What happens to the various markets when investors begin to realize that Portugal, Spain, Italy, California, New Jersey, New York, Illinois, and others with similar debt problems do not have currency devaluation as solution to the problem? As during the previous sovereign debt crisis, social discontent is rising regardless of the official solution. Do nothing and the debt implodes with daisy chain consequences throughout the globe. Devaluation and debt restructuring carries the consequence of reduced purchasing power and lower standard of livings. They key to its success is how fast standard of livings fall over time. Fast is noticeable and bad. Not so fast is also bad but it tends to preserve order and the status quo.
Headline: Merkel in Greek debt restructuring warning
German Chancellor Angela Merkel is warning that a full-scale restructuring of Greek debt would have "completely uncontrollable"consequences on the financial markets.
Merkel said Wednesday that imposing a so-called haircut on Greek debt -- reducing the amount to be repaid -- would not only endanger banks and other creditors who hold Greek bonds, but also institutions that sold insurance policies against a default.
Merkel told a parliamentary committee that those credit default swaps have a higher face value than the debt itself.
Source:
finance.yahoo.com
