The great earthquake/tsunami/nuclear meltdown of 2011 will result in more quantitative easing in Japan and the U.S. This will result in even more inflation than we are experiencing today. Once the inflation genie is out of the bottle, the race to the bottom will accelerate. Gold will decide who wins the race. It has been a neck and neck race since 2001. I’m not sure it is a race anyone wants to win. But the destination is certain.
"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen."
-- Samuel Adams
There has been a trend across Europe of late towards nationalistic, anti-immigration Eurosceptic parties. I just read on the BBC that in the most recent Finnish election the True Finns Party has won 19% of the vote and 39 of the Parliament’s 200 seats. Finland requires that the parliament approve EU bailouts, and as such a government depending on the True Finns’ vote could veto the bailout package, which is expected to be finalised by mid-May.
These two trends towards sovereign debt default on one hand and Euroscepticism and nationalism on the other are almost certainly related, and I think where they are going to end up is the major question in European affairs right now.
So now we've all heard that S&P has downgraded the debt outlook for the US, although not the credit rating.
Considering how they kept the AAAs going for the banks through a good portion of the mortgage / financial collapse, it does make one wonder just how bad the US debt outlook is.
"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen."
-- Samuel Adams
The Greek situation is now very bad. Its debts are so large that even the first bail-out hasn't been enough to cover them, and fresh austerity measures have led to more riots. A second bail-out or an outright default is looking likely, which has scared the market.
As you might gather, this is very worrying for Ireland. We have taken extreme austerity measures and are very much living up to our responsibilities. The Greeks irresponsibility is tarring us all with the same brush. I suspect that this is the beginning of the end for the Euro currency.
The Spanish finance minister has confirmed that the country is about to make a formal request for 100 bn Euros to prop up its banks. Following the catastrophic collapse of the country's property boom, they have something like 200,000 re-possessed properties that they need to offload at rates well below what they paid for them. This makes Spain the fourth European country to be bailed out, and by far the largest.
Can't help but wonder if they are waiting until the last minute, in denial...like the rest of the nations.
"Ut Prosim"
"There are some things that it is better to begin than refuse, even though the end may be dark" Aragorn
"Those who commit honorable acts need no forgiveness" http://killology.com/sheep_dog.htm
So today Greece rejected new/more austerity measures. I'm not sure what happens now, given that the measures were a condition of more fund and they are out of funds.
That said, the last time they got bailed out the bail out served only to allow them to service their debt while they cut everything else and put themselves into a recession. So I'm not sure a "yes, more please" would have been at all helpful. Especially since some of the things I've read lead me to believe that they need the likes of the Gates Foundation and MSF, not another "bail out". Can you imagine needing malaria pills to visit a European nation?
I really don’t see what alternative Greece has now to defaulting and leaving the Euro. As much as that would be a disaster for the Greeks (who would have all of their imported goods and services triple in price overnight) and for the European banks and IMF (who would have to write off hundreds of billions in debt) it seems to be to be the only way that some sort of economic recovery could begin. A low-value currency would immediately stimulate tourism and shipping, the two industries that the Greek economy has traditionally relied on. It would also make Greek exports very cheap and competitive.
It might also make banks and the IMF more cautious about lending money to countries which can’t repay it, which would be a harsh lesson although perhaps a necessary one.
As it stands now, Greece’s debt is 180% of GDP, with about (to my understanding) 0.65% of that due by the end of June and therefore in arrears. It is simply impossible that can be repaid, and the bail-outs and extensions that have been going on for the last five years have only seen the debt keep growing. It has to end at some point.
The austerity imposed as the price of the bailouts and extensions has crashed the Greek economy, making it impossible for them to repay their debt. You can't grow an economy when no one has any money to spend.
“There, peeping among the cloud-wrack above a dark tor high up in the mountains, Sam saw a white star twinkle for a while. The beauty of it smote his heart, as he looked up out of the forsaken land, and hope returned to him. For like a shaft, clear and cold, the thought pierced him that in the end the Shadow was only a small and passing thing: there was light and high beauty for ever beyond its reach.”
