Greece Hiding Debt, Druckenmiller Calls Low Bond Rates "Nonsense," and Australia Property Bubble Bust?

Bloomberg had a report out yesterday highlighting some of the currency exchanges it engaged in almost a decade ago to cover the true cost of its debt:

Greece had 13 off-market derivative contracts with Goldman Sachs Group Inc. (GS), most of which swapped Japanese yen into euros in a 2001 transaction aimed at concealing the true size of the nation’s debt, according to the European Union’s statistics office.
The amount borrowed through the swaps was due to be repaid with an interest-rate swap that would have spread payments through 2019, Eurostat said in a report on its website today. In 2005, the maturity was extended to 2037, the report said. Restructuring the swaps spread the cost over a longer period, leading to an increase in liabilities and debt, Eurostat said.

 Perhaps that explains this:

The interest rate on two-year Greek notes has climbed to 24.99%, on fears of debt restructuring, aka, bankruptcy.

Even more pressures on Greece developed over the weekend, the result of German Chancellor Angela Merkel’s Free Democratic Party coalition partner signalling a hardening of its stance on aid to Greece and the other PIIGS.

At a convention today, Economy Minister Philipp Roesler called for penalties on bailout recipients that miss debt-reduction targets. It appears that as many as 50 coalition lawmakers are ready to reject the post-2013 euro rescue fund when it goes to parliament, enough to make Merkel reliant on opposition votes.

Kicking the fiscal can down the road longer seems to be the ongoing trend of the E.U.  Even Paul Krugman has seen the writing on the wall, yet advocates for default through inflation as a solution.  Greece is unable to do this obviously, but look for the U.K. to perhaps attempt it.

Speaking of government engaging in delusional fiscal policy, investor Stanley Druckenmiller has called out the Fed's QE2 as "phony:"

Some have argued that since investors are still willing to lend to the Treasury at very low rates, the government's financial future can't really be that bad. "Complete nonsense," Mr. Druckenmiller responds. "It's not a free market. It's not a clean market." The Federal Reserve is doing much of the buying of Treasury bonds lately through its "quantitative easing" (QE) program, he points out. "The market isn't saying anything about the future. It's saying there's a phony buyer of $19 billion of Treasurys a week."

And yet we still have calls from the likes of Goldman Sachs for more QE.  Here is Zerohedge on a newly released paper by Sven Jari Stehn:

While finding that on average spending based deficit reduction is more effective, it only truly works in parallel with assistance from monetary policy: be it an interest rate decrease (impossible due to ZIRP) or further Large Scale Asset Purchase (QE) program. In other words, the only thing that can prevent an economic contraction in the next 2 years of semi-austerity, will be more monetary easing.

Bernanke may claim that the stock market won't drop after QE2 ends in a month, but we will just have to wait and see about that.  QE3 would be unnecessary though with over $1 trillion in excess reserves being held at the Fed.  Perhaps Bernanke will bust open his tool box and lower the yields on the interest he is currently paying on those reserves (Apparently .25%, which is higher than any short-term Treasury) to let them enter the economy.  If that happens, look for inflation.

Mish had an interesting post on what looks like the Australia housing bubble finally popping, but it was deleted a few days ago due to blogger's hiccup.  Here it is in all its glory.  Highly recommended.