Blog postings by CEPR staff and updates on the latest briefings and activities at the Center for Economic and Policy Research.

Click here for a list of all of our most recent research, including these three issue briefs on the minimum wage.

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For the past few weeks, CEPR has been beating the federal minimum wage drum with a series of issue briefs. In the latest brief, we describe how the increases in age and education of the low-wage workforce have not been recognized by the minimum wage. Several people have emailed us to ask how it is that the influx of primarily Latino immigrants since the 1980s has not pulled down the educational attainment of low-wage workers.

There are two important points here: First, Latinos are indeed over-represented among low-wage workers, but they are still only about one-fourth of the total in that wage range; and second, Latinos, even after the increase in immigrants over the last three decades, are still much better educated today than they were in 1979.

On the first point, here is the racial breakdown of low-wage workers (defined as earning $10 an hour or less in inflation-adjusted 2011 dollars):

Low-wage Workers, By Race, 1979 and 2011
















Source: Authors' analysis of CPS ORG.

Latinos were a much smaller share of the workforce in 1979 and made up only about 7 percent of low-wage workers in that year. The Latino population grew substantially in the intervening decades and Latinos are over-represented in low-wage jobs, but they were still only about one-fourth (23 percent) of low-wage workers in 2011.

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All the inside Washington types seem to agree, we should change the indexation of Social Security benefits to the chained consumer price index (CPI). This would supposedly make the annual cost-of-living adjustment (COLA) more accurate and save the government big bucks. Sounds great, right?

First of all, when all the inside Washington types agree on something, it is a good idea to hang on to your pocket books. Remember, these are the folks who thought it was great that everyone was becoming a homeowner in the middle of a housing bubble and that Alan Greenspan was the greatest central banker of all-time. In other words, inside Washington types are a group of people that mindlessly repeat the conventional wisdom and are largely incapable of original thought.

At the most simple level, the switch to a chained CPI is a way to reduce the annual COLA in Social Security by roughly 0.3 percentage points. That may sound trivial, but it is important to remember that this sum adds up over time. After ten years, this lower annual cost-of-living adjustment would imply a reduction in benefits of roughly 3 percent, after 20 years the reduction would be 6 percent, and after 30 years close to 9 percent. So this is real money.

This plan to lower the COLA raises two obvious questions. First would the new measure actually be more accurate, and second is a cut in Social Security benefits good policy?

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Relative to any of the most common benchmarks – the cost of living, the wages of the average worker, or average productivity levels – the current federal minimum wage of $7.25 per hour is well below its historical value. These usual reference points, however, understate the true erosion in the minimum wage in recent decades because the average low-wage worker today is both older and much better educated than the average low-wage worker was in the past.

All else equal, older and better-educated workers earn more than younger and less-educated workers. More education – a completed high school degree, an associate’s degree from a two-year college, a bachelor’s degree from a four-year college, or an advanced degree – all add to a worker’s skills. An extra year of work also increases skills through a combination of on-the-job training and accumulated work experience. The labor market consistently rewards these education- and experience-related skills with higher pay, but the federal minimum wage has not recognized these improvements in the skill level of low-wage workers.

Even if there had been no change in the cost of living over the last 30 years, we would have expected the earnings of low-wage workers to rise simply because low-wage workers today are, on average, older and much better educated than they were in 1979, when wage inequality began to rise sharply in the United States.

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Paul Krugman has reproduced an OECD chart that was featured in  a recent post by Jared Bernstein. The graph of interest (below) contrasts the share of older and younger people in OECD countries that have the equivalent of a four-year college degree or more.


Source: OECD via Jared Bernstein.

The dark blue squares show the share of the population age 55-64 with a college education; the light blue triangles show the share of much younger 25-34 year olds that have college degree. The arrows connecting the two observations for each country give an idea of the degree of national progress between generations. So, the long lines for Korea or Ireland, for example, suggest enormous progress in the thirty years or so between the time when the two age groups hit college age.

Jared’s main concern is that the United States “has essentially ceased making progress in terms of college attainment.” There is no arrow between the older and the younger generations’ college attainment rates because they are basically identical. Jared also notes that our younger generations are “now behind those of 12 other countries.” Krugman highlights the same points: “what we see is that almost every other nation is becoming more educated, but we’re not — and, of course, [the United States is] slipping rapidly down the rankings.”