― J.R.R. Tolkien, The Return of the King
If you take only the numbers since 2010, around 40 billion of Euros have been taken out of Greece by rich and middle classe Greek citizens and are now on accounts in other countries. So, there could be a lot more money in the country, if the greek themselves would show solidarity with their own economy.
Th consequences for Greece but also for the rest of the Eurozone are dramatic and will be more dramatic even. Even here, we can feel it. The Swiss Franc has risen in value around 20% since january, which is a disaster for Swiss economy (and for my mother who lives in Switzerland with a pension in Euro). It has become the refugee value.
I don't know what will happen in Greece and I am not convinced of the austerity policy. But the Greek also went from bail-out to bail-out in the last years without any structural change to their economy and their state. The problem is that there is no functioning government in Greece, no state institutions that work - which means no state income, no taxes. There is a fundamental, structural problem in the country.
Nin wrote:I don't know what will happen in Greece and I am not convinced of the austerity policy. But the Greek also went from bail-out to bail-out in the last years without any structural change to their economy and their state. The problem is that there is no functioning government in Greece, no state institutions that work - which means no state income, no taxes. There is a fundamental, structural problem in the country.
I agree. As bad as austerity has been for the economies subjected to it, simply cruising along for five years spending more and more money that you don't have is no solution either.
Iceland and Ireland had a really hard time for a while, for example, but are now on the road to recovery. I can't see Greece undergoing the same process with endless bail-outs and extensions and nothing actually changing.
I see that the self-proclaimed Marxist Finance Minister Yanis Varoufakis has resigned, which might be something of a start...
If I was living in Greece, and I had the means to do so, I would definitely have taken my money out of the country before now. There's no point in having solidarity with delusional politicians and the people who vote to enable them.
Look what is happening to the people who left their money in Greece. They can't get it, and when they can get it some percentage will be gone, either confiscated by the government or the bank, and then another percentage will be gone when Greece has to go off the Euro and their new local currency is devalued.
It's not austerity that is hurting Greece. It's reality. The books have to balance at some point. Greece isn't producing nearly enough to pay for everything they want. They won't modify their pension system to one they can actually pay for. I guess they think that the Germans should pay for their pension system, through another bailout?
The no vote should be treated as a vote to leave the Euro. If it's not and if the other Euro countries let Greece keep going along without budget reforms then why should any of the other countries pursue their own reforms? Germany can bail them out too.
I believe the world in general has been assuming that if Greece voted "no" they'd be leaving the Euro zone. In the long term, losing the dead wood is probably better for the Euro zone. In the short term...?
I'm looking at this through the analogy of conservation of momentum. Greece is about 2% of the Eurozone in GDP? Something like that. Much smaller, anyway. In this analogy, a much lower mass. Ejecting that small mass may cause a small velocity change in the larger body, but nothing major. But for the Greeks, since their mass is so small, they are going to have a huge velocity change. It's going to be awful.
The thing is, if the Greeks would just slash their ridiculous pension rates, cut down on the cushy government jobs and crony capitalism, they could probably stay in the Euro. However bad it might be for pensioners in the austerity case, it will be a whole lot worse if they are booted out.
But they voted not to accept pension cuts, so there really is no other course.
The question is: why should they believe anything the bankers say? The bankers all said that after a year of austerity, the Greek economy would start growing again. That was what, four or five years ago? At this point the cuts have got to feel purely punitive, whether there's a valid economic argument for them or not (and I'm with Krugman, I don't think there is).
I agree with you, axordil. But for me, this is not the problem or not the only problem. As long as the greek state does not function and does not receive any regular income - which means as long as a majority of Greek an d especially wealthy Greek don't pay income taxes, I see no way out of the current situation.
Corruption is a problem too. Greece has no functioning administration, no land register, by far not enough industrial production and some huge holes in the education system. I don't think austerity will solve those issues, but I don't think either that austerity caused them.
Agreed on all counts...which of course raises the question of why they let it join the Eurozone in the first place. As is too often the case, the people who reaped the benefits aren't necessarily the people now paying the price.
So now Tsipras is urging the Parliament to vote in favour of a plan which is, by many accounts, at least as tough, if not tougher, than the plan rejected at the referendum. With Tsipras' encouragement.
