The Housing Bubble

I suspect said complete idiot will show up right on schedule.

“SHANGHAI, June 30 (Reuters) - China stocks plummeted and then rallied again in a highly volatile session on Tuesday, shrugging off regulatory attempts to pacify a tumbling market as rumours swirled about backdoor interventions from Beijing.”

All the gamblers are betting on what the all powerful central government will do, everywhere. Kind of speaks to how little emphasis there is on productive investment.

Yesterday I read an old article on the Alibaba IPO in the US. Amazingly, no one who bought Alibaba stock in the US actually owns Alibaba stock, because it is illegal in China for foreigners to own stock in Chinese companies. All they get is shares in a Caymen Island shell company with no ownership rights. What a scam.

The Wall Street Journal
Review & Outlook
China’s Debt Bomb
Stock volatility is the latest sign of the economy’s excessive leverage.
An investor observes stock market at a stock exchange hall on June 26 in Fuyang, Anhui province of China.
Photo: ChinaFotoPress/Getty Images
June 28, 2015 5:07 p.m. ET

The spectacular volatility in Chinese stocks the past two weeks is a reminder that, for all its size, China remains a developing economy with an immature financial system. As stock prices soared more than 100% in the past year, so did margin lending, estimated at $238.5 billion last week. That debt probably added to the price swings, with the Shanghai Composite Index down 19% since June 12 and 7.4% on Friday.

Property developers, local governments and state-owned enterprises are also broadly overleveraged. Despite Beijing’s attempts to rebalance the economy from investment to consumption, inefficient borrowing continues to expand. So how concerned should the world be about Chinese debt?

A recent McKinsey Global Institute report put total borrowing—by individuals, companies and government—at 282% of GDP in 2014. That’s extraordinarily high for a developing economy, and up from 158% of GDP as recently as 2007. After the 2008 financial crisis, Beijing encouraged Chinese banks to lend to local governments and state-owned companies.

The cheap credit with few controls often financed projects with a low or negative rate of return. The wasteful investment is reflected in China’s falling incremental capital output ratio, one measure of how efficiently borrowing translates into economic activity. In the five years before the 2008 panic, it took an increase of less than 3% in investment to add 1% of GDP. By 2012 it took 4.9%. China’s debt figures are reminiscent of Korea, Indonesia and Thailand in the runup to the 1997 Asian financial crisis.

Beijing is trying to defuse the problem, though some of its steps may make it worse in the long-term. The People’s Bank of China (PBOC) is bailing out local governments responsible for bridges to nowhere and palatial buildings. Provincial governments will retire bank debt by issuing $419 billion in bonds to be bought by state banks, which will swap them with the central bank for reserves to lend.

This repeats the bank recapitalization of the late 1990s, when bad loans were warehoused and largely forgotten. By failing to liquidate bankrupt borrowers, the government creates a moral hazard in which neither loan officers nor local officials face the consequences of bad decisions.

Meanwhile, Beijing has encouraged the rising stock market as a way to boost the slowing economy. This allows new companies to list shares and brings down business leverage. But some managers have taken the opportunity to borrow more on the back of their higher market value. Combine that with margin lending to speculators, and the bull market may have increased systemic risk.
…

Speaking of Social Security privatization, we might wait to see how this initiative pans out before acting:

Pension funds to enter Chinese stock markets
3:54am EDT - 00:57

Chinese markets are preparing for a potential flood of money after draft rules allowing pension funds to open up investment into the country’s stock markets were published late on Monday.

Bubbles popping across the globe.

Two doses of Pop-Eze and a can of beer won’t prevent this one.

They’ve always been reluctant to become a state but considering their financial situation I bet the next time a referendum comes up for a vote they change their tune. At which point we should tell them to go pound sand, but of course we won’t.

Bend over, ‘Muricans. Your Republicrat overlords sold you out yet again.

I thought negotiations were suspended. Do EU rules allow unilateral agreements without a quorum?

I could be horribly wrong about this, but it appears to me by developing a back bone the Greeks are likely to get a better deal than by playing the gimp.

You’ve gone past drinking the kool-aid. Now you’re pouring it on your head and splashing around like a little kid.

If they default will creditors let them stay on the island for a few years before foreclosing??

