Death Star Economics



Wednesday, #8

As I failed to explain the difference between an orderly and disorderly default last night, I will give it another try now…

An orderly default is the process of restructuring, meaning that public debt is cut and payment terms are changed in favor of the debtor. The haircut that has been heavily discussed in the press, can be considered part of an orderly default. If Greece was to default in this way, the eurozone countries would have to wait a very long time to get repaid. But honestly, who actually expects that Greece will EVER do that…
A disorderly default on the other hand, happens for the same reason: the debtor can’t pay the money back. But this time around there is no restructuring, no haircuts and definitely no more love from any other eurozone country. If Greece was to default disorderly, they would just not repay their debt. Period. The disorder is caused by the fact that there is no postponement (it’s difficult to prolong forever anyway) for the repayments, but that they just don’t happen.
In the end (or in the case of Greece), money will be lost either way. The question is just how much.
And because we (still) don’t have crystal balls around, nobody has the answer, but everybody knows it better.

Stock markets outside Europe (particularly in Asia) are doing pretty shitty today, because the uncertain demand in Europe (money is tight, y’know) makes it hard to sell stuff. Even Australian banks are having a bad time now; Commonwealth Bank, Westpac, Australia & New Zealand Banking Group and National Australia Bank fell 3% today. Mind you, Societe Generale fell 17% just yesterday…

And as if that wasn’t enough, German unemployment rate rose. It only rose a bit (by 10,000 jobless claims), but it rose while everybody expected it to fall. From afar that looks like the German economy could slow down and nobody wants that. Literally NO-ONE. read article

But let’s take a moment and feel sorry for Mario Draghi, who is probably having the worst month of his life. Imagine going into a new job and the first thing they want you to do it save a currency that spans over 17 opinions, sorry, countries… watch video

Finally, something more fun (mainly because it includes the philosophical concept of willingness to pay): Here’s a really interesting article about facebook’s ad revenue. read article

So long.


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One Response

  1. […] that would be necessary, a compromise has to be agreed on in the first week of February to avoid a disorderly default. Felix Salmon explains the argument why Greece should go back and think about what it has done […]

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