Friday, April 9, 2010

Greek Debt BBB-

Today Fitch cut Greece's credit rating from BBB+ to BBB-, one step above junk [1]. This is in the context of ongoing deficit spending and approaching the terminal limits of borrowing. Official numbers for Greece in terms of national debt relative to GDP and tax revenues aren't greatly out of proportion to other nations with heavy debt burdens such as Japan and the United States, but with Goldman Sach involved [2], I'm sure there is more than meets the eye. While many are expecting bailouts of Greece from the Eurozone, and they are not out of the question, but have not been forthcoming either.

In the broader context, pretty much the only thing that stops reckless government spending is when it runs out of money, meaning there is no longer a market for Treasury Bonds. The higher the risk, the more the country has to pay in yields, and the more it costs to insure that debt.

As more countries become unable to sell bonds, I will be looking for patterns in terms of amount of debt relative to GDP and taxes in order to anticipate the debt limit for the United States. At the rate things are going, only then can we expect bailouts to stop. If Japan is any guide, we have a ways to go.

1. Fitch Downgrades Greece.
2. Bernanke says Fed Reviewing Goldman Sachs/Greece Contracts.

No comments: