A Greek Default is Bad – But a Greek Bailout Much Worse
Many investors continue to favor a Greek bailout to prevent the Eurozone's first sovereign default – but they are rooting for the wrong solution.
Greece has requested another loan from its European neighbors to cover next year's $43 billion (30 billion euros) shortfall as yields on 10-year Greek bonds have climbed over 16%.
The second Greek bailout would come about a year after the European Union (EU) and International Monetary Fund (IMF) loaned the struggling country $158 billion (110 billion euros) to meet soaring financial obligations. Greece took the money on the terms that it would implement austerity measures and cut its massive budget deficit, but the country failed to meet the agreed-upon targets.
EU and IMF officials have been reviewing Greece's cost-cutting actions to determine if the country – now with about $430 billion (299 billion euros) in debt – deserves another huge loan. EU leaders have also considered asking investors to reinvest in new Greek debt when existing bonds mature, buying time to stabilize Greece's sinking economy.
Don't Fret Over Europe's Debt Crisis – Oil Prices Will Bounce Back
The volatility in the oil market has notched up this week, courtesy of another bout with debt jitters in Europe. Oil and gasoline futures are moving down – and most of the energy sector along with them.
In a situation like the current European debt mess – where maximum uncertainty is channeled into a very focused concern – oil futures will generally overcompensate, exaggerating the downside.
Of course, that is of little consolation to the traders who in the past few days have seen about $3.00 cut from the near-month futures (July).
Resurgent Greek Debt Crisis Stokes Concern, Causes S&P to Lower Rating
Concern that the Greek debt crisis is far from resolved led Standard & Poor's to lower that troubled country's debt rating even deeper into junk territory yesterday (Monday).
The S&P cut Greece to B from BB- with a warning it could downgrade further.
"In our view, there is increased risk that Greece will take steps to restructure the terms of its commercial debt, including its previously-issued government bonds," S&P said in a statement.
A restructuring of the Greek debt could result in principal reductions of 50% or more, with the loss borne by the bondholders.
One year after a bailout intended to help the Greek government address its crushing debt – it owes more than 150% of its gross domestic product (GDP) – European Union (EU) leaders are worried Greece is not doing enough to fix its debt problems.
S&P Downgrade Shows U.S. Debt Crisis Could Have Dire Consequences
The latest development in the U.S. debt crisis came yesterday (Monday) when Standard & Poor's finally downgraded its outlook for U.S. debt to "negative," from "stable."
That's right: Of the 17 countries that S&P has rated AAA, the United States is the only sovereign that carries with it a negative outlook.
This merely confirms what we've been saying all along about the complete lack of fiscal discipline on display in Washington – and it has potentially dire implications for the U.S. economy.
Fortunately, as an investor, there are steps you can take to safeguard yourself against the abhorrent fiscal and monetary policy that has resulted in this U.S. debt crisis.
I'll get to that later – but first, let's examine how we got to this point…
President Obama Tackles Deficit Reduction and Debt Ceiling as Budget Battle Continues
Washington's heated budget battle will continue this week when U.S. President Barack Obama presents a deficit reduction plan on Wednesday.
The latest federal budget proposal will come less than a week after President Obama and Congress reached an eleventh-hour agreement for the 2011 budget to prevent a government shutdown. They reached the deal shortly before midnight Friday, when the shutdown would have gone into effect.
Lawmakers agreed to slash around $38.5 billion in spending from this fiscal year's budget. Republicans were able to push for more cuts; Democrats won a fight to keep funding for Planned Parenthood.
Many analysts say the 2011 budget battle was just a warm-up for Washington's upcoming funding issues: the 2012 budget and the debt ceiling.
While details of Obama's plan are still vague, David Plouffe, a senior White House advisor, said Sunday on Fox News that the president will name a dollar amount for deficit reduction goals. Obama is expected to present a 2012 plan that includes cuts to entitlement programs Medicare and Medicaid, changes to Social Security, reduced military spending and support for tax increases for America's richest taxpayers.
"Every corner of the federal government has to be looked at here," said Plouffe. "We're going to have a big debate."
Debt Ceiling Woes: Four Moves to Make as a Government Shutdown Looms
U.S. Treasury Secretary Timothy Geithner is once again worried that we're going to hit our debt ceiling (this time by May 16), and the resultant debate has once again brought our government to the brink of a "shutdown."
I don't know why: The entire debt ceiling concept – as well as the investor fear, political-posturing, self-aggrandizing behavior and government-shutdown debates this budget limit repeatedly spawns – is a joke, albeit it a very bad one.
Unfortunately, the speed at which headlines are crossing my desk suggests that the entire affair will turn into yet another Capitol Hill debacle – this one with additional consequences for an already battered Main Street.
But I've got four recommendations that will help you sidestep the government shutdown/debt ceiling fallout, and perhaps even bolster your retirement holdings along the way.
2011 Budget Showdown: Don't Raise the U.S. Debt Ceiling… Sell the White House!
I have to tell you that – as a former international merchant banker – I want to laugh out loud when I hear the dire predictions of how the United States will have to default if Congress doesn't raise the nation's debt ceiling. With a little Wall Street-style creative financing – even when the government's [...]
Washington's Debt-Ceiling Debate – A Political Sham
I have to tell you that – as a former international merchant banker – I want to laugh out loud when I hear the dire predictions of how the United States will have to default if Congress doesn't raise the nation's debt ceiling.
With a little Wall Street-style creative financing – even when the government's outstanding debt level reaches the official limit of $14.3 trillion sometime around the end of March – there's no reason why the country can't go on borrowing as if nothing has changed.
The debt-ceiling debate is something you're going to hear a lot about in the days and weeks to come. The Obama administration just yesterday (Monday) introduced its fiscal 2012 budget proposal – a spending plan that's certain to ignite a firestorm of debate between Democrats and Republicans. And those arguments about next year's spending plan will absolutely feed into a heated showdown over the federal debt ceiling.
But the two sides are arguing about the wrong thing: It's the country's debt load – not the debt ceiling – that has to be addressed. And I can prove it to you.
Like a consumer who's in over his head, Uncle Sam has several alternatives available before his creditors arrive to repossess his vehicles and cut up his credit card. By highlighting some of the "debt dodges" that are available, I will show you that the dire near-term predictions aren't anything to fear. Long-term, however, this country really does need to slash its debt-load. But that requires a real commitment, not political maneuvering.