- All Hail The Draghi Put: The Global Bond Market Is Now Well And Truly Broken!
by David Stockman, http://davidstockmanscontracorner.com/
The evil of modern central banking can nowhere better be seen than in this week’s mad stampede into $4 billion of Greek bonds. The fact is, Greece is not credit-worthy at nearly any coupon yield, but most certainly not at the 4.75% sticker that was attached to the offering.
After a 20% contraction, the Greek economy has been literally eviscerated—with not much left except tourism, yogurt plants and a 27% unemployment rate. It has an impossible debt-to-GDP ratio of 170 percent and, worse still, almost all of that debt is owned by EC institutions and the IMF. That is, this week’s “winners” stand in line behind the “bail-you-in-first-brigade” that will find some way to crush private investors—-English law indentures or not—when repayment of their own tower of loans comes into question.
And the claim that Greece’s fiscal affairs have turned for the better is really preposterous. Like Italy and some of the other PIGS, the Greek government has discovered the trick of off-balance sheet financing by stiffing its vendors. The backlog of “payables” to pharmacies, hospitals, doctors, garbage haulers, road maintenance vendors and countless more, along with deep arrearages in payments to pensioners and other transfer payment beneficiaries, has been manipulated by the finance ministry and their Brussels overseers to a fare-thee-well, and now totals in the tens of billions.
This has created the impression, of course, that Greece’s budget is on the mend; its actually on the road to yet another political crisis owing to the parched liquidity among vendors and the precarious finances of beneficiaries. And that’s to say nothing of the absolute fracturing of the Greek body politic, where its current lame government survives by kicking enough recalcitrants out of the Parliament, as may be needed, to clear the next Brussels demanded action with one vote to spare. In short, Greek sovereign risk cannot be even calculated by the market because it essentially has no functioning sovereign.
But none of this matters, of course, because the howling pack of money managers who scooped up the Greek debt at an oversubscribed rate of 5X were not pricing the non-credit of the former Greek state, but the promises of Mario Draghi—-the Goldman Sachs plenipotentiary temporarily seconded to Frankfurt.