The official Greece default completed

[johnyj]

So, after collective action clauses invoked, 95.7% of the bond holders will forced to take a 53.5% loss on the Greek bonds they hold

A natural question is, if some of those bonds are protected by CDS contracts, then who is going to take the loss instead? Investment banks? Insurance companies?

What if ECB itself issue the CDS? Could all these losses disappear?

It's a norm that if you saying that a bank is protected by saving guarantee then almost everyone will trust the bank, although they have no idea who is providing this guarantee

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[cypherdoc]

in general its the investment banks who sold most of the CDS contracts to hedge funds.

they are going to take a hit.  i also think contagion will start once we get the ball rolling.  we could be a short few days away from the markets realizing this.

[silverbox]

Print more Euros!

[johnyj]

Actually the market reaction to the default is quite positive, this again proved my observation, that writing off a debt will not hurt economy, since those money has been spent long time ago, it is those who loaned out money get loss, this in turn will encourage borrowing and discourage loaning

[bitdragon]

Greece Govt Bond 1Year Yield
GGGB1YR:IND
1,143.11900% 

http://www.bloomberg.com/quote/GGGB1YR:IND/chart

That % is like the growth in Bitcoin for the next year

[cypherdoc]

Actually the market reaction to the default is quite positive, this again proved my observation, that writing off a debt will not hurt economy, since those money has been spent long time ago, it is those who loaned out money get loss, this in turn will encourage borrowing and discourage loaning

i think you're premature.  i think we start getting more volatility as the settlement requirements start filtering in.

[johnyj]

Actually the market reaction to the default is quite positive, this again proved my observation, that writing off a debt will not hurt economy, since those money has been spent long time ago, it is those who loaned out money get loss, this in turn will encourage borrowing and discourage loaning

i think you're premature.  i think we start getting more volatility as the settlement requirements start filtering in.

Let's see then, I'm also interested in following the consequence

I personally borrowed someone almost 1/4 of my income for years, and that loan has never been able to collect back, what I can do is just admit the blindness of me and keep life going on.  I suppose that many other people also have similar level of tolerance, as long as their income is sufficient enough to support their life

[cypherdoc]

Actually the market reaction to the default is quite positive, this again proved my observation, that writing off a debt will not hurt economy, since those money has been spent long time ago, it is those who loaned out money get loss, this in turn will encourage borrowing and discourage loaning

except that those loans are kept on the asset side of the balance sheets of whoever lent the money.  once they get written off that leaves a big hole on the asset side and could result in insolvency.

these debt write offs are deflationary as they are decreasing the total amount of debt money in the system.  someone has to take the loss and right now it looks like the banks.

[johnyj]

Actually the market reaction to the default is quite positive, this again proved my observation, that writing off a debt will not hurt economy, since those money has been spent long time ago, it is those who loaned out money get loss, this in turn will encourage borrowing and discourage loaning

except that those loans are kept on the asset side of the balance sheets of whoever lent the money.  once they get written off that leaves a big hole on the asset side and could result in insolvency.

these debt write offs are deflationary as they are decreasing the total amount of debt money in the system.  someone has to take the loss and right now it looks like the banks.

Thanks for point out it is deflationary, and following this thought, isn't that a good thing? In a deflationary environment, the central bank get more freedom to increase money supply

In the old time, the new investment depends on the savings that banks have, but now, it depends on the central bank's easing. How can commercial banks get new money? It can only come from the central bank, nowhere else

By the way, central bank some times reduce money in circulation by selling assets, this kind of operation also have similar impact as write off debts, the only difference is the latter do not have those assets. But anyway those assets are tools for the central bank, not really counted as consumable wealth, only a reserve

[mila]

just a quick objection: if central bank creates significant amount of money and releases it into the wild, it's possible that this will contribute and accelerate inflation. simply by letting more money compete for the same amount of goods & services.
I see the point where the new money from ECB helps to solve the write off of the greek debt but they released 8x that much? (Dec & Feb)

[99Percent]

just a quick objection: if central bank creates significant amount of money and releases it into the wild, it's possible that this will contribute and accelerate inflation. simply by letting more money compete for the same amount of goods & services.
I see the point where the new money from ECB helps to solve the write off of the greek debt but they released 8x that much? (Dec & Feb)

The money is not released into the economy directly ("into the wild"), it is loaned to cover previous debt with the debtor absorbing a percentage of loss. In other words this money was already spent. That is why it isn't immediately inflationary.

[cypherdoc]

Actually the market reaction to the default is quite positive, this again proved my observation, that writing off a debt will not hurt economy, since those money has been spent long time ago, it is those who loaned out money get loss, this in turn will encourage borrowing and discourage loaning

except that those loans are kept on the asset side of the balance sheets of whoever lent the money.  once they get written off that leaves a big hole on the asset side and could result in insolvency.

these debt write offs are deflationary as they are decreasing the total amount of debt money in the system.  someone has to take the loss and right now it looks like the banks.

Thanks for point out it is deflationary, and following this thought, isn't that a good thing? In a deflationary environment, the central bank get more freedom to increase money supply

In the old time, the new investment depends on the savings that banks have, but now, it depends on the central bank's easing. How can commercial banks get new money? It can only come from the central bank, nowhere else

By the way, central bank some times reduce money in circulation by selling assets, this kind of operation also have similar impact as write off debts, the only difference is the latter do not have those assets. But anyway those assets are tools for the central bank, not really counted as consumable wealth, only a reserve

if your theories about debt were all so good, why are we having so much suffering around the world right now?  look at Greece, Ireland, Iceland, other PIGS, and even our debt problems here in the US?

why have we had 2 major stock crashes in the last 12 y and a bursting of a major housing bubble which has impoverished so many Americans and is starting to do the same in Australia, Canada, and China?

why are so many ppl willing to invest in the Armageddon trade of gold/silver?  is it perhaps b/c all that money printing you advocate is devaluing their money?

