According to research by Citibank, if Greece wants to default on its debt, and bring it back to 80% of GDP, (versus the current 179% of GDP), investors would need to accept losses in the order of 65%.
This would generate effective losses of around E100 Billion just for Greece.
What is interesting this morning is that late Thursday night, Standard and Poor's issued a statement on US debt. According to Market Watch S & P said:
"our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days."
Now it is hard to imagine that the debt talks will not be resolved, but we are living in very strange times and the impact of a downgrade will be felt around the world.
According to the FT of June 27th, Moody's another ratings agencies calculates the following cost of a US downgrade:
"Although the possible interest changes appear moderate, across the spectrum of U.S. Treasuries with maturities of two years and longer with over $4 trillion currently outstanding, the total loss to investors could easily range from $50 to $100 billion."
100 billion here, 100 billion there, and before long we are talking about real money.