Cyprus, Greece, Puerto Rico, Italy(?), Spain(?), France(?)

“Everyone’s in So Much Red and Defaultin’ “

White House spokesman Josh Earnest says the US government has ruled out a federal bailout for the US island.

It’s gonna be fun watching the White House backpedal that statement.

I made my third donation to Rand Paul’s campaign last weekend, and will be buying his book at the airport this week to read on the plane

The Lindsey Graham trolls can go suck a big one (and probably enjoy it)

He said he couldn’t disclose what was in the treaty. Why not? Who made that decision?

Some bankers who told him that they have a set of cement shoes in his size?

Add to that the Drudge headline today about FB’ers proposing US flag burning in NYC leading up to the 4th of July.
And so it begins…….

Speaking of “free speech” I wonder how NBC would like it if the FCC yanked their licence and those of all their affiliates, because the President got his nose out of joint about some news story they ran, or some TeeVee show he didn’t like? Oh, boy, you’d be hearing ALL ABOUT
free screech and freedumb of the press.

But they just tossed Trump over a few unkind words. Oh, wait, wasn’t this the network that spewed the propaganda for the Bush war machine? Right. They’re partially responsible for all those thousands dead and maimed, both in Iraq and the Middle East.

Sigh. I’ve been watching the Miami Vice episodes in chronological order on Netflix, I’m more than halfway into season three and just realized it’s an NBC/Universal property. I’m done. Oh, well, no big loss. The first couple of seasons were the good ones, after that the production switched from Mann to Dick Wolfe/

+1

People have never lived better or had bigger houses. You are being provided some very delicious cake to eat by your owners.

Ann Coulter on C-SPAN’s Washington Journal last week:

http://www.c-span.org/video/?326658-5/washington-journal-ann-coulter

Coulter is a classic rabble-rouser, but she usually is a useful tool for the Establishment GOP and the neo-cons.

I honor our our host, New Mexico has the 21s LEAST sold out future among states, despite some pension funding issues.

If NYC, where I live, were a separate state, it would have been the worst. The actual worst: Rhode Island, followed by Illinois. California is 10th worst, and only 20 percent worse that the U.S. average (which itself is bad).

The combination of state and local government debts, pension underfunding, and a low level of past infrastructure construction expenditures mean NYC residents face a total state and local government debt of 94.5% of their personal income. To go along with the federal debt of 100.0% percent of their personal income, not including Social Security and Medicare funding shortages.

Thanks, Larry. Since I’m a bit of dilettante, I sort of cut to the chase to see where Florida stood. Good to know.

But here’s my worry, and it’s something I’ve addressed on another blog: We’re getting flooded with people from those sold out states in the Northeast and Mid-Atlantic. These are people who looked down on Florida for decades, as a low wage, low education, limited job state. Guess what? If you read some of the relocation websites out there, these people have all of a sudden discovered that Florida has plentiful jobs and good schools. Who knew?

Most of them are lying through their teeth, IMO. The truth is more like they can’t cut it financially anymore in their high tax, high expense utopias. But most won’t say that, the reason for moving is stuff like “I can’t take the cold winters, I’m tired of shoveling snow”. Or they “want to be near family”, usually some decrepit grandparent rotting away in assisted living or in a trailer park that they never gave a rat’s patootie about before.

Florida has always had people move to the state for the weather, but not in the quantity they’re moving now. All of a sudden it’s cold in the winter up north? LOL, gimme a break. No, the truth is more like no one minded the cold as much when they had more money, better jobs and lower expenses.

My concern is that, as these people move to Florida, they bring their “must have more services” mind-set, which means higher taxes and expenses for us. They’ve driven up the price of just about everything, food, shelter, education, etc. The other scary thing is that so many seem to have kids with special needs, which does not bode well for the future of the state.

“…the Greek Economic Minister has written on game theory…”

That speaks volumes about how this situation is unfolding.

Gotta say, I agree with the Nevada Cattlemen’s Association take on Bundy and his antics. Also think pointing firearms at law enforcement personnel is never a good idea and likely to escalate an already volatile situation.

rainbow licker … given up to their own depravity

Keep government out of the bedroom

And get government out of marriage, all marriage

Thanks, rj. I’ve always admired you for keeping things together up there in Illannoy. I really fear for the children of decent people who have no choice but to be in public schools these days, caught as they are between thug, gangbanger and sjw classmates, and pervert teachers like Hastert.

