“To be, or not to be, that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles
And by opposing end them.”
To greek or not to greek your debt. “Greeking” is a new verb that indicates “the willingness to take arms against a sea of troubles, and by opposing them, end them”. “Extending and pretending” has the opposite meaning, and is equivalent to suffering and enduring “the slings and arrows of outrageous fortune”. After years of experimenting with extending and pretending, greeking debt is the new paradigm. ¿Will they stick to their guns?
It matters a lot. Because we are likely to follow different routes depending on the survival of the debt sustainability fantasy. We can’t really know who will “greek” first, and when. The Greeks are the obvious frontrunners, but anybody else could also opt for “greeking”. In fact, a lot more will “greek” sooner or later. The powers that be are hoping for extending and pretending, but Tsipras and Varoufakis could be the worlds first to “greek out” and dance Sirtaki (like Zorba). Maybe sometime this year.
Greeking out greek debt is only the tip of the iceberg. I find it particularly ridiculous when we engage in endless discussions over the pretended rate of growth of the top line (world GDP nominal growth), and we fail to mention the ocean of debt that encircles us in a spiral of seemingly eternal growth. The recent Mackinsey report gives me a great chance to further elaborate on this point. Just take a thorough look at the 57 trillion “debt recovery” that has been taking place over the last seven years. Take your time because there’s a lot of info there.
I would like to zoom into the following details.
1.- Since 2007, all we’ve done is switch private into public debt. So much for “recovery”. It’s easy to recover endorsing your debt to somebody else. Greeking it makes more sense.
3.- China’s post Lehman help, has been “the” main contributor to stabilizing global aggregate demand. We owe the Chinese a favor. Just look at their outstanding debt. The total is in line with the US situation, but they generated 21 trillion usd debt in just seven years, or nearly 40% of total debt growth. When China stops growing money and debt, and I think it already has to an extent, it is not going to be pretty.
Yes, I know it is boring to keep on talking about debt. We all know the world is heavily indebted. ¿So what? I’ll tell you what. Just look at the next chart and try to find out in what cathegory are your assets, or your banks’ assets placed. If debt goes, so do your assets. Or somebody else’s. If people realize debt is unpayable and we begin to write-down debt, it will be the mother of all recessions. If we continue to “extend and pretend”, everything will be fine (for a while).
That is all that has to be said about debt. This “recovery” will muddle through until and unless greeking becomes as popular as soccer in Brasil.
If you really want to find out why “greeking” makes some kind of sense (of the uncommon Immanuel Kant variety) you just have to read Varoufakis’ open ed in the NYT. They may be radical left wingers, but they certainly have a lot of nerve. And they are not of the illiterate breed.
In the meantime, while we wait, we have to keep an eye on inequality and social unrest. And I know many will not agree with the fact I add ISIS, Ucraine and the endless outbreaks of violence as a plain, radical variety kind of social unrest. An unfair world will generate increased violence by the day. I think it’s all connected. The actors may not be connected, but all this violence coming up almost everywhere, is nurtured by inequality and illiteracy. Tensions will continue to mount until a new, balanced world order is up, and running smoothly. Not an easy feat.
I suggest the same investment strategy for the same underlying situation. I like the Swedish Krone trade both versus the USD and EUR more than ever. We humans always fail to learn the lessons of history. The Riksbank has still got plenty of room to maneuver, but they are repeating the Swiss mistake. Be careful and gradual when building up your size. And don’t hurry to buy back some swissies.
For once I’ll keep this nice and short. Go and enjoy what’s left of the “recovery” while it lasts. Last, just to tease myself and other bloggers/financial analysts, I found this term translator hilarious (I lost track of the source).