Greece – Opaque Economy Makes Debt/GDP Targets Useless
Greece apparently won a second round of bailout from the EU but nothing fundamental has changed. Greece must come closer to balancing its budget and the parties holding their debt must agree to haircuts. A default was avoided. The EU will agree to lower the interest rate on the 2010 rescue.
The agreement will ask Greece to maintain certain debt/GDP ratios in the future. One of the underlying problems is that even in a nation with a relatively transparent economy such as the U.S. it is nearly impossible to determine what the debt/GDP ratio will be eight years in the future. In a country such as Greece with so much of the economy off the books, GDP calculation and tax revenue become impossible to estimate. I would also guess that the implementation of austerity will drive even more of the economy to the grey market.
The IMF has proved to be unable to see that Greece, Ireland and Iceland were running unsustainable debt. IMF must have learned underwriting from the stated income subprime mortgage era.
Chicago Fed National Activity Index
-This is a composite index of 85 monthly indicators.
-For January 2012 the index was +0.22 down from 0.54 in December.