Greece credit rating cut to junk at S&P as contagion spreads

[mawilson 2,133]

April 27 (Bloomberg) -- Greece’s credit rating was cut three steps to junk by

Standard and Poor’s, the first time a euro member has lost its investment grade

since the currency’s 1999 debut. The euro weakened and stock markets throughout

the region plunged.

Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders

could recover as little as 30 percent of their initial investment if the country

restructures its debt. The move, which puts Greek debt on a par with bonds

issued by Azerbaijan and Egypt, came minutes after the rating company reduced

Portugal by two steps to A- from A+.

The turmoil comes as European Union policy makers struggle to agree on measures

to ease the panic over swelling budget deficits. Leaders of the 16 euro nations

may hold a summit after the Greek government’s decision last week to tap a

45 billion- euro ($60 billion) emergency-aid package failed to reassure investors,

a European diplomat and Spanish official said.

The euro fell 1.3 percent to $1.3215 as of 2:58 p.m. in New York. The Stoxx

Europe 600 Index slid 3.1 percent to 261.65 points. The spread on Greek 10-year

bonds over German counterparts widened 23 basis points to 675 basis points, the

highest since at least 1998, as investors increased bets that Greece will

restructure its debt. The Portuguese spread jumped 59 basis points to 277 basis

points, and the Spanish spread rose 12 basis points to 113.

“This is no longer a problem about Greece or Portugal, but about the euro system,”

Eric Fine, who manages Van’s Eck’s G- 175 Strategies emerging-market hedge fund.

“My concern is the risk of coordination failure. Policy makers need to get ahead

of the curve.”

The crisis worsened this week as German Chancellor Angela Merkel’s government

delays a decision on whether to release funds for a Greek rescue. Merkel, who

faces an election in the state of North Rhine-Westphalia on May 9, said yesterday

that Greece “must do its homework” before getting aid.

...

link

[Dr. Obvious 49]

Do you think there is any credence to the idea that Greece should leave the euro?

[Mr. Big Dog 10,747]

Do you think there is any credence to the idea that Greece should leave the euro?

That would be the beginning of the end of the EURO, wouldn't it? Some European countries might like the idea - Germany, France, Netherlands, Belgium - just to name the top of that list.

[scandal 951]

The spread on Greek 10-year bonds over German counterparts widened 23 basis points to 675 basis points,

That's a pretty healthy spread! If you want to take the stance that eventually Greece will get an EU/German bailout and make good on its debt, you'd be well rewarded to invest on these junk bonds. 675 basis points over Bunds? Beats what you'll get on US Treasuries by a mile. On the other hand ... if they default ... you get shiny bits of toilet paper with lots of greek lettering all over them.

[mawilson 2,133]

That's a pretty healthy spread! If you want to take the stance that eventually Greece will get an EU/German bailout and make good on its debt, you'd be well rewarded to invest on these junk bonds. 675 basis points over Bunds? Beats what you'll get on US Treasuries by a mile. On the other hand ... if they default ... you get shiny bits of toilet paper with lots of greek lettering all over them.

Well that's the problem, isn't it? They may very well default...

[mawilson 2,133]

German MPs claim Greece will need financial assistance amounting to between €100-120bn over the next three years.

US $130-160bn! That's a crazy amount of money even for the US!

####### were they thinking?

[I AM NOT THAT GUY 5,715]

German MPs claim Greece will need financial assistance amounting to between €100-120bn over the next three years.

US $130-160bn! That's a crazy amount of money even for the US!

####### were they thinking?

Not when we have a President that put the US on a track to raise the National Debt by 15 times that amount over each of the next ten years.

[mawilson 2,133]

Not when we have a President that put the US on a track to raise the National Debt by 15 times that amount over each of the next ten years.

Not relative to our GDP.

Greece's GDP is only about $350bn. The US equivalent of $160bn is 7 trillion dollars.

[I AM NOT THAT GUY 5,715]

Not relative to our GDP.

Greece's GDP is only about $350bn. The US equivalent of $160bn is 7 trillion dollars.

Give it time. Our debt will hit 90% of GDP by 2020 if current law is not changed.

http://www.visajourney.com/forums/topic/253609-cbo-report-debt-will-rise-to-90-of-gdp/page__view__findpost__p__3896194__fromsearch__1

Edited April 28, 2010 by ##########

[mawilson 2,133]

Give it time. Our debt will hit 90% of GDP by 2020 if current law is not changed.

???

Our debt is already 90% of GDP (well, 89.83979%).

By 2020, it'll hit 190% of GDP.

http://www.usdebtclock.org/

[I AM NOT THAT GUY 5,715]

???

Our debt is already 90% of GDP (well, 89.83979%).

By 2020, it'll hit 190% of GDP.

http://www.usdebtclock.org/

I guess the CBO is using different numbers.

The federal public debt, which was $6.3 trillion ($56,000 per household) when Mr. Obama entered office amid an economic crisis, totals $8.2 trillion ($72,000 per household) today, and it's headed toward $20.3 trillion (more than $170,000 per household) in 2020, according to CBO's deficit estimates.

That figure would equal 90 percent of the estimated gross domestic product in 2020, up from 40 percent at the end of fiscal 2008.

[mawilson 2,133]

I guess the CBO is using different numbers.

The CBO geniuses exclude the debt instruments issued by the Treasury that are held

by the government itself, such as the Social Security Trust fund.

I guess when the government borrows money from itself (e.g. by taking money from

the Social Security Trust fund and putting IOUs in its place), it doesn't count.