A note on sovereign debt
This is a guest post from Dr Joseph Clark
There is now a good chance the Greek government will default on its bonds. If it does, the impact on financial markets in Europe and elsewhere will be savage. Interestingly, there is actually no need for Greece to default. It is not, nor is it ever likely to be, bankrupt. It is a sovereign country with plenty of assets (like the Mediterranean coast) that could be used to pay off bondholders. If it defaults it will simply be because it doesn’t feel like selling these assets.
If the Greek government didn’t want to pay higher yields on its debts it could secure the bonds with assets. Like the Mediterranean coast, or the Acropolis, or all those unused Olympic Stadiums. Greece and countries like it only issue unsecured debt because they want the opportunity to default or restructure when it suits them.
The natural response of the market would (should) be to demand a higher yield on Greek bonds now and in the future. But that is unlikely to happen in the long term while Greece is part of the Euro and can blackmail the Germans (and the IMF, etc) into giving them bridging loans and, ultimately, restructuring the debt. (Nice international financial system you got there. Shame if anything were to happen to it.) As long as this is likely the debt market will (rationally) not charge as high a default premium on the debt. So the Greeks get cheaper borrowing rates at the expense of the rest of the world.
It is extremely unfortunate that the mechanism that would usually purge this kind of nonsense — credit rationing and higher yields — cannot operate while the world is convinced that any sovereign or large corporate default must be prevented at all costs to forestall a descent into Hades. But such is the prevailing thinking.
Stupidity: An Example
Stupidity: An Example Or Another One For The Horror File
by Andrew Russell
I come not with a basket of gifts, but rather an object of terror. An object so fundamentally horrifying that merely to gaze upon its logical contortions will drive man insane. A glimpse of it will reveal that facts are but mere putty and our puny minds are insufficient to grasp the true nature of anything. Our ignorance is a comfort; I wish to take it away.
Are you ready to glimpse upon that which man was not meant to know?
Then read this.
I want to thank Wendy McElroy for the tipoff.
Now, suspending my Lovecraft impersonations, merely the title of this BusinessDay piece should cause every single person who reads this article to collapse in laughter. Ayn Rand apparently is the mastermind behind a series of highly complex economic shifts that cause the entire world to crumble… It seems that leftists prefer the thought of “all masterminded by one malevolent central planner” to the alternatives (maybe the idea of “one evil mastermind” appeals to their Constructivist Rationalism; if one evil central planner can ruin the world, then one good central planner can fix it, perhaps?).
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