Exposing The Reality Of The “Too Good To Be True” Greek Budget Myth

Authored by Martin Feldstein, originally posted at Project Syndicate,

Recently, newspaper headlines declared that Greece would have a balanced budget for 2013 as a whole. The news came as quite a shock: Recall that when Greek officials came clean about the true state of their country’s public finances in 2010, the budget deficit was more than 10% of GDP – a moment of statistical honesty that triggered the eurozone debt crisis. It seemed too good to be true that the Greek deficit would be completely eliminated in just three years.

In fact, it is too good to be true. Any reader who went beyond the headlines soon discovered that the prediction of a zero budget deficit was in fact misleading. The International Monetary Fund was predicting only that Greece would have a zero “primary” budget deficit in 2013.

A “primary” budget deficit (or surplus) is the difference between a government’s outlays for everything excluding the interest payments that it must pay on its debt and its receipts from taxes and other charges. In the case of Greece, the interest payments apply to government debt held by Greek individuals and institutions, as well as to government debt held by the IMF, the European Central Bank, and other foreign lenders.

The overall budget deficit is still predicted to be 4.1% of Greece’s GDP in 2013 – a substantial improvement compared to 2010 but still far from fiscal balance. The difference between the overall deficit and the primary deficit implies that the interest on the Greek national debt this year will be 4.1% of GDP.

Moreover, the Greek government’s interest payments are exceptionally low. Given that its debt will still be about 170% of GDP this year, the 4.1%-of-GDP interest bill implies that the Greek government pays an average interest rate of just 2.4% – far less than the nearly 9% rate that the market is now charging on ten-year Greek government bonds.

The difference reflects a combination of the lower rate on short-term debt and the highly favorable terms on which Greece is now able to borrow from official lenders at the IMF and the ECB. If Greece had to borrow at the market interest rate on ten-year bonds, its deficit would rise by 6.5% of the Greek government debt or 11% of GDP. In this case, the overall Greek deficit would be about 15% of GDP, putting its debt on a rapidly exploding path.

Greece’s economic weakness increases the current level of the deficit. Five years of declining GDP have depressed tax receipts and increased transfer payments. The IMF estimates that these cyclical effects on revenue and outlays have raised the overall deficit by nearly 5% of Greek GDP. On a cyclically adjusted basis, Greece’s overall budget would show a surplus of 0.6% of GDP this year.

This also implies that if Greece could escape from its current recession, its national debt would decline, both absolutely and as a share of GDP. More generally, the national debt of any country grows by the size of its budget deficit or declines by the size of its budget surplus.

Even an economy with an overall budget deficit will have a declining government debt/GDP ratio if the growth rate of its nominal GDP exceeds that of its debt. For Greece, with an overall deficit of 4.1% of GDP and a debt/GDP ratio of 170%, the debt ratio would fall if the combination of inflation and real (inflation-adjusted) GDP growth exceeded 2.4%. Stated differently, now that Greece has achieved a zero primary budget deficit, its debt burden will decline if its nominal growth rate exceeds the average interest that it pays on its government debt.

Budget deficits and the resulting national debt are important not only in themselves; they also contribute to a country’s current-account deficit, which is the difference between its level of domestic investment by businesses and households in structures and equipment and the amount that it saves to finance those investments. That amount, which includes the saving of businesses and households, is reduced by the amount that the government borrows.

In the case of Greece, the saving of businesses and households exceeds the level of investment in businesses and housing by just enough to outweigh the dissaving by the government, resulting in a very small current-account surplus. Stated differently, Greece is now able to finance its current level of consumption and investment, including government and private spending, without relying on capital inflows from the rest of the world.

Looking ahead, the IMF predicts that Greece will have a gradually rising primary surplus and a gradually declining overall deficit over the next several years. But, unless Greece is able to increase its rate of economic growth, the budget will remain in deficit and the debt will remain at nearly its current share of GDP.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/bcfKo_3fYUw/story01.htm Tyler Durden

Berlus-Gone-i

As many expected (due to his tax fraud conviction):

  • *ITALY SENATE REJECTS MOTIONS TO ALLOW BERLUSCONI TO KEEP SEAT
  • *FORMER ITALIAN PREMIER BERLUSCONI OUSTED FROM SENATE

Of course, Sylvio is not happy:

  • *BERLUSCONI SAYS HIS OUSTING WON’T LEAD HIM TO RETIRE TO CONVENT
  • *BERLUSCONI SAYS TODAY IS ‘BITTER DAY’ FOR DEMOCRACY

Indeed!

