Greece – Debt: GDP Ratio Reduction Timing

Commentaries Prompted by World Headlines

Greece – Debt:GDP ratio reduction timing

(By Ian R. Campbell) An article today reports on an apparent disagreement that arose last night between Jean-Claude Juncker, President of the Eurogroup of Finance Ministers, and Christine Lagarde, Managing Director of the International Monetary Fund.  Mr. Juncker is reported as having said that Greece will be given two additional years – to 2022 from 2020 – to meet its debt reduction target of 120% of GDP.  Ms. Lagarde is reported as having taken exception to this saying she and Mr. Juncker "clearly have different views" on Greek debt.

Consider from 10,000 feet what is being said here:

• first, 2020 is eight years from now;
• second, eight years ago in 2004, American banks were well into the process of indiscriminant lending and packaging ‘residential loan packages' that three years later led to the U.S. sub-prime crisis that contributed hugely to current U.S. fiscal cliff and debt ceiling issues;
• third, given the current economic circumstances of several European Union/Eurozone countries, the United States, and perhaps now Japan, who is able to predict what world economic circumstances will be one year from now, let alone what they will be in eight years time;
• fourth, Greece is not isolated, and is not an isolated economic problem in an inter-dependent globalized world that seemingly has come to emphasize short-term ‘trading' and not long-term ‘investing' world.  Even if Greece wanted to ‘control its own economic destiny', it can't do that; and,
• fifth, most of the debate by politicians, the IMF, and the like seems to be among ‘hopeful' world leaders who seem either not to be prepared to make the hard decisions that might ‘reset the economic game' in the developed countries, or world leaders that have concluded they can't do that for fear of the consequences – hence they adopt a continuous postponement strategy which, without sustained real GDP growth, at some point presumably will have to come crashing down around them and all of us.

So, does it really matter in November, 2012 whether Greece is given to 2022 or 2020 to meet a sovereign debt:GDP ratio that I think it is unlikely to achieve in the end in any event?

A second unrelated article yesterday reported that since the beginning of its financial crisis (or more likely recognition of its financial crisis):

• Greece has "cut $80 billion in spending and its economy has shrunk by 18%"; and,
• Greece's small and medium sized businesses account for 90% of all jobs, and currently are struggling to survive austerity measures and a sharp decrease in consumer demand.

As I see things, austerity programs and real GDP growth are not bedfellows.  Accordingly, I suggest you watch Greece going forward as a litmus test as to what may happen to economic ‘growth' in other countries that face similar austerity pressures.

The important question is:  Are we watching an unraveling of developed country economies and standards of living that, much like a landslide starts slowly, become unstoppable as it gains momentum?

I sincerely hope the answer to that question is ‘no'.  However, I do believe that the question is one traders, investors, and every other thinking person ought to focus on, monitor, and continuously consider as they each go about their day/day activities.

Topical References:  IMF chief and EU clash over Greek debt, from The Telegraph, Bruno Waterfield and Louise Armitstead, November 13, 2012 – reading time 3 minutes.  Also read Greek austerity: A light around the bend?, from Marketplace, John Psaropolous, November 12, 2012 – reading time 1 minute.

Japan's GDP negative, Japan now in technical recession

Economists define recession as two consecutive quarters of negative GDP growth – or better said, two consecutive quarters of GDP decline.  Japan may qualify at the end of the next quarter.  You might want to read Japan Plunges Into Deep Recession; GDP Shrinks 3.5% Annualized; Japan Current Account Turns Negative First Time in 30 Years; watch the Yen for a summary of what one commentator thinks is going on in Japan.

You also might want to read Japan faces prospect of fifth recession in 15 years.  That article reports that Japan:

• is increasingly dependent on exports;
• recorded a current account deficit in September for the first time since records on that have been kept (1985); and,
• may be in for serious debt sustainability issues that may soon be recognized by the financial markets.

From my reading of these articles it strikes me an important question is how much the ongoing economic issues in other developed economies (read the obvious European Union countries – Greece, Italy, Ireland, Portugal, Spain and the United Kingdom for starters – and the United States) prospectively will impact Japan going forward.  It appears that from here Japan may require an ever more careful eye on the part of traders and investors.

Topical Reference:  Japan Plunges Into Deep Recession; GDP Shrinks 3.5% Annualized; Japan Current Account Turns Negative First Time in 30 Years; watch the Yen, from Mish's Global Economic Trend Analysis, Michael Shedlock, November 12, 2012 – reading time 4 minutes.  Also read Japan faces prospect of fifth recession in 15 years, from The Financial Post, John Shmuel, November 12, 2012 – reading time 3 minutes.

Spain:  General strike called for Wednesday, November 14

Spain seems largely seems to have been ‘out of the news' for the past week or so.  For an update on what is ‘going on in the streets' in Spain I suggest you read Spain in turmoil ahead of general strike.

Topical Reference:  Spain in turmoil ahead of general strike, from Deutsche Welle, Stefanie Müller, November 12, 2012 – reading time 3 minutes.

Country Risk Commentaries Prompted by World Headlines

Chilean mine work halt over dust

It has been reported that last Saturday Barrick Gold halted earth-moving activities at its Pascua Lama mine site on the Chile-Argentina border over concerns with worker dust related health issues.

While this is a something that will no doubt be resolved, it is but one more example of things that result in project delays and escalating operating costs for companies exploiting natural resources in developing jurisdictions.  These are risk issues that almost certainly will have to be watched and analyzed by traders and investors with ever-greater diligence going forward.

For example, Barrick recently is reported to have increased its cost estimate for building the Pascua Lama mine by about 6.5% from earlier cost estimates.

Topical Reference:  Digging work suspended at Barrick's Chile mine, from Mining Weekly, from Reuters, November 12, 2012 – reading time 2 minutes.

Important Highlights From Today's Commentaries

Highlight #1:  Most of the debate by politicians, the IMF, and the like seems to be among ‘hopeful' world leaders who seem either not to be prepared to make the hard decisions that might ‘reset the economic game' in the developed countries, or world leaders that have concluded they can't do that for fear of the consequences – hence they adopt a continuous postponement strategy which, without sustained real GDP growth, at some point presumably will have to come crashing down around them and all of us.

Highlight #2:  As I see things, austerity programs and real GDP growth are not bedfellows.  Accordingly, I suggest you watch Greece going forward as a litmus test as to what may happen to economic ‘growth' in other countries that face similar austerity pressures.

Highlight #3:  The important question in mid-November, 2012 is:  Are we watching an unraveling of developed country economies and standards of living that, much like a landslide starts slowly, become unstoppable as it gains momentum?

Highlight #4:  It strikes me an important question is how much the ongoing economic issues in other developed economies (read the obvious European Union countries – Greece, Italy, Ireland, Portugal, Spain and the United Kingdom for starters – and the United States) prospectively will impact Japan going forward.  It appears that from here Japan may require an ever more careful eye on the part of traders and investors.

Highlight #5:  Project delays and escalating operating costs for companies exploiting natural resources in developing jurisdictions are risk issues that almost certainly will have to be watched and analyzed by traders and investors with ever greater diligence going forward.

Articles Posted Today to Stock Research Portal

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Greece – Debt:GDP ratio reduction timing, Japan's GDP negative, Japan now in technical recession, Spain: General strike called for Wednesday, November 14, Chilean mine work halt over dust is a post from: StockResearchPortal.com Blog