There is an Easy Solution to the Debt Crises | Capture the Mind

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1. July 21, 2015 at 7:22 am

   Tomi Engdahl says:

   The Simple Math Behind Greece’s Complicated Situation
   http://www.talkmarkets.com/content/economics–politics/the-simple-math-behind-greeces-complicated-situation?post=68975&utm_source=outbrain&utm_medium=referral

   “Life is really simple, but we insist on making it complicated.” – Confucius

   Occam’s Razor is a frequently quoted principle which states that when one is faced with a multitude of seemingly complex possibilities, the simplest approach or explanation is best. As the ECB and Greece fight over terms of yet another bailout we employ this principle to help better grasp Greece’s dire situation.

   Greece has a current debt to GDP ratio of 170%, and based on current bailout terms, it will likely grow to well over 200%. So applying the logic from above, Greece’s GDP growth rate prior to the current bailout needed to be 1.70 times greater than the rate of interest Greece pays on its debt just to keep its ratio constant.

   Since 1970 Greece’s best 5-year annualized GDP growth rate was +1.50% with an average of +.46%. Over the past 10 years growth has averaged -0.50%.

   Since 1997 Greece’s lowest 5-year average interest rate on 10 year bonds was 3.41% with an average of 7.50%. Over the past 10 years the average annual 10 year interest rate was 8.16%

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