Perhaps our favorite…

  • *BERLUSCONI SAYS HE WAS ACQUITTED IN 57 TRIALS

Which reminds us of the old story that ends… “… and I shag one sheep…”


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/4YSXbtGlIe0/story01.htm Tyler Durden

Bid To Cover Tumbles To Lowest Since 2009 In Weak, Tailing 7 Year Auction

If this week’s 2 year auction was an indication of a rising Bid to Cover, and the 5 Year yesterday showed a modest decline, the just completed 7 Year auction was evidence that any rumors of a pick up in ultimate demand in the belly and the long-end of the curve are greatly exagerated. The initial indication of how weak the auction would be came moments before the 11:30 am announcement, when the When Issued was trading at 2.094%. When the formal announcement from the Treasury came that the bond had priced at a high yield of 2.106%, or tailing by a 1.2 bps, the bond complex promptly exhaled. Things only got uglier when looking at the internals: as noted above, the Bid to Cover came at 2.36: a sharp drop from the last auction’s 2.66, well below the TTM average of 2.62, and the lowest going back all the way to the 2.26 in May 2009. The takedown was just as unimpressive, with Direct interest sliding to just 16.14% of the final allocation, Indirects likewise seeing their allotment tumble from 42.30% to 34.07%, the lowest since February, which left Dealers holding half of the auction, or the most since June 2012.

In other words, demand for anything to the left of the belly is strong. But once one enters the 7 Year and onward bucket, things are starting to get shaky.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/A7NIVZ5-xCk/story01.htm Tyler Durden

Judging From His Clemency Record, Obama Likes Turkeys 10 Times As Much As People

The
Huffington Post
‘s Ryan Reilly
notes
that President Obama “has pardoned almost as many turkeys
as drug offenders,” which is pretty appalling but actually
understates how bad Obama’s clemency record is. All of the 11 drug
offenders pardoned
by Obama had completed their sentences years before, while the 10
turkeys he has pardoned (counting the two today) escaped their
“sentences” entirely. Obama has not done anything comparable for
any human beings, and he has shortened the sentence of
exactly one
drug offender, even though he and his attorney
general
concede
that thousands are serving unfairly long prison
terms.

If we limit the analysis to offenders whose punishments have
been reduced by Obama, his ratio is 10 turkeys to one person.
Another enlightening comparison: Attorney General Eric Holder’s
recently announced
change
in charging practices, if fully implemented by federal
prosecutors, could result in
shorter sentences
for about 500 drug offenders each year.
That’s just 2 percent of all the federal drug offenders who are
sentenced each year, but it is still 2,500 times as impressive as
Obama’ commutation record.

Reilly also gives the president too much credit when he says
“Obama has granted the fewest pardons of any modern president.” The
truth is the Obama has pretty much the
worst clemency record ever
. He granted fewer pardons and
commutations in his first term than any other president, except for
George Washington (who probably did not have a lot of applications
during the first few years of the nation’s existence) and two
presidents, William Henry Harrison and James Garfield, who died
shortly after taking office. This year he
issued
17 additional pardons. But judging from numbers
compiled by P.S. Ruckman Jr., a professor of political science at
Rock Valley College in Rockford, Illinois, that did not improve
Obama’s standing. Compared to other presidents who served two
terms, he is still doing abysmally bad. He makes Richard Nixon look
like a softie.

Obama still has three years to redeem himself. National
Journal
‘s Ron Fournier
urges him to try
. Fournier, who like Reilly uses the turkey
pardons as a peg, focuses on
Weldon Angelos
, who is serving 55 years for possessing a gun
during three small-time marijuana sales. There are many other
potential beneficiaries of clemency, including federal prisoners
serving absurdly disproportionate
life sentences
and all the crack offenders who were sentenced
under rules that Obama and almost every member of Congress have
recognized as unjust.

from Hit & Run http://reason.com/blog/2013/11/27/judging-from-his-clemency-record-obama-l
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John Stossel Says We Should BeThankful for Private Property

The Embarkation of the PilgrimsThe Pilgrims started out with communal property
rules. When they first settled at Plymouth, they were told: “Share
everything, share the work, and we’ll share the harvest.” The
colony’s contract said their new settlement was to be a “common.”
Everyone was to receive necessities out of the common stock. There
was to be little individual property. They nearly starved and
created what economists call the “tragedy of the commons.” But
then, after the colony’s governor, William Bradford, wrote that
they should “set corn every man for his own particular,” they
dropped the commons idea. He assigned to every family a parcel of
land to treat as its own. The results were dramatic, writes John
Stossel. Much more corn was planted. Instead of famine, there was
plenty. Thanks to private property, they got food—and thanks to it,
we have food today.