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The following highlights CEPR's latest research, publications, events and much more.

CEPR Successfully Pushes for World Bank Reform
At the beginning of the month, CEPR Co-director Mark Weisbrot was among the first to applaud the reform candidacy of economist Jeffrey Sachs for World Bank president. Sachs' run was unprecedented in its openness, in that Sachs sought to be the “world’s candidate” and ended up being nominated by several developing countries, and for drawing attention to the fact that all previous World Bank presidents have had Wall Street, military, or political backgrounds, rather than economic development backgrounds such as Sachs. It also put the undemocratic nature of the selection process (the U.S. has traditionally hand-picked the World Bank president) under a microscope.

CEPR’s support for Sachs' challenge to the World Bank, through a press release, op-eds in The Guardian, Folha de São Paulo (Brazil), and radio interviews helped to bring it to the attention of U.S. and international media. CEPR likewise applauded the historic developing-country nominations of Nigerian Finance Minister Ngozi Okonjo-Iweala and former Colombian finance minister and former high-level UN official Jose Antonio Ocampo.

Because of these challenges – as well as an international grassroots campaign opposing likely U.S. nominee Larry Summers – the Obama administration was forced to nominate someone who would also gather international support. CEPR joined others in the development community in applauding the U.S. nomination of Dartmouth College president and Partners in Health co-founder Jim Yong Kim. In comments widely-cited in press coverage, Mark Weisbrot said of Kim’s nomination “This is a huge step forward. If Kim becomes World Bank President, he’ll be the first qualified president in 68 years,” “Kim’s nomination is a victory for all the people, organizations, and governments that stood up to the Obama administration and demanded an open, merit-based process.” Mark wrote about the victory that Kim’s nomination represents in this op-ed for Folha de São Paulo and CEPR’s Director of International Programs Deborah James provided her analysis as well, with this op-ed published on Common Dreams, as well as this interview with WBAI 99.5FM’s Wake Up Call. Deborah also discussed Kim’s nomination with Thom Hartmann on The Big Picture (RT).

CEPR on Right to Rent and B of A
Bank of America is the latest entity to get behind CEPR’s Right to Rent concept. B of A recently announced the "Mortgage to Lease" program, which will be available to 1,000 B of A customers selected by the bank in test markets in Arizona, Nevada and New York. Participants will transfer their home's title to the bank, which will then forgive the outstanding mortgage debt. In exchange, they will be able to lease their home for up to three years at or below the rental market rate.

CEPR Co-director Dean Baker issued a press release in support of the program, saying: “It is encouraging that Bank of America has decided to pursue this rental option on its own. It would have been desirable if Congress had taken steps to require lenders to offer a rental option to foreclosed homeowners. This is a simple form of relief that would have been costless to taxpayers. It would also be desirable for Fannie Mae and Freddie Mac follow the lead of Bank of America and ease and extend the terms of their foreclosed homeowner rental option programs for the homes under their control.”

CEPR Senior Economist Eileen Appelbaum wrote an op-ed for the U.S. News and World Report. Dean Baker was quoted in this Wall Street Journal article and he was interviewed by MarketWatch. Dean also discussed the B of A plan with Jared Bernstein, video here.

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Here’s a roundup of the labor market research reports released this past week:

Center for American Progress

Insourcing: How Bringing Back Essential Federal Jobs Can Save Taxpayer Dollars and Improve Services
Pratap Chatterjee

Sharing the Pain and Gain in the Housing Market: How Fannie Mae and Freddie Mac Can Prevent Foreclosures and Protect Taxpayers by Combining Principal Reductions with “Shared Appreciation”
John Griffith and Jordan Eizenga

Center For Economic and Policy Research

Affording Health Care and Education on the Minimum Wage
John Schmitt and Marie-Eve Augier

Center on Budget and Policy Priorities

Draconian Republican Study Committee Budget Would Cut Federal Medicaid Funding Nearly in Half by 2022 Even More Extreme than the Ryan Block Grant
Edwin Park and Matt Broaddus

