Saturday, September 17, 2011

Greek Trojan Horse is Parked at a Wal Mart Near You

Remember the questions on SAT tests that went .... an apple is to a tree as a pineapple is to a goat with multiple choice answer selections?   As I read this latest obit about Greece I was struck with that same seeming disconnect but let's apply the Greek situation with that same logic: Greek debt default is to the EU as the US debt default is the the global economy as it is to each of us.  Greece has been broken for decades. They were the first in the Eurozone just to glean from the coffers of this new Salvation Army we could call the Federal Reserve. NOBODY in Europe in the 90s felt Greece was fiscally capable or disciplined to stay within the guidelines of the EURO. voila. They were right!

The greatest truism in the article is that there are no longer banks or countries capable of lending or bailing our sovereign debt so where does leave the world's economy headed by the US debt debacle?  We are now a debtor AND welfare global economy.  There are not enough food stamps, not enough agencies to forces business to hire inept workers, not enough tax loop holes to allow income to the governments .... Greece is the world's debt Trojan horse but people still refuse, including the Greeks, to accept that alcoholic reality.  You have to first admit there is a problem; not the politicians for they have become professional beggar class for the populace.  Historically poor producers, lazy, union driven, strike prone work force which continues in the midst of when the exact opposite is needed by a debtor nation.

But wait, how is Greece different then than the gargantuan giant US debt nation economy? It's not but just much larger and more impactful in the global debt Wal Mart.  This is all so very true and so very sad and so very telling of how countries mature in stages. We have the Roman Empire as the mirror for they collapsed from the inside out and not invaded from the outside and collapsed inside.  The exact stages for Greece, the EU and Europe.  And China and the BRICS are taking full advantage of the sovereign flea markets with so much for the picking!

Oh what evil webs we weave once we set out to deceive!  

Greece says it's not leaving the euro, and everyone else says Greece must default on its euro debt. What does such a scenario portend?
 
Athens, no longer able to borrow euros and hardly able to extract enough euros from its own population, won't be able to pay its bills. Many of the hundreds of thousands in the Greek government's employ stop coming to work because they stop receiving paychecks. Many private businesses that depend on their patronage also cease to function and cease to pay their employees. Savings vanish in a rash of bank failures.

What happens next? Greeks do what anybody would do when they can't grub up an income. They find things to sell: cars, houses, businesses, islands, beaches, historic sites and ouzo distilleries to tide themselves over.
Associated Press
Eventually the euro prices of a Greek vacation or a Greek factory or Greek-made goods become attractive and euros rush in from abroad. Jobs start to rematerialize. The economy, after taking a sound thrashing, begins to grow again.

All this is impeded, unfortunately, by riots and political instability and mass privation. Quite possibly, things keep getting worse for a long, long time, before they start getting better.

To the rest of Europe, this would merely be a matter of sorrow, regret and charity to keep the Greeks afloat—if it weren't for the fact that if Greece is allowed to default, investors might naturally wonder which other countries might default.

Private money, if it hasn't already, might then stop being available to roll over the debts of other heavily indebted European governments. These states would become even more dependent on loans from stronger neighbors, and finally only from the Germans, who are presumed always to have access to the private markets for loans.

Except for one thing: Who says the Germans would always have access to private loans? This is the hole in the theory that Berlin's taxpayers only need to step up. You can overtell the story of Germany's strength among the wreck of its neighbors. Germany's government today is heavily-indebted; its vaunted reforms in the mid-2000s were impressive relative only to those of, say, France. Its recent prosperity depended precisely on selling BMWs and Mercedes to its overspending neighbors.

In a world in which there is nobody left to borrow from, not even Germany, life affords one other option: The central bank prints money. What will stop contagion is the European Central Bank (ECB) drawing a line somewhere—at some group of countries that would trigger the bank's willingness to print unlimited euros.

But this has also been the political stumbling block all along. Those wailing for a European TARP, either to bail out its banks or bail out its governments, fail to notice that doing so would necessarily force a decision about which governments will be inside the magic circle of the saved and which won't. Yet that's exactly what's necessary to forestall a complete meltdown. Let the world know which countries the ECB (which is still pretending to be a virtuous, nonmoney-printing central bank) will keep afloat at any price.

eurozone in the future unless bond markets have seen that default is a real possibility.

One way or another, Europe was likely to end up on massive injections of monetary glucose. This won't necessarily lead to massive inflation; it depends on how quickly the member countries respond with "real" reforms that change "real" things in their economies. And expect the ECB, which has become practiced at gilding its interventions with talk of sterilization, to become even more practiced at it.

Behind the euro was an ahistorical dream of a European superstate, in a world that—if you haven't noticed—has been moving steadily in the opposite direction. European elites may crave unification, but most societies seem to crave democratic independence. The United Nations boasts 193 member states today, up from 127 in 1970.

The European superstate is dead, but the common currency isn't necessarily dead. The euro is finally achieving at least one of its goals—forcing economic reform, though probably not the salutary, clean reform that many hoped for. More likely sub-par reform, with bouts of inflation, stagnation and pitched battles over political allocation of scarce opportunity and resources.

Sadly, a similar destiny probably lies ahead for the U.S. Only after a series of panics, possibly quite destructive ones, will politicians have leeway seriously to address the unsustainability of the current welfare state. Every move will be too little to ward off another crisis, another showdown, and potentially decades of political strife and economic uncertainty.

No comments:

Post a Comment