View this article.

from Hit & Run http://reason.com/blog/2013/11/27/john-stossel-says-we-should-bethankful-f
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Obama Will Pardon Turkeys But Not a First-Time Offender Like Weldon Angelos?

The National
Journal’s Ron Fournier has
a heartbreaking story
about Weldon, Angelos, a first-time
offender caught selling potm that makes all those ha-ha-funny
stories about presidential pardons of turkeys positively obscene.
Read on, but prepare to be outraged.

If a turkey deserves a second chance, why not Weldon
Angelos?

Angelos was
sentenced in 2004 to 55 years’ imprisonment for possessing a
firearm in connection with selling small amounts of marijuana. He
didn’t brandish or use a weapon, nor did he hurt or threaten to
injure anybody. And yet the father of young children and an
aspiring music producer was given an effective life sentence
because of a draconian federal law requiring mandatory minimum
sentences.

Even the judge on his case, Paul G. Cassell, found the sentence
“cruel and irrational.” While urging Obama to reduce Angelos’s
punishment, the Republican-appointed judge wrote, “While I must
impose the unjust sentence, our system of separated powers provides
a means of redress.”

More than almost any president, Obama has failed to
exercise that “means of redress” inscribed in the Constitution, the
presidential clemency.

Fournier notes that the Obama admin is
rethinking its position toward clemency (and he
cites work
by Reason’s Jacob Sullum). That’s great and all, but
it doesn’t help Angelos or thousands of other in similar
situations.

What is to be done? Fournier suggests that

After granting Angelos’s petition, Obama should grant clemency
to inmates sentenced under the old crack-powder guidelines. He also
should eliminate the Justice Department’s sole authority to review
clemency petitions and make recommendations to the president. It’s
an unacceptable conflict of interest to have DOJ prosecutors
reviewing the petitions of people jailed by the DOJ.

A smart suggestion from Osler: follow the example of President
Ford, who created an independent panel to review clemency petitions
from the Vietnam War. Via the Presidential Clemency Board, Ford
granted 1,731 pardons to civilians (those who evaded the draft) and
11,872 to military personnel (who went AWOL). The board inoculated
Ford from political fallout. “No one remembers Ford doing this,”
[law prof and former prosecutor Mark] Osler said, “and draft
evaders weren’t exactly popular back then, just like drug sellers
aren’t now.”


Read the whole thing here
. And please forward this post to
folks who think that turkey pardons are newsworthy.

from Hit & Run http://reason.com/blog/2013/11/27/obama-will-pardon-turkeys-but-not-a-firs
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A Look Inside The New York Fed's Trading Desk: Then And Now

In late 2010, we wrote: “The World’s Most Important Trading Desk Is Not At Goldman, But Is On The 9th Floor Of 33 Liberty Street” in which we said “even though our good Samaritan friends at One New York Plaza may take offense to this designation, the trading desk that controls the formerly free world is not located anywhere on the premises of Goldman Sachs, but is instead situated on the 9th floor of 33 Liberty Street, also known as the home New York Fed. From a trading desk cluster at this location, 39 year old Brian Sack controls the uber-secretive money flows that determine the daily fate of credit, equity and virtually all other markets, that have now been subsumed by the government’s central planning ambitions and aspirations to determine each and every uptick in the increasingly more irrelevant S&P 500.”

Since then Brian Sack has moved on, replaced by the levitating market wizard, Simon Potter, and his disciple Kevin Henry. However, while we identified long ago the “wealth effect” nerve center of the New Normal, one thing largely unavailable, was pictures of this trading desk with seemingly no sell buttons. Until now: below, courtesy of Wall Street on Parade, we present a modest compilation of not only what the current NY Fed trading desk looks like but also compare it to its predecessor, as it appeared on vintage photos from the 1930s.