“Time to take out the middleman and go single payer.” With the US government running it? No thanks! I already have experience with two healthcare systems run by the US gubmint: First the military, now the VA. And they both suck to some extent. Thankfully at times I can be referred to civilian providers.

The PPO/HMO system, which Obamacare inflates, is a huge ripoff … a bloated, private 3rd party parasite that serves to make a profit off of everything your doctor and hospital does.

Testify, WPA. For a flaming libtard, you sometimes get it right.

Good job, KKK: Confirming the suspicions of outside observers that the confederate flag isn’t just a “symbol of the south”, it’s a symbol of something else.

And by then what will the around ten trillion Obama has added to the deficit cost with interest, $40 trillion? Looks like Obama blame will be around for awhile.

Meanwhile, the military-industrial complex laughs all the way to the bank, while generously contributing to the Jebillary campaign fund.

The question is which Bush - dad or son -
I say both - they gave us John Roberts and Anthony Kennedy. Yikes.

Elections have consequences that can last for decades if not forever!!

phony scandal

I cant believe the western state are actually selling fireworks this year. duh!

“the cause of slavery — was wrong”

I agree that slavery is wrong. It was wrong in the south. It was wrong in Africa, in Britain, in Rome. It is wrong now in Asia. However it is ironic that it was wrong under the American Flag before the Civil War.

The Bay area is all about Chinese buying props with funny money. Same with parts of OC and Vancouver.

The Chinese do not want to live in Kansas.

We need to rank-order all the “victim” and entitlement groups to see who is more entitled to have their agenda rammed down our throats.

Warner Todd Huston

Here’s another name reminiscent of an assassin.

Could this mean a comeback for Josie Cotton?

“Johnny Are You Queer?” - YouTube
http://www.youtube.com/watch?v=NZ2X2_ts5Kw - 275k -

The question really gets down to what government or super-government international financial institution is going to rescue Greece, or at least to coordinate the rescue effort.

Private markets have apparently called Greece’s bluff and bid them sayonara.

Calling Each Other’s Bluff
Greg Canavan
June 30, 2015
Reddit
deflation resize medium

Well, it’s the last day of the financial year. The heavy fall in the market over the past week or so will shave a few hundred billion off the nations’ superannuation balances.
..
Moving back to the overnight action, and Europe was hit hard. Here’s how the major European exchanges fared:

Germany: -3.56%
France: -3.74%
Spain: -4.56%
Italy: -5.17%
Portugal: -4.76%

In short, it was pretty ugly. But not surprising considering the market was happy to ignore the building tensions between Greece and its creditors for weeks. The market simply assumed both sides would blink before the situation turned critical.

The other important focus point overnight was the bond yields of the other highly indebted Euro nations. Let’s have a look:

* Portugal saw its 10-year bond yields rise 34 basis points to 3.02%.
* Italian and Spanish 10-year bond yields both jumped 24 basis points to 2.38% and 2.34% respectively.

That’s hardly a disaster for any of these countries, but keep an eye on the trend. If they keep rising, it will become a headache for Europe and the euro.

Much of what happens next will depend on the outcome of Sunday’s referendum. I don’t think Greece’s creditors saw this coming. They probably expected Greece to fall into line just prior to the repayment deadline to the IMF, which expires tonight/tomorrow our time.

Instead, Greece upped the stakes big time and called its creditors’ bluff. From Bloomberg:

Greek Prime Minister Alexis Tsipras said European leaders don’t have the nerve to throw his country out of the euro, striking a defiant tone just hours after imposing capital controls on a country in economic freefall.

As Greeks come to terms with a new reality that’s trapped their money inside the country’s banks, 12,000 people gathered in the central Syntagma Square with banners that read “Our lives do not belong to the creditors.” Tsipras, who passed by them en route to a televised interview, said the cost to the 19-nation bloc of Greece leaving would be “enormous.”

The creditors are obviously outraged. The elites of Europe are not used to small nations standing up to them and daring to jeopardise their euro project.

But despite appearances, Greece has a strong hand. The cost of Greece leaving the Eurozone would be enormous. Greece has around €320 billion in total government debt, held mostly by the European Central Bank and the IMF. If Greece leaves the Eurozone that is quite a hole to fill.

