Friday, February 17, 2012

Greece: No Way Out

Greece is melting down. Right now the Eurozone is kicking the can down the road while Greeks die from austerity. The other choice is for Greece to default on its debt, leave the Eurozone, and go their own way, financing their deficit by printing their own currency.

So why don't they do that? Three words: 1) Medicine. 2) Fuel. 3) Food.

Greece is not self-sufficient in any of those. Greece doesn't have overseas assets like Iceland had when Iceland defaulted that can be used to import these items. And they certainly aren't going to be able to buy any of this from the EuroZone, since they just kicked the Eurozone into a new Great Depression due to the collapse of all the banks that are invested in Greek debt.

The only other alternative is to leave the Eurozone but go hat in hand to the IMF for a bailout, where the IMF funds the imports of medicine, fuel, and food. Thing is, the IMF isn't going to do any such thing unless Greece has a government willing to make the hard choices. Pretty much every asset that Greece has needs to be repurposed towards bringing in sufficient foreign currency to pay for the medicine, fuel, and food that Greece needs to survive, which isn't going to leave a lot for the Greek people.

So what's the end game? Well, the German proposal -- lots of dead Greeks due to starvation, exposure, and lack of medicine -- isn't going to pass political muster, the Greeks might as well default at that point since default is going to have the same result. IMF bailout isn't going to happen until the current government collapses and a new government is in place, and given that the Greek police are out of tear gas (and lack the cash to buy more) this might be sooner rather than later unless they resort to live bullets, in which case game over, there will be government officials hanging from street lamp posts shortly thereafter. What it looks like to me is going to be the messy default scenario, where a revolutionary government ends up taking office and imposes a hard-core socialist reallocation of the nation's assets to bring in the foreign exchange needed to keep the country from freezing and starving to death. Eurozone or non-Eurozone? 50-50 chance, my guess though is non-Eurozone. How many Greeks will die for Germany before all of this goes through? I suspect fairly few -- low tens of thousands -- because the government is already teetering on the edge of irrelevancy and collapse so this farce cannot go on for much longer. And then? Well, we'll see. They'll either create a new model for how to handle an economy in a time of depression, or they'll become Somalia North. Either way, Greeks are in for some interesting times...

- Badtux the Economics Penguin


  1. There's something I don't understand about depressions. Something fundamentally human that would seem to make them impossible, but doesn't.

    See, I realized early in life that you simply have to get up early in the morning, and go and do something unpleasant, for at least 8 hours every day. And that's so a wealthy man can have more wealth, from the money that you created with your work. You just have to. Society is structured to make you. Do it or die.

    A capitalist society has enough wealthy men that benefit daily from this structure.

    So how can they possibly allow massive unemployment? It's like they're letting one in five people sleep late, and not do miserable work all day, and letting that happen makes LESS money. How is that possible?

    It's not like a fifth of Koch brothers' employees could go to them, and say, "we'd like to take this year off. It will cost you a fifth of your income. That okay?" And having the Koch say "yes."

    Governments don't enjoy it much, either, since tax income drops way off.

    Think of the lost money every single day of a depression. Money lost to the government, money lost to every wealthy man. Worse than the biggest strikes.

    I have to assume that governments and wealth men really are rapaciously greedy, but that they're simply not in control of the economy.

    Who is?

  2. It's usually some outside event that triggers a recession or depression -- the collapse of a stock bubble (1929, 2000), a major banking system collapse due to fraud (2008), an earthquake destroying one of the nation's financial centers (1908), or so forth. This event causes destruction of part of the nation's money supply, in turn creating monetary deflation which, remember, is *not* the same thing as price deflation. Monetary deflation can be dealt with by printing money, but if you fail to print money there are only two possibilities: a) price deflation, which does not happen initially because of price stickiness (i.e., a business which sells good for less than it cost to produce them is a *former* business), or b) production cuts, which matches the supply of goods to the now-reduced supply of money so that you can still sell goods for more than the cost of producing them. But now you don't need so many workers, so you lay off workers. This in turn causes more deflation as the laid-off workers default on their debts, which wipes ledger money off the books at banks, which causes further production cuts, which causes further layoffs, wash, rinse, repeat unless something is done to stop the cycle -- i.e., *print money*.

    So why are recessions allowed to start in the first place? For one thing, the Federal Reserve, which is responsible for the stability of the money supply, is slow to recognize that the money supply is deflating. Plus, they have a conflict of interest -- they are explicitly set up to protect *banks* (since banks are the core feature of a capitalist system's money supply, due to most money in a modern capitalist system living as ledger entries in banks rather than as actual physical cash), and inflation hurts banks, so they tend to look for inflation where it doesn't exist and miss deflation until it's already happened. Once they *do* recognize that monetary deflation is underway, the mechanisms for printing money are inadequate. The Fed's core mechanism for printing money is to buy assets with freshly-printed money, usually U.S. Treasuries, but if all else fails and there's not enough Treasuries on the market, commercial paper, corporate bonds, and any other paper they can purchase on the open market. But the problem is that this places money in the hands of investors and producers, not in the hands of consumers, so it does not increase the actual circulating money supply nearly as fast as placing it into the hands of consumers (who would actually go out and spend it and put it into circulation).