Now:

The Trading Desk at the New York Federal Reserve Bank can influence and manipulate our markets. William (Bill) Dudley is Manager, CEO, and continuing member (vice chairman) of FOMC. (Source)

 

 

 

 

 

 

Blake Gwinn, left, and James White in the operations room at the Federal Reserve Bank of New York (source)

 

 

 

 

 

 

 

 

A Trader Monitors Four Computer Screens on the Open Market Trading Desk at the Federal Reserve Bank of New York (source)

 

 

 

 

 

 

 

Is that Kevin in the foreground? Open Market Trading Floor at the Federal Reserve Bank of New York (source)

 

 

 

 

 

 

 

And then:

New York Federal Reserve Bank Trading Floor Before Computer Screens (source)

 

 

 

 

 

Trading Area of New York Fed, Vintage Photo (source)

 

 

 

 

h/t Wall St. On Parade


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ByMql4zHz-w/story01.htm Tyler Durden

A Look Inside The New York Fed’s Trading Desk: Then And Now

In late 2010, we wrote: “The World’s Most Important Trading Desk Is Not At Goldman, But Is On The 9th Floor Of 33 Liberty Street” in which we said “even though our good Samaritan friends at One New York Plaza may take offense to this designation, the trading desk that controls the formerly free world is not located anywhere on the premises of Goldman Sachs, but is instead situated on the 9th floor of 33 Liberty Street, also known as the home New York Fed. From a trading desk cluster at this location, 39 year old Brian Sack controls the uber-secretive money flows that determine the daily fate of credit, equity and virtually all other markets, that have now been subsumed by the government’s central planning ambitions and aspirations to determine each and every uptick in the increasingly more irrelevant S&P 500.”

Since then Brian Sack has moved on, replaced by the levitating market wizard, Simon Potter, and his disciple Kevin Henry. However, while we identified long ago the “wealth effect” nerve center of the New Normal, one thing largely unavailable, was pictures of this trading desk with seemingly no sell buttons. Until now: below, courtesy of Wall Street on Parade, we present a modest compilation of not only what the current NY Fed trading desk looks like but also compare it to its predecessor, as it appeared on vintage photos from the 1930s.

Now:

The Trading Desk at the New York Federal Reserve Bank can influence and manipulate our markets. William (Bill) Dudley is Manager, CEO, and continuing member (vice chairman) of FOMC. (Source)

 

 

 

 

 

 

Blake Gwinn, left, and James White in the operations room at the Federal Reserve Bank of New York (source)

 

 

 

 

 

 

 

 

A Trader Monitors Four Computer Screens on the Open Market Trading Desk at the Federal Reserve Bank of New York (source)

 

 

 

 

 

 

 

Is that Kevin in the foreground? Open Market Trading Floor at the Federal Reserve Bank of New York (source)

 

 

 

 

 

 

 

And then:

New York Federal Reserve Bank Trading Floor Before Computer Screens (source)

 

 

 

 

 

Trading Area of New York Fed, Vintage Photo (source)

 

 

 

 

h/t Wall St. On Parade


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ByMql4zHz-w/story01.htm Tyler Durden

If You're (Not) Traveling by Air Today, Here's How to Fix America's Fugged-Up Air Traffic Control System

 

If you’re traveling
by air today, well, good luck to you. A storm is paralyzing a good
chunk of the Northeast and once airports in Boston, Philly, New
York, and Newark get even a little bit backed up, the ripples fan
out like a cannonball hitting a fat guy in the stomach in
super-slow-mo.

As you’re cooling your jets in airports (which approximate
homeless shelters on the holidays), consider this: It’s not just
weather that screws up air travel so much. The simple fact is that,
as Reason Foundation’s Bob Poole says in the video above, “The air
traffic control system in the United States is technologically
obsolete. This model is basically the same model that we have
used since the beginning of air travel.”

Click above to watch “Your Flight Has Been Delayed…And It’s
Washington’s Fault.” Click here for
downloadable versions and more links and resources.

from Hit & Run http://reason.com/blog/2013/11/27/if-youre-not-traveling-by-air-today-here
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If You’re (Not) Traveling by Air Today, Here’s How to Fix America’s Fugged-Up Air Traffic Control System

 

If you’re traveling
by air today, well, good luck to you. A storm is paralyzing a good
chunk of the Northeast and once airports in Boston, Philly, New
York, and Newark get even a little bit backed up, the ripples fan
out like a cannonball hitting a fat guy in the stomach in
super-slow-mo.

As you’re cooling your jets in airports (which approximate
homeless shelters on the holidays), consider this: It’s not just
weather that screws up air travel so much. The simple fact is that,
as Reason Foundation’s Bob Poole says in the video above, “The air
traffic control system in the United States is technologically
obsolete. This model is basically the same model that we have
used since the beginning of air travel.”

Click above to watch “Your Flight Has Been Delayed…And It’s
Washington’s Fault.” Click here for
downloadable versions and more links and resources.

from Hit & Run http://reason.com/blog/2013/11/27/if-youre-not-traveling-by-air-today-here
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