October 22, 2011
– Comments (4)
"Germany has defaulted twice in the last hundered years..." (at about 4:10)
Wonder why that was. Reckless Government Spending?
This is an excellent interview, thank you for posting.
I see three potential solutions to deal with the debt:
1) kick the can - move the debt to successively higher levels, from banks to periphery govts to core govts.
2) payment - Europe does not have enough money to do this, and money will need to be created to do it - money printing.
Europe is halfway into the "kick the can" solution, but reluctant to continue onto the next step, moving debt from periphery govt to core govt. Doing so would constitute "going all in" as Kyle Bass put it. He believes the Germans won't do it and I think he's likely right, as the Germans feel very strongly against bailing out "profligate" nations. Merkel is considering going against the wishes of the German people, but the parliament is limiting her power.
Greek debt will undoubtedly take a haircut, but Germany must make the choice of guaranteeing other countries' debt. If they can manage a Greek default smoothly (no Greek exit/devaluation and bank runs in other European countries), we replay the scenario as the same question - default or bailout? - will be posed for other countries like Spain and Italy.
If Europe decides not to guarantee debt, they must choose between payment or default. Payment would require money printing, which would again be seen as a bailout and "going all in", leaving default as the only option. I find it interesting that Kyle bass is a large holder of gold, considering his views. I think gold will crushed in a default scenario.
They can take a leaf out of the U.S. banks' book and refinance Greek debt into adjustable-rate (ARM) with a starting teaser rate of 0.0001%.
You titled the post wrong. It should be "Kyle Bass explains impending global default"