It is Obvious

Chris Rick has got altogether too much to say

Are you sitting comfortably?

Posted by chrisrick13 on April 15, 2013

It is obvious:  I will have to go to the bookies

Then I’ll begin my fairytale.

The IMF, EC, and ECB have just predicted that the Greek economy will return to growth in 2014.

Greece has debts of about 160% of GDP and the troika (the 3 organisation mentioned above) have said that debts must be cut to 120% of GDP to be sustainable.

Now sit uncomfortably.

Debts of 80% or more of GDP are and have been for a long time considered and proven to be a death spiral.  The big exception is Japan because of the way they save.

The Greek economy is contracting.  This is for many reasons, not least because of the austerity imposed on the country by the troika.  For the economy to recover and for income to exceed expenditure (not least after paying interest on troika loans) requires huge increases in productivity of what Greece does at vastly improved efficiency.  Greece does not do a lot and there is no good reason to predict it will do more of it in 2014.  Chances are it will be even less.

An increase in GDP is a good thing provided it is producing an income greater than expenditure.  An increase in GDP from a very low base is increasingly possible…but not useful.

With a large percentage of the population not working I can see wages in Greece reducing as ever more desperate people are prepared to work for anything to enable them to survive.  Greece is leading the European race to the bottom on wages, hotly pursued by Cyprus and Portugal.

There is no way that the Greek economy will grow in 2014.

However there is an opportunity here.  If I was able to trade in exotic financial instruments I could effectively bet against that prediction.

It is obvious:  I will have to go to the bookies – are they still taking bets on the winner of the 1966 world cup?

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