Is Greece a preview of Our Future?

[Raz]

May 10, 2010
Are the Greek Riots a Picture of Our Future?

By Bill Frezza


Dateline Istanbul - We caught the last flight out of Athens, moments before Greece descended into madness. The news images of fire bombs being thrown on the same streets we walked the day before confirmed our decision to get out while we still could. But will the spiraling chaos convince Americans to give up the cherished delusion that we can go on consuming more than we produce before we experience a Greek tragedy of our own?

The spectacle of government workers, cranky retirees, militant unionists, and mad dog socialists locked arm in arm protesting reality is a sight we'd better get used to. The Germans may think they can staunch the panic with a mere hundred billion because Greece's feeble economy is so small. But the same fatal flaw that gives democratic majorities everywhere the power to vote themselves a comfy retirement now infects a greater part of the developed world. It's only a matter of time before a demographic tsunami swallows us all.

The contrast between the streets of Athens and Istanbul provides striking evidence of the corrosive effect of policies that stifle incentives to work, save, and take care of your own. Athens is a squat, graffiti covered dump badly in need of a paint job whose population all seemed to be off somewhere taking a nap. Take away the handful of ancient ruins and there'd be no reason to go there except to change planes. Istanbul is a pulsing metropolis whose ancient buildings, still in service, mingle with modern skyscrapers, towering bridges, and bustling bazaars. It would take weeks to even scratch the surface.


The Greek economy relies heavily on tourism yet there was hardly a hint of a service mentality. Doughy stares and listless shrugs were the order of the day. Everyone in Istanbul seems to be politely eager to sell you something. If they couldn't instantly meet needs you didn't even know you had they were ready to introduce you to a cousin that would make you a good price on something else.

Both cities host fewer panhandlers than Boston. Yet in Istanbul street corners had hawkers selling everything from roast chestnuts to bottles of water. The Greeks are apparently too proud to scrounge for a living in retail. They prefer to do their begging wholesale. Wielding clubs.

What were the leaders of the European Union thinking when they invited Greece in and left Turkey out? The Turks we met reminded me of what Americans used to be - a nation on the hustle. The Greeks? Take a good hard look at the donkey boys, Pinocchio, because that's what we are becoming. You can't imagine how hard this is for a Greek American like myself to say, raised to believe that our ancestors single handedly invented Western civilization.

Wake up America! ...

http://www.realclearmarkets.com/arti...ure_98456.html

[reggie]

Re: Is Greece a preview of Our Future?

May 10, 2010
Are the Greek Riots a Picture of Our Future?

No! And here's why...
http://bit.ly/bSNEP4

[cjppjc]

Re: Is Greece a preview of Our Future?

No! And here's why...
http://bit.ly/bSNEP4

Why do we have huge budget deficits across the globe? It’s not because our officials have all suddenly become Soviet-style apparatchiks. It is largely because the slower global economy has led to lower revenues (less income=less taxes paid, since most tax revenue is based on income, and lower tax brackets) and higher spending on the social safety net.

We had growing budget deficits in good times and huge deficits in bad times. The author is missing the big picture with regards to deficits. He might be right about the ability to issue currency, although maybe Mr. Market takes a shot at the UK soon.

[medved]

Re: Is Greece a preview of Our Future?

No! And here's why...
http://bit.ly/bSNEP4

"Why do we have huge budget deficits across the globe? It’s not because our officials have all suddenly become Soviet-style apparatchiks."

Of course not. They did not become apparatchicks suddenly. It happened gradually, and will keep happening as we speak. Now in addition to controlling so-called "neo-liberal" financial system the gov't apparatchicks will control the real economy. They just added carmakers, and healthcare to already controlled education and massive spending programs. Mr. Auerback clearly slept through the last 70 years of history.

[Raz]

Re: Is Greece a preview of Our Future?

I read the article. I'm also familiar with the work of Abba Lerner, Nuclear Keynesian. His theories of "Functional Finance" are designed for statists who don't like the choices made by individuals in the marketplace and are of course loved by the Fed, its Bankster owners, the FIRE interests, and all the interventionist idiots like "Bubbles Ben" Bernanke. They are rubbish and will engender the destruction of any financial system that takes the full dosage.

The author doesn't seem to understand that a society cannot continue to consume more than it produces no matter how it manages its currency, interest rates or fiscal policy. Since their goals are political and dependant upon the concept of government borrowing of the nation's savings in order to promote consumption among its citizens you don't need a Masters in Mathematics to see fatal flaws in their economic "concepts".

[LargoWinch]

Re: Is Greece a preview of Our Future?

"Why do we have huge budget deficits across the globe? It’s not because our officials have all suddenly become Soviet-style apparatchiks."

Of course not. They did not become apparatchicks suddenly. It happened gradually, and will keep happening as we speak. Now in addition to controlling so-called "neo-liberal" financial system the gov't apparatchicks will control the real economy. They just added carmakers, and healthcare to already controlled education and massive spending programs. Mr. Auerback clearly slept through the last 70 years of history.

I have been wondering for a while: is there any "apparatchicks-free" countries left? Cayman Islands?

If so, won't they start attracting the best human capital, which understand the situation?

I mean if Jim Rogers does it...

[jneal3]

Re: Is Greece a preview of Our Future?