    As for why it's set up this way -- it's because the 1% have a dispositional unwillingness to share. They're largely sociopaths, cold-blooded lizard people, and if there is going to be money printed that benefits someone, *they* want to benefit. As for why they don't care that economic activity in general is declining -- well, they're getting all that freshly printed money which is piling up in their coffers, so why *should* they care? *They* aren't hurting. It's the *little* people who are hurting. And they don't view the little people as being actual, well, people. To them, the little people are prey.

    - Badtux the Economics Penguin

  3. No, they are not hurting, but they are still losing money. I figured that's sort of thing they would actually notice. I guess not.

    Perhaps we could trick them into 'hurting' the poor very, very seriously, and all it would take is tremendous amounts of money. Money is less important to them than stretching the difference between richest and poorest, of course.

    As for distributing cash, I've heard of "Bernanke's helicopter." I'm amazed that that sort of thing hasn't been tried. Ten thousand dollars in the hands of the poorest American will ALL end up in the hands of the richest in just a few days, anyway. Even a million dollars wouldn't make most Americans wealthy. It would be spent, and flow upward.

  4. 1) But deflation coupled with freshly printed money in the hands of the 1% transfers real property to the 1%, since they get to buy at auction with freshly printed dollars all the properties defaulted on by the 99% once debt inflation forces the 99% to liquidate their homes and businesses. So it's a pump and dump -- pump (put money into the hands of the 99% to allow the 99% to create wealth), dump (crash the money supply, and steal the 99%'s freshly created inventions, businesses, and other real wealth).

    2) Helicopter drops would have worked in 1948 when the US was largely self-sufficient, but today would cause inflation in China and Saudi Arabia, not in America. You'd end up inflating the price of oil since oil is a gating economic factor where the only limit to the price of oil is the size of the money supply, and you'd end up creating employment in China, not America.

  5. "-- lots of dead Greeks due to starvation, exposure, and lack of medicine --"

    And suicide. My regular Greek commenter says the suicide rate in Greece has doubled in response to the extreme austerity measures as they affect the salaries of ordinary people, many of whom were already in trouble.

  6. The Greeks have two not-so-excellent options left. One:the Greek goes on radio and TV and internet and loudly announces that it is all over, Greece is scrod, and the debt repayment plans insisted upon by "northern Europeans" will destroy Greek independence, will result in every Greek business down to mom-and-pop candy stores being taken over by outsiders, will force every hard working Greek citizen to slave half his life for the benefit of foreign bondholders for a hundred years to come, that Greek citizens -- in Greece! the very cradle and nursery of democracy! -- will not even be allowed to vote on whether they wish to accept these Draconian statutes. Consequently, the government has no choice but to advise all Greeks to abandon their homeland, to emigrate to other freer and richer lands where they will surely prosper, lands such as Germany and France and Finland, such as the United States and Canada and Australia and New Zealand, such as Japan and Singapore and China, such as Brazil and Argentina and Chile. For as long as Greeks prosper and freely gather, the memory of a Free Greece will endure, until that great Greek nation is reborn, as it has been before! and ever shall be!

    The second option is to prepare this broadcast, show it to a select few hundred European bankers and bureaucrats, and mention "We're going to run this six times a day for the next two months, and four times a day after that till the money runs out. Or you'll give us better terms. Think about it. Quickly."

  7. Not sure what that would accompany, Mike. What you're basically proposing is the Irish solution to a foreign occupier starving your people -- send'em overseas. Since Greece is an EU state and was such prior to 1994, Greeks can travel to any other country in the EU and live and work. The problem is that the Turks and North Africans have already gotten there and taken all the menial jobs that the Greeks used to do, and since the Turks and North Africans are illegals and have no rights, employers prefer them because they can't complain about working conditions for fear of deportation. Same problem we have here in the USA with the illegals taking jobs away from our rednecks, hillbillies, blacks, and even from our legal Hispanic population, which is why I laugh at the notion that a work permit system will stop this (the EU nations of course have a strict work permit system as well as national ID cards, none of which has stopped a large subculture of illegal labor from existing and even thriving).

    So anyhow, if Greece went on the drachma and was then starved out by Germany and France, certainly a large number of Greeks would flee as refugees to Germany and France. But TV ads won't work in this case, because Greece will have no electricity because Greece will have no oil and gas to power its power plants. I suggest printed broadsides, and stash a lot of them before the power goes out. And show *that* to the Krauts and Frogs and see if that makes a difference. Hmm...

  8. Evil man that I am, I found myself speculating that while German and French and other employers might prefer illegal Turks and North Africans to legal Greeks as employees, run of the mill Germans and French and other people might actually prefer Greeks as neighbors. Which could have consequences.

    For that matter, we've got 15 million unemployed and underemployed Americans, many with some European ancestry, with poor future prospects. Conservatives and libertarians generally despise these "zero productivity" workers and resent paying their unemployment "benefits." Perhaps the Europeans would care to take in a few million? Certainly the Chinese would be interested in absorbing the younger females.

    Oh, there's so much good to look forward to in the future!


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