On hearing of the Greek downgrade, following email…
Greece collapses. Well not quite yet, but the downgrade to junk BB+ and the recovery rating by S&P of 4 which means that only 30% to 50% of the invested money will be recovered, is ugly. Portugal was cut to A- and their spreads widened so they are waiting in the wings.
As far as "What next," in order for Greece to get its desperately needed loans in the face of strong negative sentiment in Germany, and the slow handling of the crisis, it will have to make promises it can't keep. Credit Default Swaps on 5-year Greek sovereign bonds are being priced at 698, which translates into a 7% cost for insurance. That is unacceptably high. With spreads to German bonds at 600 points, the increased cost of paying the interest on the debt would completely erase the benefits promised of austerity measures that were supposed to cut the deficit by 3% of GDP. Even if the Greeks are able to secure the loans from the EU and the IMF loans, I fear that as their economy continues to collapse, they will burn through these new loans and then present the same problem again in a year or two. According to reports, Greeks are pulling money out of their own banks.
This is a good example of the point of no return we’ve have been warned about.
Meanwhile, the stock market is off hard, again. And the CBOE Volatility Index (VIX) is up about 20% on the day. Interestingly, while the euro is down, and the dollar up, so is gold – and quite strongly.
Meanwhile, back in the U.S., doing his part to avoid a wipeout of the Democrats’ legislative majority this November, President Obama has announced he won’t be commenting on the U.S. debt problem until hearing back from a special debt commission in December… in other words, not until after the mid-term elections. How convenient.
The fact of the matter is, the sovereign debt problem is out of control and completely intractable at this point. While the world’s debtor nations would love to have the time needed to let a creeping inflation work down the value of said debt – their current obligations and the pile of debt are simply too big. And the global economy is just too weak.
The odds that we’ll see a spate of outright sovereign debt defaults and currency revaluations are growing by the day. Is it any wonder that gold is showing so much spine?
E.g.,dd.... INCLUDING 22.97 G/T AU ACROSS 24.8 METRES - GOLDSTONE REPORTS EXPANSION OF NN ZONE MINERALIZATION AT HARDROCK -
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