The markets signal an 80% probability that Greece will default. But the contagion is progressing to Italy, and not far away, France and Germany. The only solution will be widespread expropiation of savings, of liquid assets, of higher taxes.
It is becoming obvious that the West's decline is serious: all over the West, standards of living are declining and people is in much worse situation than former generations. The predictions of 1950 of technological marvels, robots, etc. have become true but instead of more vacations, more happiness, etc. people is working more, paying debts and feeling insecure. Maybe half of the population subsists on government jobs and handouts. It is a very surprising development, no one could have preicted that material progress would lead to lower living standards.
I can think of no solutions, not even a solution to my own worries.
10 comments:
Relax. It is all priced in.
Anon.
Europe is having its "Minsky Moment." Investors over burdened with debt finally can no longer service that debt. Then they have to sell off good assets, but buyers are scarce, and asset prices fall. Minsky was one of the first to describe the instability caused by excessive debt that gets built up from past euphoria. European governments, the IMF, and even the U.S Federal Reserve will try to hold asset prices up. Ultimately they will fail as they must because you can't get something for nothing. Someone has to pay for the beer.
We might see this crisis get resolved with large infusions of money, but the additional debt only sets the stage for the next crisis. Apply, rinse, repeat.
Teutonic Mark!
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8643512/A-modest-proposal-for-eurozone-break-up.html
The Latin euro would fall sharply against the yuan, yen, won, zloty, etc, as well as the new Teutonic Mark, allowing the Latin Union (with Ireland) to regain economic viability and largely honour existing euro debt contracts. The IMF should stand ready with flexible credit lines to tide Latins through the first weeks of this rupture.
Once the dust had settled, it would become clear that Italy, Spain, Ireland, and perhaps Portugal had regained enough competitiveness to hope to grow their way out of debt traps. Fear of domino defaults would recede.
Greek partisans mobilize against Germanic invaders
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100010873/portugal-loses-patience-with-europe/
So, it has begun: last week Greece’s premier George Papandreou launched two angry broadsides against EU magnates. How could he do otherwise after Eurogroup chair Jean-Claude Juncker told a German newspaper that Greece’s sovereignty would be “massively limited”?
“Massively limited?”
I'm not out to defend EU power-seeking, but isn't it logical that if someone pays or vouches for someone else's debt, that someone should have a say in the matter? The Southern European countries that are in trouble amaze me; loudly asking for 'Europe', meaning Germany and a few other healthy states, have to take care of them.
Ambrose Evans-Pritchard is sympathetic with the PIGS, because they are 'treated as a morality tale', subtly omitting Greece's pensions at 50. Club Med cherished rampant clientelism for all voting blocs imaginable, a recipe that surely will make democracy and clean sheets impossible long-term. They never reformed like the EU states that are healthy today. That is their fault. So, yeah, it is a morality tale. PIGS had higher interest rates, because their states were set up in such a way that they were always more riskier. They voluntarily joined the EMU and enjoyed all of its benefits. They received interest that were lower, made possible by a common currency; this was exactly one of the main reasons why they had to join the euro. I can still remember finance ministers saying this exact point 10-15 years ago. First, elites convince you that must do A, because X, then when A = untrue, then they blame you for ever having believed A, because non-X was always self-evidently true! Unreal.
How anyone could describe the German's PoV as self-serving is beyond me, just out-and-out crazy. The Germans have been paying to the EU and sacrificing themselves to the wishes of other EU countries ever since WWII. Even now, they take a lot of losses without too much bitterness and whining, but not all of it -- it would come at their own peril. The Germans are not the jerks in this story, not this time. The jerks of this story are the people who do not reform what must be reformed (voting bloc privileges) and do reform what must not be reformed (national sovereign status).
It's all about entitlement. The "you know me you me syndrome." New York City went through this in 1975. Like the PIGS, NYC lived beyond its means through a massive debt pile up, constantly rolling over maturing bonds. Finally the market said "no" and NYC couldn't sell its paper. Listen to what went out over the news in 1975, here. Sound familiar? The city then demanded Congress bail it out. They told the world, "We are special." Initially they met resistance and thus the famous New York Daily News Headline: Ford to City: Drop Dead. But in the end president Ford signed the New York City Seasonal Financing Act which advanced the city $9.4 billion which is $38.6 billion (27 billion euros) in today's dollars. How did they ever pay that back? Inflation. Now we see Greece is in a much bigger hole than New York. They need hundreds of billions of euros. Remember Greece has about the same population as New York City. I don't think Congress would have lent New York $200 billion. Too much. Unless the EU, meaning Germany, can count on massive inflation, they will never get repaid. But the Germans hate inflation having lived through a hyperinflation in 1923. By giving the Greece a loan it can never repay, Germany is either willing to lose the money or endure inflation. I think Greece is going into default.
If Greece and the other PIIGS pay back their debts in inflated euros, the end result for Germany is like a haircut aka default. If I were Rossler (the Vietnamese adoptee currently Minister of Finance) I would prefer the Greeks default and be thrown out of the Euro.
If Greece and the other PIIGS pay back their debts in inflated euros, the end result for Germany is like a haircut aka default. If I were Rossler (the Vietnamese adoptee currently Minister of Finance) I would prefer the Greeks default and be thrown out of the Euro.
Of course they are going to default.
It's just a matter of how they construct the lies.
Anon.
Germany accepted a "partial default". Is there such an animal?
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