Octopus Overlords

Greece's stock market closed with heavy losses on Monday after a five-week shutdown brought on by fears the country was about to be dumped from the euro zone.

Bank shares fell 30 percent before loss-limits kicked in to stop investors selling any more.

The main Athens stock index .ATG ended down 16.2 percent, recovering slightly after plunging nearly 23 percent at the open. It was the worst daily performance since at least 1985 when modern records began, including a 15 percent fall when Wall Street crashed in 1987.

By contrast, the broad European FTSEurofirst 300 index was in positive territory for the day.

Puerto Rico failed to make a $58 million bond payment in full on Monday, sending the US territory into default a month after its governor declared that the roughly $72 billion in public debt that it owes was not payable.

Spanish and Italian yields fell on Tuesday as a bailout deal for Greece insulated lower-rated euro zone bonds from a flight to safe havens triggered by China's devaluation of its yuan currency.

Greece and its international lenders clinched a deal expected to be worth about 86 billion euros and to save Athens from default on a debt repayment of 3.2 billion due to the European Central Bank on Aug. 20...

...In a global flight towards top-rated assets, which pushed yields on benchmark Bund yields and U.S. Treasuries 4-5 basis points lower and weakened stock markets in Europe and Asia, the Greek deal meant peripheral bonds held strong.

The yuan devaluation raised concerns about the extent of the economic slowdown in the world's second biggest economy and its knock-on impact on other regions.

"The Chinese devaluation was taken as 'things are not going that well in China' and this is a risk-off move," said Martin van Vliet, senior rate strategist at ING, adding that "with the Greek deal secured and the ECB continuously buying bonds, peripheral spreads would have been much tighter otherwise."

Government debt in 20 industrialized countries stands at $44 trillion.

But it’s actually a lot more than that, according to a new report. After factoring in public pension and other retirement liabilities, the debt levels nearly triple to a staggering $122 trillion.

That’s the math according to a new report from Citigroup Inc report called, “The Coming Pensions Crisis,” which analyzed government pension liabilities from 20 countries that are members of the Organisation for Economic Co-operation and Development .

“It is really a ticking time bomb,” said Charles Millard, Citi’s head of pension relations and former head of the Pension Benefit Guaranty Corporation, the U.S. safety net for private-sector pensions.

To put the unstated debt levels in perspective: The additional unstated $78 trillion in retirement-related debt is equivalent to a single year of global economic output.

Citi researchers measured government pension liabilities, a combination of Social Security and public-sector pension obligations, finding the average country was carrying retirement debt of 190% versus gross domestic product—well above a 100% threshold that many experts consider concerning.

GreenGoo wrote:Presumably they are borrowing money from each other.

Rip wrote:

GreenGoo wrote:Presumably they are borrowing money from each other.

Should be awesome when they start defaulting on each other.

Dominoes anyone?

Moliere wrote:Puerto Rico Just Defaulted on Its Debt

Puerto Rico failed to make a $58 million bond payment in full on Monday, sending the US territory into default a month after its governor declared that the roughly $72 billion in public debt that it owes was not payable.

As voters on Sunday emphatically rejected constitutional changes aimed at accelerating reforms to the country’s moribund economy, they enhanced concerns that Italy’s banks could spiral into a disaster. They reinvigorated worries about the endurance of the euro currency and broader European economic integration. And they amplified the sense that Europe is a land of disappointing growth, political dysfunction and seething populism.

“Existential crisis” had not been on the ballot, but that was essentially the result. The lopsided tally against the reforms — nearly 60 percent rejected them — prompted the resignation of Italy’s prime minister, Matteo Renzi, leaving Europe’s fourth-largest economy without clear leadership.

As world markets absorbed the result, investors soured on Italian banking stocks. Shares in Monte dei Paschi di Siena, which was involved in Italy’s grandest banking fiasco, surrendered 4 percent on Monday on expectations that a private sector rescue devised by Mr. Renzi had been killed.
...
The fall of Mr. Renzi creates an opening for the populist Five Star Movement, a party that seeks to free Italy of the euro and its strictures on government spending.
...
For now, such grim scenarios appear remote. The referendum maintains the power of the Italian legislature’s upper chamber, a potent check on the Five Star Movement, or any government pursuing radical change.

