Sunday, March 01, 2015

Most have been quick to blame Greece for its own problems. Our esteemed Tim Cruelworld makes a good point by asking others to look at themselves. Those things that have bankrupted Greece are in the process of bankrupting everyone else.
Greecing the Skids 
Greece is a current focus of financial attention as the peasants have become distinctly restless over the financial shenanigans of their overlords, both local and in the Eurozone. Lest we outsiders be overly proud of our relative performance, we should consider how they got to their current state and to what extent most other countries are rowing a similar boat.
Greece joined the Euro currency group in 2001 with some assistance from Goldman Sachs, who advised them on how to gloss over the reality that they did not actually come close to qualifying, due to high deficits and financial instability. They then entered a temporary golden age where their credit was thought to be as good as the major Euro members and where there was a general understanding that the debt was backed by Germany, France and so on. This allowed the government to raise the living standards of most of the citizens by large increases in spending, pensions, welfare and civil service employment. This in turn boosted the consumer economy which further multiplied the gains and also allowed private citizens and corporations to borrow extensively on generous terms. The current financial crisis brought all that to a crashing halt. 
The economy of Greece became increasingly distorted, with prices for inputs and capital items like real estate and labor rising to unrealistic levels. The real focus of their economy should have been on tourism, low- cost services like shipping and low-cost manufacturing and agriculture. If housing, food and taxes were also cheap, the population could have found equilibrium at a lower level but a sustainable one. 
Now the GDP has dropped by 25% and unemployment has risen by a similar amount. The unlucky have found that their costs remain high, their savings have been savaged and their chances of making a decent living have become a bad joke. The solid businesses and industries don`t exist in anything like what is required. Greece owes about 340 billion Euros in VISIBLE DEBT to outsiders and an indeterminate amount of LESS VISIBLE PRIVATE DEBT. They simply have no expectation of covering the costs of such debt with a severely injured and distorted economic engine. 
In reality, about half of their economy was imaginary and a fraud. 
Making matters worse, it takes a lot of social cohesion for those who have liquid capital (cash) to keep it in the country and at risk. Greece does not have such cohesion; the wealthy are widely thought to have little interest in paying taxes, much less investing in a sinking ship. In fact, it is doubtful that much liquid capital remained in-country after the crisis started in 2007. Wealthy Greeks are not alone in understanding how to export, hide and protect wealth. 
Greece was not alone in all this, being emulated by much of southern Europe and a few others like Ireland. Notably, Italy has never even come close to financing their government by actual revenue and they are a far more significant danger to the Euro as a whole. Thus, Greece will not get very many breaks from the Euro group, since there is a tremendous fear of a general rush to the exits if it is seen that there is a way out that does not impoverish the population. Their advice to the Greeks is to die like heroes in defense of the fantasy that is the Eurozone. 
Now, Gentle Reader, consider how much of the economy of your own country is based on government spending, overpriced real estate, a bloated stock market and repression of savers. I leave it as an exercise for you to determine how much is imaginary and by how much a reversion to the mean will inevitably cost. 

1 comment:

Anonymous said...

1968 magazine article shows how control of gold is main mechanism of imperial power

"The Sieve of Gold," from the May 1968 edition of the late magazine Ramparts --

-- which describes the longstanding U.S. government policy to push gold out of the international financial system in favor of the U.S. dollar; the increasing recognition by other nations that this constituted imperialism and made the dollar in effect a tax on the world; the collapse of the London Gold Pool; and the underlying cause of the enormous stress on the world financial system at that time, the Vietnam War.

The author of the article, Michael Hudson, who recently had been an analyst for Chase Manhattan Bank and now is professor of economics at the University of Missouri at Kansas City, writes: "America's desire to see gold eliminated from the world's monetary system is understandable. It had used gold as a lever with which to exercise world power, not only to purchase foreign businesses but also to finance its overseas Cold War operations. Gold, America perceived, was power; as long as gold was the basis of the world monetary system, power followed it. Therefore, when its gold stockpile was depleted, America naturally wanted to transform the monetary system in such a way as to phase gold out, thereby preventing any other nation from using the power it provides -- especially in view of the fact that the major potential gold-bloc nations are the Soviet Union, South Africa, and France."