via default or the more politely used phrase of ‘restructuring,’” Gross wrote in his June investment outlook today on the Newport Beach, California-based company’s website. “It may not be possible for a country to escape a debt crisis by reducing deficits.”
“At the now-restrictive yields of Libor plus 300-350 basis points being imposed by the EU and the IMF alike, there is no reasonable scenario which would allow Greece to ‘grow’ its way out,” said Gross, co-chief investment officer of Pimco and manager of the world’s biggest mutual fund.
Nobel Prize-winning economist Robert Mundell said reworking debt may be “inevitable” for one or two countries that share Europe’s common currency in the next five years.
“Debt restructuring may be needed for one or two fiscally weak euro members,” he said today at a conference in Warsaw. “In five years it may be inevitable, but it doesn’t mean euro deconstruction, it just means debt restructuring.”
Geithner Pleads Bazooka Be Fired
As noted above, it is not only “difficult” it is impossible by definition to achieve the unachievable, thus extremely foolish to even attempt such a maneuver.
However, logical impossibilities did not stop Geithner’s plea to fire the $1 trillion
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Italy a Bigger Threat to EU than Greece; Italian Derivatives Draw Scrutiny; Mundell Wants Cap on Euro Gains; Academic Wonderland
by ilene - February 22nd, 2010 1:12 pm
Italy a Bigger Threat to EU than Greece; Italian Derivatives Draw Scrutiny; Mundell Wants Cap on Euro Gains; Academic Wonderland
Courtesy of Mish
Robert Mundell, the man who laid the groundwork for the establishment of the Euro claims Italy is a bigger threat to EU stability than Greece.
Please consider Italy Is Top Threat to Euro, Columbia’s Mundell Says
Italy, saddled with the euro region’s second-largest debt, is the “biggest threat” to the economy of the 16-member bloc, according to Nobel Prize-winning economist Robert Mundell.
“Italy has got to be worried,” Mundell, a professor at Columbia University, said today in a television interview in New York. “If Italy became a target then this would create a big problem for the euro. Whatever is being done to Greece, possibly to Portugal and maybe Ireland, has to also save Italy from that problem.”
Italian officials have tried to prevent Italy from being lumped together with some of the euro zone’s smaller economies – – Portugal, Ireland, Greece and Spain — that have drawn investor concern about their ability to control deficits and debt. Italian Prime Minister Silvio Berlusconi said Feb. 10 that those nations were doing “much worse” than Italy and that the “markets have given us their faith.”
“It would be very difficult if Italy got tarnished with the same problem,” Mundell said, referring to the risk the European Union may need to provide financial assistance to some of its members. “It would be very difficult to bail out Italy.”
Mundell won the Nobel Prize in 1999 for research that helped lay the foundation for Europe’s single currency.
Italy’s high debt level would create problems for the entire euro region if rising financing costs make it difficult to service the country’s borrowing, Mundell said. Italy has about 1.8 trillion euros ($2.5 trillion) in debt, more than five times that of Greece and the equivalent of about a quarter of the euro zone’s debt.
If markets were to lose confidence in Italian public finances, then the European Central Bank would have its hands tied by the Maastricht Treaty, which says the central bank must orient monetary policy exclusively toward keeping inflation under 2 percent.
“The Treaty of Maastricht puts a straight jacket on the ECB,” Mundell said. “Monetary policy itself would have to bend a little if a country as big as Italy got into trouble.”
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site