This morning the rating agency Moody’s cut Greece’s credit rating from Ba1 to B1. That is a big drop. It’s three levels down in a single review.
Ba1 is the first level of Non-Investment grade or Speculative bonds. B1 drops Greece into the region marked “Highly Speculative”. Bolivia lives down there. Below is only ‘Extremely Speculative’ and ‘In Default’. The size of the drop is as much the worry as the level itself. It says Greece, according to the Bond market, is slipping faster not slower. The market does not believe the European ‘rescue’ is going to work. Not for Greece anyway.
Increasingly, it looks as if the ugly truth of the ‘rescue plan’, is that it is a rescue for those creating the plan, Germany and France, and those others France and Germany absolutely must, grudgingly, take into the life boat with them. But no one else. Spain and Italy might be on the list to be saved, but only provisionally.
Imagine a life boat occupied by a few wealthy people rowing slowly away from a sinking ship, through icy water filled with drowning people. The people quite naturally shout for help and try to pull themselves aboard. Those in the boat, looking at the sheer number of desperate people floundering towards them, get worried. They tell the cold and drowining people, with all the calm and authority they can. to remain calm and not risk pulling the boat over in their attempts to get aboard. Please stay clam and help us to help you, they call down to the drowning. We’re coming to get you, we’re on our way. While all the time slowly rowing away.
That is what the bond market is now thinking is going on and so, I think, are some of the countries, like Greece and Portugal and Ireland. Ireland is of course a special case. The Irish were actually told to empty their pockets as they swam, on the reasoning that they would swim better without all that money weighing them down. Now they can drown happy in the knowledge they have ensured the survivors in the boat will be wealthy as well as alive.
Greece’s downgrade came because Moody’s said they don’t think Greece will be able to implement its recovery. Partly because Moody’s doesn’t believe in Greece’s growth myths, nor their ability to collect taxes. They won’t collect taxes because the wealthy have never paid them and now the poor are joining them. The wealthy tax cheats use banks and accountants to avoid taxes, the poor simply move their labour to a black economy. Either way the result is the government will have no money.
Moody’s also worried about ‘implementation’ which means civil unrest.
Greece is, as many of us have been saying from the start, simply not going to make it. Once the German and French big banks have unloaded enough of their Greek bad debt on to the ECB, then their life boat will be far enough away that all pretence of helping the drowning can be dispensed with.
The ECB is being used by its ‘owners’, those European nations whose banks have the most crippling debts, Germany and France, to save themselves and leave the rest to drown.
Will Spain be saved and what about Italy? Both are probably considered too big to leave to drown. BUT it is possible, I think, that France and Germany may think they could have a plan to let municipalities in those countires go bankrupt and default, while ‘saving’ the National level. A dangerous plan if that is what they are thinking. It’s the same plan the US is toying with by letting the States teeter on the edge of not paying.
What is going to decide it, is what happens in Libya and Saudi. Oil is well over a hundred dollars a barrel and showing no sign of coming down. There is no bigger cost to a nation than the cost of the energy which goes in to everything from food to transport.
The price of oil is killing any prospect of growth and any hopes of the mythic consumer led recovery, in many countries. Italy and Spain are especially tied to what happens in Libya.
"The Irish were actually told to empty their pockets as they swam, on the reasoning that they would swim better without all that money weighing them down."
Pure banker logic!
Sounds to me like Germany and France are playing a massive games of Jenga – I don't rate their chances.
Lucky for the US that they're not the only greedy bastard country in the world. The US and the Wall St Shills will continue to create bond crises after bond crises in the EUO until they set their sights on France – and bring France into the IMF fold. Germany… I don't know – they might be able to tell the US to GGF'ed! But they'll have to leave the rest of Europe/GB to their own devices. Honestly, I think Germany is the only thing holding the ECB together. Once Germany gets their foreign bond holdings sorted out – it's good bye ECB – Germany will be the only one left w/ a boat to row. And of course that includes the US too.
Hi Golem.
This is off topic and a request. Today Lloyds Bank announced a profit and the repayment of 61 billions to the exchequer. It seems that to do ths they made massive tax write downs and sold assets , which surely we already owned, to achieve this.
Is Lloyds repaying us with our own money?
worse than that, they have sold the assets which are good at knock down prices but have kept the bad assets booking them at high prices and reduced the reserve against bad loans
i'm just geussing but judging by what other banks have done…….
Kick the can down the road…
I despair sometimes.
The life boat analogy is a good one. It communicates the urgency of the situation while also being quite easy to grasp. Nice one.
Just want to add my thanks to you Golem for plugging on while the wall of misinformation continues to deluge us ( why has the BBC got Angela 'liar' Knight on and not you? So all power to your dedication and quite remarkable powers of analysis.
I have to admit I have been a bit distracted by the Libyan Rising as I used to work out there and so got to know the place and its oppressive ways. inspiring to see the courage of the people in revolt. Our own situation is a lot less dramatic of course but the rot goes on… and we, your readers and now Mervyn too, ( maybe he has started to read you) know things are still sliding downwards,,,waiting for the drama's next act.
Knight pops up again in Guardian CiF today too.
http://www.guardian.co.uk/commentisfree/2011/mar/08/uk-banking-reform
I think Golem should be given the right to reply.
A. Knight in tarnished armour
I also want to add my thanks and appreciation to our very own (infinitely more noble) knight, Sir Golem!
Ms Knight is showing her true colours, yet it is unconscionable that she gets so much air time.
Mervyn King is one of a growing voice of influential people awakening to the unjust structure of modern banking.
However, King and others are up against underhand "negotiating" behind closed doors. See my recent post:
The gloves are off!
