Friday, November 19, 2010

Roubini and The Elephant in The Room; Will Need Mars To Bailout the IMF; Bond Vigilantes Asleep in The U.S.

TV personality Roubini was on CNBC today, commenting on Ireland, Europe, and the elephant in the room.

"We have too much private debt in the case of Ireland," "We have decided to socialize the private losses of the banking system. Son now you have a huge increase in public debt—going from 7% to 100% of GDP. Soon it will be 120%.Greece is already at 120 percent. So now you have a bunch of super sovereigns— the IMF, the EU, the eurozone—bailing out these sovereigns. There's not going to be anyone coming from Mars or the moon to bail out the IMF or the Eurozone."  So at some point you need restructuring. At some point you need the creditors of the banks to take a hit - otherwise you put all this debt on the balance sheet of government. And then you break the back of government—and then government is insolvent."

The above was all in breath!

"The next one in line is going to be Portugal. [...] Spanish debt problems are the elephant in the room. You can try to ring fence Spain. And you can essentially try to provide financing officially to Ireland, Portugal, and Greece for three years. Leave them out of the market. Maybe restructure their debt down the line. But if Spain falls off the cliff, there is not enough official money in this envelope of European resources to bail out Spain".

"Spain is too big to fail on one side—and also too big to be bailed out."

Spain has $1T in public debt.

"Italy is not bad. France's deficit 8% of GDP" "Sarkozy came to power saying 'I'm going to do lots of reform.' He has not done it. Right now, he is weak. He might lose the election. And, therefore, they are going to delay fiscal austerity and reforms."

"But France does not look much better than the periphery."

"Politically they are constrained from making reforms." "You had massive riots in the streets."

"What's going to happen when you do more radical reform? That's an open question in the case of France."

"The Bond Vigilantes have woken up in Europe, but are sleep at the wheel in the U.S."

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