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Generational Dynamics Web Log for 23-Apr-2010
23-Apr-10 News -- Torrents of bad financial news for Greece and Europe

Web Log - April, 2010

23-Apr-10 News -- Torrents of bad financial news for Greece and Europe

Grenades explode in Bangkok, Thailand, with dozens of casualties.

Torrents of bad news, as Greece lurches uncontrollably towards financial default

Bad news came in gushers on Thursday, for Greece and Europe:

Greece's budget deficit is MUCH higher than previously estimated -- 13.6% of GDP, possibly as high as 14%, in 2009. WSJ

Yields (interest rates) on Greek's 10-year bonds surged to the astronomical 9%. Bloomberg

Credit default swaps (CDSs) jumped 36% in one day, to $637,000 to insure $10 million in debt, from $486,000. This is another astronomical figure.

Moody's Ratings Service downgraded Greek debt, and warned of further downgrades.

Thousands of Greek civil servants went on strike Thursday, warning of a social explosion if any more austerity measures are announced. Reuters

Greece's problems are spreading quickly to other countries. CDSs on Portugal's debt jumped 17%, and on Spain's debt jumped 9% in just one day.

The euro currency appears to be going into free fall against the dollar and the yen. Bloomberg.

All of these indicators appear to be accelerating in the wrong direction, implying that Greece and Europe are experiencing a classic full-scale panic. It's like a huge ball rolling downhill that keeps gathering momentum until it can no longer be stopped. There's a very real possibility that a full-scale crash is imminent, though of course this isn't the first time I've said that. At the very least, some kind of financial dislocation appears to be coming very rapidly.

Grenades explode in Bangkok, Thailand, with dozens of casualties

The NY Times reports that there are fears that wider violence will be ignited after multiple grenades exploded on Thursday in the heart of Bangkok's business district, killing 3 people and wounding dozens.

The red-shirted anti-government protestors have virtually shut down Bangkok's business district. Thousands of Thai soldiers have been deployed to prevent the demonstrators from spreading further into other areas. It was in the context of this faceoff between the army and the demonstrators that the grenades exploded. Protest leaders denied that they had anything to do with the explosions, but army leaders claim that the grenades came from the area occupied by the demonstrators.

There are fears that the violence will escalate into a full-scale civil war.

But Thailand is in a generational Awakening era, and so such a civil war is impossible.

We've discussed this many times on this web site, with regard to other countries in Awakening eras, including Lebanon, Iran and Iraq. There have been protestors and violence in each of these countries, but any violence that broke out fizzled fairly quickly.

It's worth remembering, for comparison purposes, that there was plenty of violence during America's last Awakening era, in the 1960s-70s. There were assassinations of President John Kennedy, his brother Bobby Kennedy, Martin Luther King, Malcolm X. There were riots and bloodshed at the 1968 Democratic national convention, several "long, hot summers" of riots in the streets, bombings by the Weather Underground, and shootings at Kent State.

This kind of violence occurs during generational Awakening eras, and it will probably get worse before it gets better in Thailand. But it will not spiral into full-scale civil war.

Interest rate derivatives are a ticking time bomb

We talk about the dangers of credit default swaps all the time, but the most popular types of derivatives are interest rate swaps.

Both of them are insurance policies, but credit default swaps pay off when the underlying debt defaults, and interest rate swaps pay off when interest rates change.

The thing is that there are hundreds of trillions of dollars (nominal value) of securities based on interest rate swaps in portfolios of financial institutions around the world. Thus a major change in interest rates, such as a rate increase by the Fed, the European Central Bank or the Bank of Japan, might trigger huge payouts at institutions around the world. And since these derivatives are highly correlated, there is a potential for tens of trillions of dollars to be due from sellers to buyers all at once.

A guest post at Yves Smith's Naked Capitalism blog on Thursday is an excellent overview of the systemic dangers of interest rate swaps.

The article shows that interest rate swaps have been marketed to investors even more fraudulently than mortgage-backed securities were marketed several years ago.

Additional Links

The Russians are already angry at the US for allowing the drug trade to grow in Afghanistan, since most of the drugs end up on the streets of Russia. Now the Russian media are wondering if the recent Kyrgyzstan coup was engineered by the drug trade, with the encouragement of the US. The result is a growing Russian-Uzbek alliance against Kyrgyzstan. Asia Times

Although Kyrgyzstan is right on China's border, China is playing it cool as Russia and the US battle for prestige in Kyrgyzstan. However, jihadists in Pakistan and Afghanistan are heading for the Fergana Valley, at the intersection of Kyrgyzstan and Uzbekistan, and a hot summer may lie ahead. Asia Times

When Chinese hackers infiltrated Google's network, the result was increased xenophobia on both sides, with both the US and Chinese increasingly believing that the other side is hacking their computers. Fierce Gov IT

Germans are shocked at the revelation by Google that Germany is number 2 in the world in censoring online content, way ahead of its European neighbors. This has led to some soul-searching. Spiegel

News you can use: FAQ on Eyebrow Grooming for Men. eyebrowz.com

Buying carbon offsets may ease eco-guilt but not global warming. CS Monitor

On Friday, Leonard Nimoy will visit Vulcan, Alberta, to anoint the town as the "Official Star Trek Capital of Canada." After that, he's hanging up his Spock ears for good and retiring. Vancouver Sun

(Comments: For reader comments, questions and discussion, see the 23-Apr-10 News -- Torrents of bad news for Greece and Europe thread of the Generational Dynamics forum. Comments may be posted anonymously.) (23-Apr-2010) Permanent Link
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