"In the red corner, we have the entire ICB, Bank of England Chairman Mervyn King, BoE Deputy Chairman Paul Tucker, BoE Director Andrew Haldane, and FSA Chairman Adair Turner all calling for radical moves in bank regulation.
In the blue corner, we have George Osborne and some banks.
Without an honest and open intellectual debate, we cannot profess to be a free and open democracy, ruled through technical & intellectual competence. But instead a cowering populace, once again brow-beaten by bluster and thinly veiled threats from the banks.
The coming year will be a true test of our nation's integrity and honesty. I hope it ends well."
Your life boat analogy is fine and i would like to expand on it further.
Suppose we parallel it to the RMS Titanic and suppose the Titanic is the proud, overly self confident, complacent etc human race. This race has in the last 200 or so used ever greater amounts of fossil fuels to power both its economic might and has grown its population which now depends on food and much more, provided by the sheer power of these energy sources. This is the iceberg.
So a greater population than the naturally occurring energy sources can currently cater for is racing across an ocean faster and faster (economic growth)at the same time as its ability to do this and feed itself is on the downturn.
The planet has no life boats and nature has no compassion for failure to adapt . humans, the next great extinction if we don't change course fast!
@ Greg dance
I agee with your Titanic analogy, what amazes me is how all these highly paid so called intelligent people seem oblivious to the unsustainability of the present system. I can only imagine that they assume they will be fine sitting in their mansions or yachts, & eveybody else can go screw themselves.
It strikes me that the majority of the people of Britain have no real idea of what's going on & are still stuck in the same old blame game of Labour vs Tory. If money is the real power the bankers etc are now in control, leaving the politicians to mop up the mess.
The people of Ireland & I would imagine the people of Greece are much more well informed about this situation, simply because the shit has hit the fan there. People like David McWilliams are out there doing excellent work & are at last being listened to. More of the truth of the situation there will hopefully come out & I think although the circumstances are in some ways particular to the Irish situation, at the heart of it is the same destructive malaise that is affecting us all. I hope that somehow we can learn from these lessons & try to avert a similar thing happening in the UK or elsewhere.
I strongly recommend David McWilliams book " Follow the money" Although it concentrates on the Irish situation it does a great job of explaining the financial system, I like the analogy he uses, comparing it to the drug industry, it also has a great anecdote concerning Rupert Murdoch.
@Golem, I'm not surprised you get the blues with all this stuff running around inside your head, sometimes you must feel that you are the only one who can see, in a country of blind men. One good tip for survival is "Know your enemy" & thanks to you, I now know mine, Thank you.
I am hoping that my extremely tight cashflow improves shortly as I am dying to read " Debt Generation " I picked up David's book in a poundshop.
PS. If you can thank your Father for " Cosmos " it was inspirational for me.
Stevie,
Will do. He'll be happy to hear Cosmos worked for you.
hi hawkeye
Your perceptions are getting trenchant. I too think we are in some kind of 'last chance saloon' with respect to the idea of coherent democracy. If there is no collective assertive response to the mauling and dissembling people are receiving in order to prop up a destructive economic dogma then we are more or less acceding to a life as either privileged slaves or 'the abandoned', within a degrading social and physical environment.
And the UK is one of the critical places where a rejection of these roles might happen that could make a difference. I think the UK is going to be critical because the government is an unstable, 'best guess' choice out of a bunch of rotten apples and Nulab is still in some disarray and growing disrepute, and its leader is really quite stuck and uninspiring.
The policies of the coalition are extreme and risk serious fall-out, much worse than they need to be. I sense the Labour party are waiting for a major 'slip' or event to pounce, rather being pro-active( i.e. politically honest) but they are political opportunists of exactly the same kind as the coalition and exactly as they were in the Blair era.
Their dishonesty really needs to be exposed by people like yourself and David.
They are not an opposition; they are simply the reserve team operating within an enclosed detached system.
I have already said that we first have to break the duopoly of power and the easiest, least painful way is for lots of unaligned people to be elected. I think this is the purpose of the blog here-it is ahead of the mainstream, and is partly shaping debate, not just getting in beforehand, and it is politically energising a lot of people who might not otherwise have spoken up.
I am also pretty sure there are some very anonymous big-hit lurkers who are taking their cues from blogs, including this one.
I was thinking that David probably needs to consider how to get elected somewhere.
I think David is ploughing quite a lonely furrow but doing a fantastic job. I can see how it might be quite personally demanding but rest assured, it is much appreciated.
p.s I posted this by mistake on the previous entry on the blog. It is addressing Hawkeye's comment above. apologies etc.
I would vote for David, I would even go out campaining if I was in the UK
Hey Golem
I know you get down some times thinking that you're whistling in the dark whilst these scumbags and their political fixers get away with it – but don't despair because, even if they appear to be getting away with it at the moment, some of you're your long fought arguments are gaining traction in the media – well at least the less overtly propagandised mainstream outlets:http://www.guardian.co.uk/commentisfree/2011/mar/09/fallout-2008-crash-oil-prices
I'm sure these guys are reading you – their arguments are too received, too complete – they're reading you – and you're getting through – albeit by trojan plagiarists – and as things get worse – you're arguments will get stronger and more relevant- and at the end of the day – your right, you've always been right.
Keep it up.
Hello all,
I cannot properly tell you have much your kind and positive comments mean to me.
Must add my thanks for this site. Invaluable for folks like me who knew we've been shafted but weren't clear on the details. Superb use of the English language to boot. Please keep writing whatever you can.
http://www.telegraph.co.uk/finance/economics/8379163/Total-German-triumph-as-EU-minnows-subjugated.html