Greece debt crisis

More economics lessons. This is a good article about greece's debt crisis and how it came about. Good to understand how these financial systems work and fail becuase we are all ultimately affected.
regards,
Craig
Echoes of Greece's Debt Crisis
By Justin Fox Monday, Feb. 22, 2010

TIME contributor Justin Fox is the editorial director of the Harvard Business Review Group
In 1973, 100 Greek Drachmas would get you $3.33. By May 2000, that was down to 27¢. That's the way the currency crumbles in a smallish, less than rich nation beset by government budget deficits, inflation and a spotty record of economic policymaking. Convincing foreign investors to buy your debt is a struggle. Financial life is difficult in ways scarcely imagined by inhabitants of the lucky (and not large) club of nations with solid currencies.
In June 2000, though, Greece was lucky enough to join that club. By the skin of its teeth, it met the criteria for admission to Europe's new currency union. First, the drachma's value was fixed to that of hard-money countries such as Germany and the Netherlands, and its long decline against the dollar slowed. Then in 2002, the drachma exited the currency stage, giving way to the euro.
Greece suddenly found itself with a solid, reliable currency. Its government and businesses could borrow at lower interest rates than before. The country boomed, with real GDP growth topping 3.8% for eight straight years. (During the same 2000-07 run, U.S. GDP growth never hit 3.7%; Germany didn't make it past 3.2%.) It seemed as though Greece had landed a one-way ticket to economic good times.
The reality was more complicated. Greece now had a solid currency--but it wasn't Greece's currency. The euro was managed by monetary wonks at the European Central Bank in Frankfurt for whom the Greek economy was but a blip. And the decision makers in Athens with responsibility for fiscal policy continued to blunder. The country kept running big deficits in the boom years. Then came the Great Recession. Last fall, a new government revealed that the 2009 budget deficit was much higher than previously disclosed--nearly 13% of GDP. Ever since, the world's financial markets have been going through another of their periodic losses of faith in Greece. Only this time, it isn't just Greece's problem.
Three other nations on the fringe of the euro zone--Portugal, Ireland and Spain--are caught in the undertow of Greece's crisis. All three have displayed better fiscal behavior than Greece, but they suffer from the same disconnect between their dire local economic conditions and the monetary policymakers in Frankfurt with other things on their minds. Meanwhile, a core euro-zone country, Italy, has also fallen out of favor with investors because of its high government debt. In a sure sign that these troubles are serious, market analysts have assigned them a catchy acronym: PIGS, for Portugal, Ireland, Greece and Spain (or PIIGS if you include Italy). In early February, the panic began to spread beyond their borders, with markets flailing in Europe and then around the world.
What is the endgame here? Greece has big debts relative to the size of its $357 billion economy (about 120% of GDP). It no longer has the option of eating into those debts by inflating its currency. In fact, it has no power to use monetary policy to ease its pain, as the Federal Reserve has been doing in a big way in the U.S. The only options for Greece are to 1) scrimp and save to convince creditors that it can keep paying them off, 2) convince its fellow euro-zone countries--or maybe the International Monetary Fund--to bail it out, 3) default on its debts or 4) pull out of the euro.
Option No. 1 is domestic political suicide, and it might not be smart economics either; slashing government spending and raising taxes during a downturn could worsen that downturn. Option No. 2 seems the best of the lot but has high international political hurdles to surmount. No. 3 would be a disaster for Greece and for the global financial system. As for No. 4, given that there are no procedures for leaving the euro, it might risk unraveling the entire project. In the euro's prelaunch period, a few skeptics predicted that the mismatch between a single European currency and differing national economic conditions would eventually lead to tension and an ugly breakup. The euro, heretofore one of the great political and economic successes of the past decade, is now undergoing a stress test of that hypothesis.
But there is another, even simpler warning for the U.S. economy as we face our own deficit issues. "It's only when the tide goes out that you learn who's been swimming naked," investor Warren Buffett has said. The U.S. has none of the currency difficulties of the PIGS. We do have a government deficit expected to hit 10.6% of GDP this year and a total federal debt that will cross 100% of GDP in 2012, according to White House projections. The rolling crisis of the past three years has been an embarrassing exercise in exposing the financially underclothed. It doesn't appear to be over--and the U.S. isn't what you would call well dressed.

U.S. Hits the Debt Ceiling: What Does It All Mean?

What does this really mean anyway?
Well, first…let's define debt ceiling: "It is the level of government borrowing allowed by Congress." Think of the debt ceiling like the government's credit card limit... and it's maxed out. The current debt ceiling sits at $14.294 Trillion. This is the amount of money the government is legally allowed to borrow to fund all its functions - from defense to education to entitlement programs. But don't worry just yet. Treasury Secretary Timothy Geithner says the government can continue to pay its debts until August 2nd thanks to higher-than-expected tax revenue and "extraordinary measures" such as stopping the issuance of State and Local Government Series bonds, which fund infrastructure and other projects. In addition, Geithner says he is going to stop making contributions to the pension plans of certain federal employees.
To put the debt ceiling in historical perspective: Congress has voted 10 times in past decade to raise the debt ceiling, typically without much fuss. But this year is different. Many House Republicans say they won't vote to raise the debt ceiling unless the Obama administration agrees to big spending cuts, or at least tough restrictions on future spending. The White House says the debt ceiling vote should be separate from the budget debate, so an All-American standoff is occurring.
Failure to raise the debt ceiling could cause the government to default on its debt payments, something unprecedented in U.S. history. In a statement released Monday, Treasury Secretary Tim Geithner warned such an outcome will result in "catastrophic economic consequences for citizens." Government officials Ben Bernanke, Austan Goolsbee and Defense Secretary Bill Gates agree, as do Wall Street heavyweights like Bill Gross, Warren Buffett and Jamie Dimon.
But many in the GOP say that's a bluff and the government can continue to make its debt payments by selling assets such as its gold holdings or real estate, or by cutting spending on other things, like Social Security and Medicare.
Hopefully we won't find out who's bluffing and who's right.

Has Perth property turned the corner?

Perth has defied the National trend with the Australian Bureau of Statistics recording an increase in the Perth median house price for the quarter ending March 2011; http://au.news.yahoo.com/thewest/a/-/newshome/9294234/perth-house-prices-defynational-fall/. This coincides with our recent increase in investor and sales activity.
This may be the first sign of a needed upward swing in the Perth residential market. With investment yields increasing and rent becoming a larger slice of the household pay packet, property investment is becoming a more attractive proposition. If we see an easing in the Federal Immigration Policy, to relieve the skill shortage crisis, this will result in increased pressure on the housing market.