If Greece votes no in Sunday’s referendum, then they will be in a much stronger position to negotiate a better outcome for staying in the Eurozone, which is clearly the better deal for everyone.

But with Tsipras saying that Europe doesn’t have the nerve to throw Greece out, he risks turning this from a rational to an emotional negotiation. Because if Europe then turns around and calls Greece’s bluff, throwing them out of the Eurozone, it’s likely we’ll get a lot more turmoil and volatility in the months ahead. It will be a matter of time before the market then moves on to Portugal, Italy and Spain.

It’s impossible at this stage to work out how it will end. I know there’s a lot of talk about a ‘Grexit’ now looking likely but it’s too early to come to such a conclusion. This still has a long way to go.

Greece’s moves over the past few days are a high stakes ploy to wrest negotiating power off the creditors, not necessarily an admission that they will leave the Eurozone.

So expect to more volatility in the days to come. But the real fireworks will start next week when we know the outcome of the Greek referendum.
…

Germany is bluffing on GreeceBerlin is not going to force Athens out of the eurozone anytime soon
June 12, 2015 2:00AM ET
by Mark Weisbrot

You can ignore all the talk of a “Grexit,” the bluff and bluster of right-wing German ideologues such as Finance Minister Wolfgang Schäuble who would celebrate it, and repetitive, stubbornly dire warnings that time is running out. Did you notice that the much-hyped June 5 deadline for the Greece’s payment to the International Monetary Fund (IMF) came and went, Greece didn’t pay and nobody fell off a cliff? Trust me, this is not a cliffhanger.

Although there have been numerous references to game theory in the ongoing commentary, it’s really not necessary if you look at the revealed preferences of those whom the Syriza government is polite and diplomatic enough to call its European partners. Take partner-in-chief German Chancellor Angela Merkel: If there’s one thing she doesn’t want to be remembered as, it’s the politician who destroyed the eurozone.

Of course, we don’t know if a Greek exit would do that, but there’s a chance that it could. Even if the European Central Bank would be able to contain the resulting financial crisis, it is possible that Greece would, after an initial shock, ultimately do much better outside the euro, which might convince others to want to leave. Whatever the probability of that scenario, Merkel is, like most successful politicians, a risk-averse creature who won’t roll those dice.

And there is an elephant in the room that she is not going to ignore: the United States. There are scattered press reports that Barack Obama’s administration has put pressure on Merkel to reach an agreement with Greece, but the importance of that has been vastly understated. Unless it is a request that could get a German government voted out of office — such as George W. Bush’s bid for support of his invasion of Iraq in 2003 — something that is strategically important to Washington is extremely likely to find agreement in Berlin. And in this case, Merkel and Obama are basically on the same page.

The politics of empire are much more important than any economic concerns here. For the same reasons that the United States intervened in Greece’s civil war (1946 to ’49) and supported the brutal military dictatorship (1967 to ’74) — with all the murder, torture and repression that these involved — Washington does not want to have an independent government in Greece.

Europe is the United States’ most important ally in the world, and Washington doesn’t want to lose even a small piece of it, even little Greece. Everybody knows that if Greece leaves the euro and needs to borrow hard currency for its balance of payments, it will get some from Russia and maybe even China. Greece could leave NATO. Greece could participate in Russia’s proposed gas pipeline project, which would make Europe more dependent on Russia — something that American officials warned against, drawing a sharp rebuke from Greece’s energy minister, who rightfully told them it was none of their business.

It would be nice to think that the worst features of U.S. foreign policy have changed since the collapse of the Soviet Union, but they have not. The Cold War never really ended, at least insofar as the U.S. is still a global empire and wants every government to put Washington’s interests ahead of those expressed by its own voters.

The current hostilities with Russia add a sense of déjà vu, but they are mainly an added excuse for what would be U.S. policy in any case.
The people primarily responsible for Greece’s deep and prolonged depression and high unemployment are pushing policies that would extend the crisis and worsen its impact on those who have suffered the most.

