An acclaimed fund manager and vocal critic of global monetary authorities on Monday laid out a roadmap for what he regards as the certainty of a Greek sovereign default.
In his weekly market commentary, John Hussman, manager of the eponymous mutual fund company, says the history of sovereign defaults in Argentina, Uruguay, Russia and other countries provides a clear outline of “the financial crisis that appears about to unfold, and the associated choices involved.”
Hussman, a Ph.D who taught international finance before turning to professional money management, says what is unfolding in Greece fits the signature of past defaults: namely, “a sustained rise in yields, coupled with official statements about the ‘impossibility’ of default, multiple bailout efforts that quickly fail, culminating in a vertical spike in yields.” Hussman’s charts comparing Argentine bond yields in 2001 with Greek debt today exhibit the same stark verticality, with the yield on the Greek one-year bond more than tripling in the past month to as high as 130% last week.
Another commonality between Greece and Argentina is that both denominated debt in currencies that they could not print themselves.
So while another bailout could give extend Greek solvency for a few more months, the Hussman Funds manager argues that an eventual default cannot be avoided at a juncture when Greece’s debt-to-GDP ratio is approaching 180%—a debt burden he says would be impossible to sustain “even if interest rates in Greece were only a few percent.”