The most immediate consequences fall on the Italian banking system, now choked with some 360 billion euro, or about $385 billion, in suspect debts.

Mr. Renzi tried and failed to inject public funds into Monte dei Paschi, the perpetual locus of fears about an Italian-bred financial conflagration. The European Union, led by Germany, effectively forbade that step, citing new rules barring taxpayer bailouts to limit the temptation of bankers to engage in reckless lending.

Mr. Renzi instead forged a plan that has Monte dei Paschi scrambling to secure €5 billion from private investors.
...
Most experts assume a caretaker Italian government will wind up seeking permission from European authorities for some form of a taxpayer-financed rescue of Monte dei Paschi, while agreeing to wipe out the investments of a thin slice of bondholders.

The consensus is that Italy can patch immediate holes in the banking system. But the referendum has destroyed what momentum existed to address the condition that is both cause and effect of the banking problem — a dire lack of economic growth.

The Italian government won the support of parliament to boost the country’s public debt by up to 20 billion euros ($21 billion), as it prepares for likely rescues of Banca Monte dei Paschi di Siena SpA and other troubled lenders.

Both houses of parliament voted to allow the administration of Prime Minister Paolo Gentiloni to earmark additional financing next year. Monte Paschi, Italy’s oldest bank, may be among the first beneficiaries of the extra state funds as its effort to raise 5 billion euros from money managers and individuals is failing to enthuse investors.
...
“If the Europeans for some reason decide to oppose the way in which Italy decides to do its bank bailout, if it needs to do it, then you end up with a confidence motion against the government, and then essentially you get fresh elections,” Michael Metcalfe, global head of macro strategy at State Street Global Markets, told Bloomberg Television’s Guy Johnson.
...
Monte Paschi is struggling to complete its recapitalization plan by Dec. 31. Qatar’s sovereign wealth fund, which had considered an investment, hasn’t yet committed to buying shares, while a second debt-for-equity swap has raised about 500 million euros through Tuesday, a day before it expires, people with knowledge of the matter have said.

If Monte Paschi’s efforts fail, a cabinet meeting on Friday will decide how to use government funds in the bank’s recapitalization, a government official said. The government is studying a so-called precautionary recapitalization that may reduce the potential losses of the bank’s bondholders, which are likely under European burden-sharing rules.

GreenGoo wrote:

Rip wrote:

GreenGoo wrote:Presumably they are borrowing money from each other.

Should be awesome when they start defaulting on each other.

Dominoes anyone?

That's not how it works. In any case, it seems clear that the report is using all future liabilities in it's calculations, which as has been explained umpteen times when people lose their shit over public pensions, not a valid approach. At least not without a huge asterisk beside it.

I can tell you right now what the future liability of my pension is likely to be. That number is useless unless you also include how much I'm paying into it in the future, as well as any performance of the pension plan above the guaranteed return, which isn't difficult to do.

In any case, spending is a problem and needs to be managed and controlled. That doesn't mean it's a house of cards, and even if it were, everyone has a vested interest in making sure the cards don't fall.

I'm not the one who should be counterpointing your link, I'm just writing to say that the report is not nearly as scary (at least not in a "wow, what a revelation" way) as the article (and presumably you agree) implies.

Pyperkub wrote:Why do the scare-mongers always do this? They actually forced the USPS to account for all future pension liabilities in the current budget and it's crushing them. It is bad business and bad accounting.

As Greece is given the final tranche of bailout funds and finishes the programme eight years on, I returned to a much calmer, but still deeply wounded country.

Unemployment is at 20%, down from a high of 28%, austerity has pushed one in five below the poverty line and the economy has shrunk by a quarter.

The government says Greece will now be able to stand on its own two feet, vaunting 1.4% growth in 2017 and a planned return to the markets later this year.

"We fully understand what the Greek people have endured," says Deputy Economy Minister Alexis Haritsis, "but we strongly feel that these first indications of improvement in the economy can and will be reflected in the daily life of ordinary people".

Austerity was "the wrong medicine", he admits, but his government insists it was forced to swallow it or its banks would have sunk and it could have been forced out of the eurozone.