Once we take all these interests into account and where they converge, the strategy of Greece’s European partners is pretty clear: It’s all about regime change. One senior Greek official involved in the negotiations referred to it as a “slow-motion coup d’état.” And those who were paying attention could see this from the beginning. Just 10 days after Syriza was elected, as I noted previously, the European Central Bank cut off its main line of credit to Greece and then capped the amount that Greek banks could lend to the government.

All the hype and brinkmanship destabilize the economy, and some of this is an intentional effect of European authorities’ statements and threats. But the direct sabotage of the Greek economy is most important, and it is remarkable that it has gotten so little attention.

The unannounced objective is to undermine political support for the Syriza government until it falls and get a new regime that is preferable to the European partners and the U.S. This is the only strategy that makes sense, from their point of view. They will try to give Greece enough oxygen to avoid default and exit, which they really don’t want, but not enough for an economic recovery, which they also don’t want.

So far, the damage to the Greek economy has been quite significant. The IMF projected growth of 2.5 percent this year, and now the economy is in recession.

According to leaked documents published by The Financial Times on June 5, the European officials’ negotiating position is a primary budget surplus of 1 percent of GDP in 2015 and 2 percent of GDP in 2016. This represents a climb down from the ridiculous goals that the IMF previously put forth, which called for primary surpluses at “above 4 percent of GDP” for “many years to come.” But with the economy in recession and the current primary surplus at negative 0.67 percent of GDP, the current proposed targets would stifle Greece’s recovery, perhaps even prolong the recession and maintain depression levels of unemployment.

Another sticking point in the current negotiations has to do with debt relief. Even the IMF now recognizes that Greece’s current debt burden is unsustainable, but the European officials are not budging. This pretty much guarantees more crises down the road, which is a major drag on recovery. Who wants to invest or even consume very much with inevitable financial crises on the horizon?

The European officials’ demand for further pension cuts is even more difficult to justify, given what Greece has already done. Besides raising the retirement age by five years (from 60 to 65), The Financial Times reports, “main pensions have been slashed 44 to 48 percent since 2010, reducing the average pension to 700 euros a month … About 45 percent of Greek pensioners receive less than 665 euros monthly — below the official poverty threshold.”

European officials are making more demands for labor law reform, on the dubious theory that further weakening labor’s bargaining power and driving down wages (as if 26.6 percent unemployment doesn’t do that enough) will increase competitiveness enough to spur an export-led recovery.

So we see the ugliest of scenarios playing out: The people primarily responsible for Greece’s deep and prolonged depression and high unemployment are pushing policies that would extend the crisis and worsen its impact on those who have suffered the most — not to mention subvert the will of the electorate.

So far, the government is hanging in there, with the latest polls showing Tsipras’ approval rating at 66 percent. It’s impressive that so many Greeks still understand who is responsible for the crisis, in spite of the balance of media prejudice against the government. It’s vitally important, because Greece’s adversaries are counting on being able to deceive them.

Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, D.C. and president of Just Foreign Policy. He is also the author of the forthcoming book “Failed: What the ‘Experts’ Got Wrong about the Global Economy.”

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera America’s editorial policy.

Europe shrugs its shoulders
There was emotion, sure, but no panic as EU leaders and markets react to Greece’s pending referendum.
By Matthew Karnitschnig and Zeke Turner
29/6/15, 8:23 PM CET
Updated 29/6/15, 11:10 PM CET

Reactions to Greece’s pending referendum over its euro membership ranged from dismay to calm Monday, as EU officials implored Greeks to reaffirm their commitment to Europe and national leaders led by Angela Merkel cautioned against trying to influence the outcome.

The weekend announcement of the July 5 vote caused Greece’s long-running aid talks to collapse, casting doubt on the country’s membership in the euro. But fears of a broader panic in financial markets proved unfounded.

European stock indexes posted steep declines and the bonds of Italy, Spain and Portugal took a hit, but the reaction was far from the calamity some feared. The euro, the main focus of attention, even rose on the day.

The muted reaction is unwelcome news to Greece’s leftist leaders, who have tried to use the specter of financial market chaos to their advantage in negotiations. If anything, Monday’s market response suggested the measures Europe has put in place in recent years, which include a hefty bailout fund and European Central Bank intervention in debt markets, are working.

Against that backdrop, Merkel ended her silence on the events of the weekend. She repeated that “if the euro fails, Europe fails,” a line she first used a couple of years ago. But she also suggested that a Greek departure from the euro no longer threatened to bring the currency down.