Cantor Proposal for 20 Percent Business Tax Deduction Would Provide Windfall for Wealthy, Not Create Jobs CBO Rated Similar Approach One of Least Effective Ways to Create Jobs
Chuck Marr

Cooper-LaTourette Budget Significantly to the Right of Simpson-Bowles Plan: Proposes Much Smaller Tax Increases, Smaller Defense Cuts, and Deeper Domestic Cuts than Original Simpson-Bowles
Robert Greenstein

Medicare in the Ryan Budget
Paul N. Van de Water

New Tax Cuts in Ryan Budget Would Give Millionaires $265,000 on Top of Bush Tax Cuts
Chuck Marr

Ryan Medicaid Block Grant Would Cut Medicaid by One-Third by 2022 and More after That
Edwin Park and Matt Broaddus

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Okay, that may not be a very high bar, but the real issue is whether Ireland and other debt-troubled countries get around the straight-jacket being imposed by the ECB. Philip Pilkington and Warren Mosler have a plan that might do the trick: tax-backed bonds.

The idea is that a country like Ireland or Greece could issue bonds which, in the event of default, could be used to pay taxes in the issuing country. This means that if Greece issued a 10,000 euro bond, and suddenly found itself unable to meet an interest payment, the holder of the bond could then sell it to a person or corporation who owed Greece taxes. It would be worth 10,000 euros as a tax payment, so the holder of the bond would then presumably be able to sell it for pretty close to 10,000 euros.

This should ensure that Greece has a ready market for its bonds at a fairly low interest rate. As long as the Greek government is able to collect taxes, there will be demand for these bonds.

Of course what this implies is that the bonds are being used effectively as currency. Given the concerns of the people putting together the euro, they certainly should have outlawed this sort of move. After all, if larger euro zone countries went this route, they could issue huge amounts of tax-backed bonds. This could lead to much stronger growth but, horrors of horrors, it could make it difficult to keep inflation down to the sacred 2.0 percent target (moment of silence, please).

It would be remarkable if the euro designers did not write rules that prohibited member states from going this route. But hey, these folks missed the huge asset bubbles in the housing market that collapsed and sank the world economy, so clearly they are not the sharpest tools in the shed.

It would be great if the debt-troubled eurozone countries explored this tax-backed bond option. If it can be done, it should be.

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After six consecutive months of falling, the Case-Shiller 20-City Index showed signs of stabilizing in January with the index remaining virtually flat. However, there were sharp divergences in price paths across cities, with four (Phoenix, Washington, D.C., Miami and Minneapolis) showing gains of more than 1.0 percent in January. San Francisco and Portland each had price declines of 0.6 percent. Prices in Cleveland fell by 0.7 percent, and prices in Atlanta fell by 1.1 percent.

There have been some reports of rising rents in many areas, ostensibly due to the fact that people who have lost their homes are now being forced to find rental housing that is in short supply. This really does not make sense as a national phenomenon. Rental vacancy rates continue to be at near-record levels, exceeded only by the peaks reached in 2009 and 2010 near the trough of the recession.

There also is zero evidence of upward pressure on rents in the Consumer Price Index series. The owners' equivalent rent series, which pulls out the impact of utilities and exclusively measures rent of shelter, is below its pre-recession level after adjusting for inflation. If anything, it has trended slightly downward over the last two years.

For a more in-depth analysis, check out the latest Housing Market Monitor.

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The current value of the federal minimum wage — $7.25 per hour — is often compared to the cost of living, the average wage in the economy, or the productivity of the average worker. By all of these benchmarks, the current federal minimum is well below its historical levels.

But the current minimum wage looks even worse when compared with two kinds of purchases strongly associated with a middle-class standard of living or the ability to move up to the middle class: health insurance and a college degree.

The table below shows the results of a simple exercise. We ask how many hours did a minimum-wage worker have to work to pay for a year of college education (at various kinds of institutions) or a year of health insurance (for an individual or a family). The table compares the experience facing a minimum-wage worker in 1979 — when the minimum wage was $2.90 per hour — with that of a minimum-wage worker in 2010 or 2011 — when the minimum wage was $7.25. (All wages and prices, here and below, are in current dollars — that is the actual dollar value at the time, without any adjustment for inflation. The point is to compare the minimum wage in place in each period with the actual cost of health and education services at the same point in time.)

