GREEK DEBT WORSE THAN EXPECTED

"April 22 (Bloomberg) -- Greek bond yields surged to the highest since 1998 as the country’s worsening budget outlook put pressure on the government to accept a European Union bailout and ignore street protests against its austerity measures.

Greece’s benchmark 10-year bond yield rose to 8.564 percent, more than twice the rate on bunds. As a civil servant strike closed hospitals and shut the 2,500-year-old Parthenon temple, the EU said today that Greece’s deficit in 2009 was worse than previously forecast. EU officials lifted their estimate to 13.6 percent of gross domestic product from 12.7 percent and said it could top 14 percent.

Prime Minister George Papandreou is under fire from voters who say his budget cuts have gone too far and from investors who argue that further action is needed to reduce a deficit that is four times bigger than European Union rules allow. As Greek lawmakers meet EU and International Monetary Fund officials to negotiate loan conditions, the premium investors demand to hold Greek debt over German bonds reached 522 basis points.

“Papandreou is caught between a rock and a hard place,” said Jacques Cailloux, chief European Economist at Royal Bank of Scotland Group Plc. “The market has zero confidence in what the Greeks are saying, and any further austerity measures pushed for by the IMF could be the ones that break the camel’s back if they are deemed unfair by the population. He doesn’t have any option though.”
Bloomberg

But, I thought that everything was all worked out and the world could breathe a sigh of relief. As the civil unrest increases and Greece loses its sovereignty to the world bankers watch it carefully. Greece is a preview of things to come. Europe is unraveling and we're next. Don't let the next few months of "good" economic news here in America fool you. We're benefiting from what's happening elsewhere, for now, but that will be short lived. That, and the government, at some point, has to stop printing money.

"What does it all mean? It means the government must continue to spend or the private sector will fall back into a debt-laden slump. As we previously mentioned, the private sector is not yet ready to run with the baton and likely won’t be ready to run with it for several years. If the government cuts back on spending and stops effectively crediting private sector bank accounts the likelihood for a double dip or an all-out new recession increases substantially in 2011 and 2012:

“Discontinuation of fiscal stimulus could trigger another slump. The impact of the Obama administration’s $787 billion fiscal stimulus, unveiled last February, is now peaking. That reported improvements in economic conditions are still so modest naturally leads to concerns about what will happen when the stimulus winds down. The stimulus is scheduled to have its greatest impact in Q2 and Q3 this year, so I do not expect the economy to lurch backwards in the near future. Nevertheless, the economy could stall again once the stimulus ends unless private demand picks up in the next few months. The economy may rapidly improve in the coming months. However, the fact that the Fed is retraining bank inspectors in an effort to address the credit crunch suggests that central bank officials do not see the recovery as having firm underpinnings.”

...In March of 2009 we began referring to the rally as “the government run rally“. The rally started on government interventions and continues to this day with a massive and continuing stimulus plan that props up the economy.

In summary, enjoy the continuing appearance of an economic recovery into the back half of this year (and what will likely be higher equity prices), but don’t get your hopes up for a sustained recovery. The likelihood of spending cuts and higher taxes will put a damper on the recovery in 2011 just when things are starting to look so good. And that’s assuming that Ben Bernanke’s cattle prodding of prudent savers into risk assets doesn’t result in extreme malinvestment and destructive asset bubbles before that."
Business Insider