“We can see today that Europe can react much forcefully than was the case five years ago,” she said.

Speaking in Berlin, Merkel placed the blame for the failed talks squarely at the feet of Greece’s leftist government, saying it had left the talks midstream, showing “no willingness to compromise.”

“Europe only functions when there’s compromise,” she said. “No one gets 100 percent.”
…

Greece should call Europe’s bluff
By Tarek Fatah, Toronto Sun
First posted: Tuesday, June 30, 2015 10:00 PM EDT | Updated: Tuesday, June 30, 2015 10:05 PM EDT
greece
A European Union flag flutters before the temple of Parthenon at the Acropolis hill in Athens, Greece. (REUTERS)

If a multi-billionaire runs into a financial crisis and cannot repay his or her debts to the banks, the banks don’t put him in debtor’s prison.

Society allows debtors to declare bankruptcy, the banks write down losses and restructure their loans, while the debtor often walks free.

Case in point, the collapse of Lehman Brothers in 2008, after accumulating $619 billion in debt.

While millions of Americans suffered, the company’s top executives found lucrative jobs elsewhere on Wall Street.

Not so if you are a country, as the Greeks have discovered.

For five years their creditors have imposed their will, shrinking the country’s economy by 21% and forcing 25% of the people into joblessness.

There is no doubt that successive Greek governments mismanaged the economy with corruption filtering down to political patronage networks.

In 2009 alone, Athens borrowed abundantly: A whopping 15 % of the GDP.

But who were the bankers involved and why should they get off free and clear?

As Philippe Legrain, senior fellow at the London School of Economics (LSC) says in Foreign Policy magazine:

By the time Greece was cut off from the markets in 2010, its soaring public debt of 130% of GDP was obviously unpayable in full. It should have been written down, as the IMF later acknowledged publicly.

Legrain says 90% of what Eurozone governments and the International Monetary Fund (IMF) have lent to the Greek government after 2010 has not gone to help Greece, but to rescue French and German banks on the backs of ordinary Greeks.

For five years, the Greeks have complied with the demands of the banks, but no more.

The difference this time is that facing the bankers today is a group of young, Greek populist politicians, led by Prime Minister Alexis Tsipras, who don’t scare easily.

They are Europe’s new left, free of the ideological constraints of their predecessors — the dinosaur communists and socialists who also played their part in creating this mess.

On Tuesday, Greece refused to pay $1.73 billion it owed to the IMF.

On Sunday, Greeks will vote to reject or accept the bail-out plan put forward by the IMF, the European Commission and the European Central Bank, known as the Troika.

The situation in Greece is being followed closely and with grave concern by Greek Canadians.

Costas Manios, a former board member of the Greek Community Centre of Toronto, told me, “it’s time for Greeks to take their destiny into their own hands and stop being slaves of European bankers”, a widely-held view that cuts across political party lines.

Sipping coffee in Toronto’s Greektown on the Danforth, Manios notes he is not on the political left, but backs Tsipras’ stand.

“Greece should get rid of the clutches of the euro and embrace the drachma. This may cause a bit of pain, but will free the Greeks from IMF, Wall Street and Europe’s bankers,” he says

Others disagree. “Chris”, sitting across the table, interrupts Manios declaring: “Are you serious? Syriza (the ruling party in Greece) will leave the country in ruins … they’re communists.”

If Greece votes “No” and the Troika refuses to write down part of Greece’s debts, then Tsipras should walk away from the euro, impose strict capital controls and call Europe’s bluff.

Let those who referred to Greece as one of the PIGS (Portugal, Ireland, Greece and Spain) see the Greek lion, Nemea, roar.

For the moment, it looks as though Greek leaders were the ones whose bluff was called.

Some dogs hunt by not hunting

2:00 am ET
Jun 30, 2015
Bankruptcy
What Happens If Greece Defaults on Its Payment to the IMF?
By Ian Talley
CONNECT
Demonstrators rally in Athens on Monday. Greek voters will decide in a referendum Sunday whether their government should accept an economic reform package put forth by Greece’s creditor.
MILOS BICANSKI/GETTY IMAGES

If Greece fails to pay the International Monetary Fund a $1.7 billion debt coming due at the close of business Tuesday—around 6 p.m. EDT—the country will immediately be in arrears to the fund, an event normally known in the financial world as a “default.”

The default, which Greece has already warned will happen, would be the first by an advanced economy in the fund’s seven-decade history, as well as the largest single overdue payment. It would also put the new Athens government on a par with a small group of mostly conflict-ravaged debtors that have stiffed the IMF—a short list that includes Afghanistan’s Taliban and coup-stricken Haiti. Zimbabwe strongman Robert Mugabe was the last major default to the emergency lender, in 2001.

IMF rules allow for no grace period for Greece. And given the fund’s huge financial exposure to the debt-ridden country, the managing director would immediately notify the board of Greece’s overdue financial obligation.

Although months of bailout talks have failed to win a new emergency-financing deal, IMF staff will still reach out to authorities in Athens to try to negotiate a plan for Greece to clear its arrears. The country ultimately risks expulsion from the fund’s membership if, after two years, the government fails to pay its debts, but beyond that long-term penalty, the immediate sanctions applied by the IMF are relatively limited. (See page 912 of the fund’s policy on dealing with member countries in arrears.)

Much more important is what nonpayment signals to all the countries, investors and other creditors Greece owes money to, including domestic institutions such as pension funds and federal employees.

The escalating prospect of a default to the IMF was a major reason why the European Central Bank limited its emergency loans to Greek banks and Greece’s government was forced to institute capital controls—financial martial law that prevents a mass exodus of cash out of the country.
…

How Default Could Push Greece Out Of The Eurozone
June 30, 2015 4:15 PM ET
Jim Zarroli
People wait in line to withdraw euros from an ATM after Greece closed its banks Monday in Athens.
Milos Bicanski/Getty Images
This story was updated at 7 p.m. ET.

The deadline passed Tuesday evening for Greece to make a key loan payment to the International Monetary Fund — putting it a step closer toward quitting the euro.

There had been last-minute attempts by the government to negotiate a deal with its creditors. And Greece still plans to hold a referendum Sunday to give people a chance to decide if they want to accept creditors’ harsh bailout terms.

Missing the payment leaves Greece in a much more tenuous position — and might eventually force it out of the eurozone altogether.

Until this week, Gabriel Sterne of Oxford Economics thought Greece and its European creditors might still find a way to resolve their differences. Now he says the odds of Greece staying in the eurozone are a lot slimmer than they once were.

“It’s really a pretty desperate situation even if they get a ‘yes’ vote on the referendum. The analogy is Greece walking through a minefield now and at any point you can go to exit,” Sterne says.

He says the capital controls and bank shutdowns imposed by Greece this week greatly complicate its economic picture. He says once you bar people from getting access to their own money, it’s much harder to restore credibility in the financial system.

Sterne notes that it took two years for Cyprus to lift the capital controls it imposed in 2013. So the challenges facing Greece have suddenly become that much bigger.

“Putting the economy through a week of capital controls and bank closures to get a better deal is insane because at the end of the process even if you get a good deal, the economy is going to be worse off,” says Diego Ferro, co-chief investment officer at Greylock Capital. The firm owns Greek bonds.
…

2:33pm July 1, 2015
Greece seeks new loans after default
July 01, 2015: 9NEWS Finance Editor Ross Greenwood explains what happens now after Greece defaulted on a $2.3b payment to the IMF.

Greece has lurched deeper into crisis as European finance ministers prepare to consider a request for new loans in a last-ditch effort to keep the country in the eurozone after it defaulted on a key payment and a bailout keeping its economy afloat expired.

Cash-strapped Greece became the first developed country to default on the International Monetary Fund after missing a 1.5 billion euros ($A2.17 billion) payment on Tuesday, as efforts to find a compromise with its EU lenders came to naught.

The missed payment underscored the failure of more than five months of wrangling between Greece’s left-wing government and its creditors to reshape the country’s bailout and prevent it dropping out of the eurozone.

But talks were set to resume on Wednesday after Athens asked for a new two-year aid plan - the third in five years - as ratings agencies cut their ratings on Greece’s debt, predicting it will return to recession this year.

Athens is asking for a further 29.1 billion euros from the European Stability Mechanism, to “fully cover its financing needs and the simultaneous restructuring of debt”, for the next two years, according to the prime minister’s office.

