Roubini: Greece debt crisis is only the tip of the iceberg

Dr Dooms thoughts … he-iceberg

If public sector debt is stage two, does that mean that Ireland wont really be affected until stage three?


How depressing that we are the glaring exception, being up to our necks in both.

All in all it seems to me this is what needs to happen: at least one nought needs to be struck off the end of global debt figures. If all the bankers and politicians got together with their ledgers and red pens and just did it, what harm?? Naturally I’m being facetious but secretly hope such a thing is possible. I’m guessing someone will tell me that’s called inflation, but I don’t know how the system can bear inflation just now.

Well we aren’t yet. But we have committed to the catch up process. (In increasing our public debt to match the others).

I’m sure the grand plan is that the banks get fixed up and then they continue to roll-over government debt, just like the 80s/90s. The banks will buy new government bonds (paying a higher coupon) with their NAMA bonds recycling the money and leaving NAMA off the hook. Overall sset size in the banking system will not increase. In the meantime, NAMA will sell loans off to their original or new (but the same people) owners at a discount to book value (but more than NAMA paid for them). The banks will fund this as they will get perfoming assets at a decent LTV. NAMA will return this money to the state thereby providing the money for the deficit.

Therefore, in a way, it may be correct to say that NAMA is not going to increase overall debt, but essentially what it is doing is pre-recognising the debt that the state will take on over the next few years as the fiscal deficit is wound down. You can therefore bake in the NAMA total bond issuance as the deficit total bond issuance by end of 2014.

It is the circularity of this scheme that must remain opaque. Effectively a circa 20 bn euro subsidy will be given to current debt-holders with another 30 bn subsidy given directly to the banking industry (in the form of winding down their competition of INBS and Anglo). Many of the key players will remain in place. Some will become too public to save.

In another sense, we are following asburgess logic. If there is a bailout coming, which there must be, it makes sense for you to be in the same bad position as everyone else, otherwise they will be bailed out and you won’t. It is incumbent on the state to preserve the state’s bailout attractiveness. Nobody wants to bailout a state that has low debt-to-GDP and an attractive fiscal balance…