A minimum-wage worker in 1979, making $2.90 per hour, had to work 254 hours in a year to pay the $738 annual cost of tuition at a public four-year college in that same year. By 2010, minimum-wage workers at $7.25 per hour had to spend 923 hours to cover the $6,695 annual tuition at a public four-year college. (All our calculations ignore taxes and subsidies. More on that later.)


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Well, not quite.  While Asians were the fastest growing racial group in the U.S. between 2000 and 2010, they still make up only about 5% of the population.  This is according to the a new Census brief released today, The Asian Population: 2010.

This brief is features several colorful maps and graphs showing the U.S. Asian population in states, cities, even counties.  It also has an interesting discussion of "race alone-or-in-combination concepts" and multiple race reporting, reflecting how the Census has been evolving over the past decades along with our racially-diversifying population. 

This useful new Census brief confirms what CEPR found last year in our report, Diversity and Change: Asian American and Pacific Islander Workers.  The Census brief is based on the 2010 Census data, while most of CEPR's analyses were based on the 2009 American Community Survey.  Also, CEPR's report looks at AAPI workers, while Census looks at the overall Asian population (and does not include Pacific Islanders, unless in combination with Asian, in this brief).  Still our findings match up very well.


Some small differences occur when looking at states.  While the 9 states with the largest Asian population match perfectly (CA, NY, TX, NJ, HI, IL, WA, FL and VA), Census ranks Pennsylvania 10th, while CEPR ranks it 12th.  In 10th and 11th places in CEPR's report are Massachusetts and Maryland, respectively.

And CEPR's report looks at several aspects that the Census brief doesn't get to, such as immigration status, country of birth, educational attainment, industry, unemployment, home ownership, disabilities and unionization.  However, Census says that over the coming decade, it "will release additional information on the Asian population."  Stay tuned!


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In the wake of Jeffrey Sachs’ unprecedented open candidacy for World Bank president comes important news that developing country economists may also join the race: former minister of finance for Colombia and former senior UN official José Antonio Ocampo, and Nigerian finance minister and former high level World Bank official Ngozi Okonjo-Iweala. (Okonjo-Iweala is denying she will seek the position.) If this happens, in a similarly public way, as it appears it will, this will be a huge and irreversible step forward for World Bank governance reform.

It would be a leap closer toward what the World Bank’s members have officially adopted as their preference for choosing the Bank’s leader: an open, merit-based process. A contest, of sorts, between Ocampo and Sachs (and perhaps Okonjo-Iweala) – presumably with developing country support behind them – would be a sea change from the Bank’s past practice of putting the U.S.’ (and the Global North’s) interests first in selecting presidents, with developing countries excluded. The succession this time is far different than in 2005, for example, when the Bush administration simply declared that Paul Wolfowitz would helm the Bank, to howls of protest but no-known alternative nominees.

The Obama Administration is now in a bind, facing the prospect of missing the March 23 nomination deadline as it scrambles to find a candidate who won’t be too offensive, or look especially unqualified next to two (or three) economists with experience in economic development in developing countries. That certainly leaves out Larry Summers, who reportedly is opposed even within the G7, and the administration’s other rumored options, such as UN Ambassador Susan Rice, who also may have other career goals in mind.

All this shows the importance of what Sachs has done with his campaign, unprecedented in both its openness and its calls for reform.  Sachs has said all along that he welcomes other candidates, and a merit-based process. Due in large part to his campaign, it’s something of a new ball game.

There’s a long way to go before the World Bank presidency process is truly democratic. The one-dollar/one-vote system of governance ensures that the U.S. and other rich countries have disproportionate weight in making these and other important decisions. But it is clear that Sachs – and Ocampo and Okonjo-Iweala, if he indeed is joined by them – have won considerable gains in forcing open this process.

This post originally appeared on the site World Bank President.

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The Congressional Budget Office (CBO) does not exactly have a stellar record when it comes to economic forecasting. Back in 2001 failed to see the collapse of the stock bubble that led to the recession that year even though it was already well underway. It forecast both a decade of solid economic growth and continued strong capital gains and capital gains tax revenue.