[johnyj]

if your theories about debt were all so good, why are we having so much suffering around the world right now?  look at Greece, Ireland, Iceland, other PIGS, and even our debt problems here in the US?

why have we had 2 major stock crashes in the last 12 y and a bursting of a major housing bubble which has impoverished so many Americans and is starting to do the same in Australia, Canada, and China?

why are so many ppl willing to invest in the Armageddon trade of gold/silver?  is it perhaps b/c all that money printing you advocate is devaluing their money?

I also do not understand all these, but I remember that I posted before, wealth is not money, financial crash do not destroy wealth, it's only a redistribution of money, it is caused by the cycle of tightening - easing - tightening, the root cause behind all these is that central bank want to keep the inflation rate and jobless rate low, but their action is much slower than the real market development, just like auto fan control always lag the real temp change. In this process many economy activities will be affected negatively, thus impact many normal people's life. If they tighten for 3 month and ease for 3 month, randomly, then I think there will not be so much huge impact, people can not expect fed's next movement, and they will focus more on  fundamentals

Just one thought, since FED has printed 4x more money since financial crisis (Normally 10% more each year is quite significant) to buy those mortgage, it means there are plenty of excessive mortgage, those mortgage were designed to be paid back during next 20-30 years, if you look at 20-30 years money supply, then 4X money supply is not that much. Actually the way they print money to hold the price of mortgage means that housing will not like other goods follow the market rule (supply and demand), it will stay at relatively high price and act as the main consumption for each household. use house to attract the whole nation keep working, smart idea

BTW, I'm shorting both silver and gold, because I think fundamentally they do not have too much use

[cypherdoc]

if your theories about debt were all so good, why are we having so much suffering around the world right now?  look at Greece, Ireland, Iceland, other PIGS, and even our debt problems here in the US?

why have we had 2 major stock crashes in the last 12 y and a bursting of a major housing bubble which has impoverished so many Americans and is starting to do the same in Australia, Canada, and China?

why are so many ppl willing to invest in the Armageddon trade of gold/silver?  is it perhaps b/c all that money printing you advocate is devaluing their money?

I also do not understand all these, but I remember that I posted before, wealth is not money, financial crash do not destroy wealth, it's only a redistribution of money, it is caused by the cycle of tightening - easing - tightening, the root cause behind all these is that central bank want to keep the inflation rate and jobless rate low, but their action is much slower than the real market development, just like auto fan control always lag the real temp change. In this process many economy activities will be affected negatively, thus impact many normal people's life. If they tighten for 3 month and ease for 3 month, randomly, then I think there will not be so much huge impact, people can not expect fed's next movement, and they will focus more on  fundamentals

Just one thought, since FED has printed 4x more money since financial crisis (Normally 10% more each year is quite significant) to buy those mortgage, it means there are plenty of excessive mortgage, those mortgage were designed to be paid back during next 20-30 years, if you look at 20-30 years money supply, then 4X money supply is not that much. Actually the way they print money to hold the price of mortgage means that housing will not like other goods follow the market rule (supply and demand), it will stay at relatively high price and act as the main consumption for each household. use house to attract the whole nation keep working, smart idea

BTW, I'm shorting both silver and gold, because I think fundamentally they do not have too much use

actually i do understand the answers to my own questions; i was just being rhetorical.

we're having all these problems and crashes b/c the money printing is falling way behind the debt contraction/defaults/restructuring.  don't forget all these debt dollars were used to inflate all these assets over the last 40 yrs and we have hit the tipping point.

and no, housing prices will not stay elevated.  they are going to contract much more as the loans default.

join the pm short train.

[Haplo]

Actually financial disasters do destroy wealth, since the people who are normally the ones creating it get shafted by bankrupt governments and banking cartels. People need money to do business, when the money goes bad so does the business. When the business goes bad the wealth goes out the window. There's not even a way to measure how much wealth was really lost since it simply never happened at all.

And that's before they lose their life savings when the too broke to fail banks implode and make their accounts disappear. Also, I'm pretty sure the last number I heard from ZH was a 70% haircut for lenders, not 50%. The chances of lenders getting one euro back from greece are laughable, and the likelihood of more violence is about 100%.

So yeah, PM short train, or even BTC. PMs are probably a bit safer right now (although it varies), although if more/smarter entrepreneurs start surfacing BTC could really take off.

[cypherdoc]

Actually financial disasters do destroy wealth, since the people who are normally the ones creating it get shafted by bankrupt governments and banking cartels. People need money to do business, when the money goes bad so does the business. When the business goes bad the wealth goes out the window. There's not even a way to measure how much wealth was really lost since it simply never happened at all.

And that's before they lose their life savings when the too broke to fail banks implode and make their accounts disappear. Also, I'm pretty sure the last number I heard from ZH was a 70% haircut for lenders, not 50%. The chances of lenders getting one euro back from greece are laughable, and the likelihood of more violence is about 100%.

So yeah, PM short train, or even BTC. PMs are probably a bit safer right now (although it varies), although if more/smarter entrepreneurs start surfacing BTC could really take off.

the point about wealth destruction is spot on.

its possible that Bitcoin could go down with the next deflationary wave but i think it will surprise ppl.  its too good of an idea to drop much more from here.