Greek officials indicated they would be willing to suspend a referendum planned for Sunday on the reforms demanded by its creditors if Wednesday’s eurozone talks in Brussels yield agreement on the new funding request.
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Europe
Greece, Missing I.M.F. Payment, Is Called Effectively in Default
By JIM YARDLEY, JAMES KANTER and JACK EWING
JUNE 30, 2015
Photo
Protesters supporting the euro and hoping Greece stays in the European Union were outside the Parliament building in Athens. Credit Aris Messinis/Agence France-Presse — Getty Images

ATHENS — Greece missed a crucial debt payment to the International Monetary Fund, the fund said early Wednesday, deepening a crisis that has haunted world leaders and financial markets over the past week.

The development came as Greece’s European creditors each rejected an 11th-hour attempt by Athens to extend the country’s international bailout program.

Greece is not technically in default, but missing the payment of 1.5 billion euros, or about $1.7 billion, is yet another warning that the country will probably be unable to meet its other obligations in coming weeks, to its bond holders and to the European Central Bank. That might make the bank, one of the country’s chief creditors, less willing to continue emergency loans that have been propping up Greek banks for the past several months.

By declaring Greece in arrears, the I.M.F. avoided using the term “default.” Credit rating agencies also will not consider Greece in default based on missing the I.M.F. payment, because the I.M.F. is not considered a commercial lender.
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Greek default deals blow to IMF
Published: June 30, 2015 7:15 p.m. ET
By Ian Talley

Greece became the first advanced economy in the seven-decade history of International Monetary Fund to default on its loan payments, marking a significant setback for both for the country and the world’s emergency lender.

Failure to pay the $1.7 billion due to the IMF, a record overdue obligation, puts Greece in a small group of mostly conflict-ravaged debtors that have stiffed the IMF, a short list that includes Afghanistan’s Taliban and coup-stricken Haiti. Zimbabwe was the IMF’s last major defaulter in 2001.

The default to the IMF sent a warning signal to Greece’s other creditors, including domestic Greek institutions such as pension funds and federal employees.

In ascribing blame for the default, however, many economists point in part to missteps by the fund itself when it helped craft a EUR110 billion joint bailout package in 2010. Critics highlight the IMF’s failure to demand Greece embark on an immediate debt restructuring and its reliance on far-too-optimistic growth forecasts.

“The entire Greek saga since 2010 has been hugely damaging to the IMF’s reputation,” said Ajai Chopra, a visiting fellow at the Peterson Institute for International Economics and a former deputy director of the IMF’s European Department.

Joseph Stiglitz, a Columbia University professor and former World Bank chief economist, said the IMF’s missteps with Greece would likely make countries think twice about seeking assistance from the fund. He notes how the fund’s austerity focus in the Asian crisis of the late 1990s spurred many emerging markets to build up their foreign currency reserves as emergency-financing insurance.

“Turning over their sovereignty to the IMF is seen as an extraordinary risk,” Mr. Stiglitz said, “especially when you do such a bad job of forecasting.”
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Greek Crisis
Betting Markets Suggest Greeks Will Reject Government Stance in Referendum
JUNE 30, 2015
Justin Wolfers

Political betting markets suggest that Greece’s prime minister, Alexis Tsipras, may have misread the mood of his own electorate in calling for a financial referendum this Sunday.

The referendum, which asks whether the country should accept demands made by its international creditors, was intended to show the resolve of Greeks to push for a better deal. Mr. Tsipras and his government have been urging a strong “no” vote to bolster their bargaining power. Yet the latest betting odds suggest that there’s a two-in-three chance that the “yes” case will win.

Politically, the key issue is about who best succeeds in framing the debate for voters. Jacob Kirkegaard, my colleague at the Peterson Institute for International Economics, says that “when voters are asked to answer yes or no to a complex issue — like a multipage economic reform program — they almost always choose to answer an entirely different question in the voting booth.”

The apparent popularity of the affirmative vote reflects the success of other European leaders in framing the referendum as being “about whether Greece wishes to stay in the euro or not,” and the euro remains extremely popular in Greece. Because “narratives can change several times in the course of a referendum campaign,” he sees “high levels of uncertainty about the outcome.”
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