Should the Greek government have continued lying?

[Sam Spade]

Don't know whether I can agree with that.  Dishonesty until the end didn't save Lehman, Bear, Fannie & Freddie, Countrywide or Washington Mutual, among others from doom.

So, I don't know whether it would have in this instance either.  In short, dishonesty can only last until there are no suckers left coming in or enough people start yelling fire.  Honesty may be painful for a while, but at least you have a chance long-term.

Anyway, I'm sure you agree that the short term yield movements the last couple of days suggest that Greece blows up in a few months or so, maybe less.

I still maintain that the end result for Greece is default, with the other EU countries bailing out their banks involve.

[Sam Spade]

Don't know whether I can agree with that.  Dishonesty until the end didn't save Lehman, Bear, Fannie & Freddie, Countrywide or Washington Mutual, among others from doom.

So, I don't know whether it would have in this instance either.  In short, dishonesty can only last until there are no suckers left coming in or enough people start yelling fire.  Honesty may be painful for a while, but at least you have a chance long-term.

Anyway, I'm sure you agree that the short term yield movements the last couple of days suggest that Greece blows up in a few months or so, maybe less.

I still maintain that the end result for Greece is default, with the other EU countries bailing out their banks involve.

The problem is if Greece defaults, Portugal, Ireland, Italy and Spain will have difficulty borrowing, resulting in possible contagion. And if those countries start falling, so does C&E Europe, and then Belgium, Netherlands, etc. etc. like dominoes. That is why the other EU countries will likely bail out Greece in the end, even though I think internal devaluation is still the best path.

If the EU bails out Greece, Merkel is a dead woman walking (the Germans are that strongly against it) and eventually Spain and Italy will be right behind them knocking on the door (and Greece will be knocking again, of course, at some point).

For right now, though, we'll continue to get more Paulson-like jawboning.  Like what we're seeing today.

[Sam Spade]

Anyway, I'm sure you agree that the short term yield movements the last couple of days suggest that Greece blows up in a few months or so, maybe less.

I still maintain that the end result for Greece is default, with the other EU countries bailing out their banks involve.

I think you are really right, this time, Sam. Greece will be forced to restructure its debt, perhaps in a disorderly way, perhaps leave the eurozone; and this will turn a number of other European countries into Greeces. I don't see any other alternative right now.

Getting there, slowly but surely.

With yields this high and the massive inversion in the curve (13% for 2 yr, 9.5% for 10yr as of today), they'll probably have trouble rolling over next time they're due (not just selling new ones) without help.

[Sam Spade]

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Link: http://www.nytimes.com/2010/04/29/business/global/29euro.html?hp

The general sentiment is that a growing number of investors suggest what is really needed is a “shock and awe” figure, enough to convince the markets that peripheral European economies will not be left to fail.

For better or worse, I do not expect such a figure is forthcoming.

I also do not see how such a figure would do more than postpone the basic problem, which is that several European economies have been pretending to be much wealthier than they really are and to take on additional risk and leverage in tandem which tends to magnify things al a Dubai.

Although the 10-yr being that high is a problem, the fact that the 2yr is now in the 17% range is the much bigger problem. 

That's a classic yield inversion/pancaking of yields.  When that pancaking started appearing a couple of weeks ago at ranges above 6% for the 2yr with their debt-to-GDP ratio, the handwriting was on the wall.

Not to mention the CDS of Greek bonds, which are now higher than Lehman was before collapse.

[Sam Spade]

So now Germany passes the bailout and Merkel has lost her majority (wow, like I couldn't have seen that one coming). 

Meanwhile, Britain won't contribute a dime (which seemed obvious to me) to the EU bailout fund, which is amusingly small to handle all of the problems in Europe, which go far beyond Greece.  Not to mention the rumors of currency swaps starting again between the US and European banks.

I kinda still think there's one more plug for a few months before the thing blows, but I'm not exactly willing to gamble on this for now.

Think it's kinda appropriate that I'm watching Duck Soup right now...

[Sam Spade]

  Meanwhile, Britain won't contribute a dime (which seemed obvious to me) to the EU bailout fund, which is amusingly small to handle all of the problems in Europe, which go far beyond Greece.  Not to mention the rumors of currency swaps starting again between the US and European banks.

Yeah, only an economic mind of your magnitude could foresee the fact that a non-Eurozone country would contribute nothing to save a Eurozone country.

Your reading skills need improvement.  Just because I said that "it seems obvious to me" doesn't mean that it wouldn't be obvious to anyone else either with a brain.