CBO also never noticed the housing bubble. In January of 2008, one month after the recession is now dated as having begun and a year and a half after the housing bubble had begun to deflate, CBO projected nothing but blue skies. The annual Budget and Economic Outlook showed nothing by continued growth, low unemployment and near balanced budgets.

This track record suggests that CBO’s economic projections warrant serious scrutiny. In carrying through such due diligence, we happened to notice an unusual aspect to the projection in the most recent Budget and Economic Outlook.

These projections show that Federal Housing Finance Administration’s House Price Index will rise by 20 percent over the course of the decade after adjusting for inflation. This projection is striking because it suggests a sharp divergence from the pre-bubble pattern to house prices.


Source: Congressional Budget Office and authors' calculations.

Robert Shiller constructed a series on house prices in the United States from 1890. This series showed that from 1890 until the beginning of the housing bubble in the late 90s, house prices essentially tracked the overall inflation rate. CBO’s projection implies that it expects house prices will regain at least part of their bubble value.

This projection has some important implications for its economic projections. Higher house prices imply greater wealth. With the value of residential housing roughly equal to GDP at present, if house prices rise by 20 percent, it implies an increase in housing wealth equal to 20 percent of GDP. Assuming a wealth effect on consumption of 6 percent (i.e. homeowners spend another 6 cents annually for every additional dollar of housing wealth), this will translate into an increase in annual consumption of 1.2 percent of GDP.

If there is a multiplier on this consumption of 1.5, then the effect of CBO’s projected return of the bubble is to raise annual GDP by roughly 1.8 percent. Presumably higher house prices also imply greater levels of construction. If this 20 percent rise in real house prices increases construction by just 5 percent above trend levels, then the impact of this projected bubble is to raise projected GDP by more than 2.0 percentage points.

Of course CBO might be proven right and we may see house prices return to levels that are well above their long-term trend. However if they are wrong then it seems likely that the recovery will be even slower than CBO is now projecting, with the economy taking even longer to get back to its potential output and for the unemployment rate to fall back to more normal levels.

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It is coming up on three years since the last increase in the federal minimum wage  –to $7.25 per hour– in July 2009. 
By all of the most commonly used benchmarks – inflation, average wages, and productivity – the minimum wage is now far below its historical level. By all of these reference points, the value of the minimum wage peaked in 1968. If the minimum wage in that year had been indexed to the official Consumer Price Index (CPI-U), the minimum wage in 2012 (using the Congressional Budget Office’s estimates for inflation in 2012) would be at $10.52. Even if we applied the current methodology (CPI-U-RS) for calculating inflation –which generally shows a lower rate of inflation than the older measure– to the whole period since 1968, the 2012 value of the minimum wage would be $9.22.
Using wages as a benchmark, in 1968 the federal minimum stood at 53 percent of the average production worker earnings. During much of the 1960s, the minimum wage was close to 50 percent of the same wage benchmark. If the minimum wage were at 50 percent of the production worker wage in 2012 (again, using CBO projections to produce a full-year 2012 estimate), the federal minimum would be $10.01 per hour.
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In the largest gain since last April, the Consumer Price Index rose 0.4 percent in February, according to the latest Bureau of Labor Statistics' reports on the consumer price, US import/export price and producer price indexes. The CPI has averaged an annualized rate of inflation of 2.5 percent over the last three months.  Last month’s bump was largely driven by energy prices, which rose 3.2 percent from January to February.  Excluding volatile food and energy prices, the core CPI rose 0.1 percent in the month and has grown at a 1.9 percent annualized rate since November.

Medical care services was unchanged in February, including the second consecutive fall in the price of professional medical services of 0.2 percent.  This is the first time that professional medical services has seen consecutive declines in price, and the 0.4 percent annualized rate of decline since November represents the first three-month fall on record.  The price of hospital services was flat last month.

For a more in-depth analysis, check out the latest Prices Byte.

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Larry Summers is beginning to look more and more like the second incarnation of Richard Nixon. He just keeps coming back.

According to the rumor mills and betting lines, Summers is now the top contender for World Bank president. If track records mattered, Summers would be nowhere in contention.

Just looking at the economics (i.e. ignoring his stormy tenure as president of Harvard), Summers would not seem to be the sort of person who should be given another position of responsibility. In the 90s, Summers was a top advisor and eventually Treasury Secretary in the Clinton administration as it rushed full speed down the road of financial deregulation. He was among the loud voices dismissing then head of the Commodity Futures Trading Commission Brooksley Born’s concerns about unregulated derivatives.

Summers was also a central figure in the engineering of the bailout from the East Asian financial crisis. This bailout sent the dollar and the trade deficit soaring. The resulting build up of reserves by developing countries created the fundamental imbalance in the U.S. and world economy, which still has not been corrected.

Summers completely bought into the Great Moderation myth that Alan Greenspan had somehow ended economic instability for all time. At the famous Greenspanfest held at Jackson Hole in 2005, Summers derided the skeptics as financial “Luddites.”

Just as there was supposedly a new Dick Nixon running for president in 1968 there was supposedly a new Larry Summers who entered the Obama administration as head of the National Economic Council in 2009. Summers had supposedly learned his lessons and recognized that giving Wall Street complete free rein may not always be the best policy.

There is not much evidence of the new Larry Summers in the policy decisions of the Obama administration. While exactly who said what and when is hotly contested in the various accounts coming out now about the administration’s economic policy, the basic facts are not in dispute.

The administration left the financial sector largely intact. Huge too big to fail banks that were almost certainly insolvent (e.g. Citigroup and Bank of America) were nursed back to something resembling health with massive amounts of government assistance. The Obama administration blocked efforts to close or break up these behemoths.  

The Obama administration pushed through a stimulus package that was clearly too small to restore the economy to health and then began touting the green shoots of recovery and saying that deficit reduction would now be its priority. As a result, millions of workers are needlessly unemployed and unable to care properly for themselves or their families.

We may never know exactly how much of the blame for these failures should rest on Larry Summers’ shoulders, but it is hard to believe that the head of the National Economic Council, the person who is supposed to summarize all the relevant views for the president, doesn’t have some responsibility.

In short, Summers’ record as an economic adviser has provided a trail of disasters that few can match. Does it make sense to give him yet another opportunity to do even more damage? Add a comment

Justin Wolfers correctly tweets this morning that: “As unemployment falls, so will long-term joblessness.”

But, it could still take a very long time.

The labor-market categories that Janelle Jones and I have been focusing on in two recent reports – the long-term unemployed, discouraged workers, the marginally attached, and those part-time for economic reasons – have so far not responded much to job growth and the decline in the overall unemployment rate.

I was struck by these lines from the Bureau of Labor Statistics summary of today’s jobs report:

The number of long-term unemployed (those jobless for 27 weeks and over) was little changed at 5.4 million in February. These individuals accounted for 42.6 percent of the unemployed.

In February, 2.6 million persons were marginally attached to the labor force, essentially unchanged from a year earlier.

Among the marginally attached, there were 1.0 million discouraged workers in February, about the same as a year earlier.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 8.1 million in February.

You can read Dean Baker's take on the jobs numbers here.

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The deadline for Greece's bond swap, the so-called PSI (Private Sector Involvement), is approaching tonight (10 p.m. Greek time).  As part of Greece's latest bailout agreement with the European Central Bank, European Commission, and the IMF (the so-called Troika), Greece needs to achieve the near universal participation of private bondholders in a debt-restructuring plan to lower the face-value and interest rates on 206 billion euros of privately-held bonds.  

Under the terms of the bailout program Greece must reduce its debt to 121 percent of GDP by the year 2020, a level the Troika considers sustainable, and the upcoming bond deal is essential to reaching this target.  Under the official terms Greece has offered private bondholders, old bonds would be exchanged for new bonds with a face value of 46.5 percent of the original.  The new bonds would make annual coupon payments of 2 percent between 2012-15, 3 percent for 2016-20, 3.65 percent in 2021, and 4.3 in 2022-42.  

As reported today by Bloomberg, bondholders representing around 60 percent of all outstanding privately-held bonds have announced they will participate in the swap.  It remains to be seen how many more will accept the deal before the official deadline tonight but even if voluntary participation remains low Greece recently inserted collective action clauses into bonds that were issued under Greek law.  These stipulate that so-called holdouts, bondholders who refuse to accept the deal, can be forced to accept the terms of the swap if a large enough number of bondholders (usually a super majority) vote to participate.

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