No! And here's why...
http://bit.ly/bSNEP4

Here's the part from the cited article I don't get:

And deficits per se will not create the conditions for default in the US. If the US continues to run net export deficits (all the more likely given the ongoing fall in the value of the euro), and the private domestic sector is to net save, the US government has to net spend–that is, run deficits. That is a basic accounting identity, nothing more, nothing less. If the US government tries under these circumstances to run surpluses, it will first of all force the private domestic sector into deficits (and increasing debt) and ultimately fail because the latter will eventually seek to increase their saving ratio again.

This seems false, because it implies that the public and private sectors are simply equal components of an economic system, when in fact one (the private) earns income through creation of value-added products, and the other (public) obtains its income by parasitically siphoning off the income of the private. There is GDP created in this process, but inefficiently; the public sector should really be acting as a paid agent for the private to produce the GDP (roads, schools, military), but it insteads takes on other activities (like de-basing the currency) that doubly reduce the income and wealth generation of the private sector.

I'm absolutely not convinced that this is a 'basic accounting identity'.

[Dave Stratman]

Re: Is Greece a preview of Our Future?

Frezza writes: "The contrast between the streets of Athens and Istanbul provides striking evidence of the corrosive effect of policies that stifle incentives to work, save, and take care of your own."

This strikes me as uniformed, elitist crap--not about Istanbul, a city I love, but about Athens and Greece. EJ's interview (Part I) with Michael Hudson and other info make clear that it is the Greek working class that pays the only income taxes that are paid in Greece and that, in effect, foots the bill for whatever sustains Greek society, while the wealthy and professional classes are freeloading. This reminds me of the usual conundrum in capitalist incentivizing wherein workers are supposed to be incentivized by poverty and capitalists by overflowing riches. See how incentivized our own bankers have become! See how happy and productive our workers!

We can expect to be treated to more and more propaganda about "lazy and unruly Greek (or Spanish or Italian or Irish) workers," as European elites tighten the austerity screws and workers fight to defend themselves. I hope we have the good sense to resist it.

[shiny!]

Re: Is Greece a preview of Our Future?

No! And here's why...
http://bit.ly/bSNEP4

From the linked article:

"Note that this doesn’t mean that there are no real resource constraints on government spending. Let’s be clear: anyone who advances the use of fiscal policy as an effective counter-stabilization tool is always careful to point out that these interventions can come at a cost. That cost could well be inflation if, as a result of the fiscal expansion, we reach full employment, resource constraints begin to appear, but the government continues to spend. But if the economy recovers, tax revenues will increase and safety net spending will fall. In the US, that means we will likely be back to “normal,” with deficits around 2-4% depending on the state of the economy, which is where we’ve been for the past 30 years aside from 1998-2001.

Why won’t these deficits be inflationary? As Professor Scott Fullwiler noted in a recent email correspondence with me, once the recovery is underway and the economy gets to a significantly higher capacity utilization where price pressures could emerge, the deficit will be declining substantially. It will also be at least a partially offset by a fall in discretionary spending on social welfare. It’s axiomatic that the faster the economy grows, the smaller the deficit becomes, unless the government continues to spend recklessly–which we certainly do not advocate.

And by the time we get to a point where we might have inflation, the deficit is back to 2-3%, which again is where we’ve been for the past 30 years, while average inflation has been about 2%."

==================

Those are some pretty big "if's" that the author is assuming as "givens". Personally I don't see how we can have a jobless recovery, and I see no indications of an end to reckless government spending. When it comes to spending, the federal government is like a meth addict on her last legs trying to sell her children for a fix.

[Raz]

Re: Is Greece a preview of Our Future?

Frezza writes: "The contrast between the streets of Athens and Istanbul provides striking evidence of the corrosive effect of policies that stifle incentives to work, save, and take care of your own."

This strikes me as uniformed, elitist crap--not about Istanbul, a city I love, but about Athens and Greece. EJ's interview (Part I) with Michael Hudson and other info make clear that it is the Greek working class that pays the only income taxes that are paid in Greece and that, in effect, foots the bill for whatever sustains Greek society, while the wealthy and professional classes are freeloading. This reminds me of the usual conundrum in capitalist incentivizing wherein workers are supposed to be incentivized by poverty and capitalists by overflowing riches. See how incentivized our own bankers have become! See how happy and productive our workers!

We can expect to be treated to more and more propaganda about "lazy and unruly Greek (or Spanish or Italian or Irish) workers," as European elites tighten the austerity screws and workers fight to defend themselves. I hope we have the good sense to resist it.

I didn't like that part either, Dave. While the Greeks have brought most of this on themselves by electing and re-electing Socialist governments, it's not at all fair to overlook (excuse) the EU leaders who made loans and grants to the Greek government in order to "help" them get their fiscal house in order so that they would be accepted into the monetary union.
Much of that money found its way into the pockets of Greek politicians and bankers.

http://www.thedailybell.com/1041/Gre...ay-Spread.html

[Dave Stratman]

Re: Is Greece a preview of Our Future?

Raz--I'm glad you didn;t like that part either, but I hardly think Greeks can be blamed for electing Socialist leaders. The Greek must have thought that their best hopes lay with the Socialists. It turns out, unfortunately, that Socialist politicians are as hooked up with big money and Euro elites as their opponents. In any event, ordinary Greeks got screwed. That article you cite from The Daily Bell is very informative:

Thus it was that the money cynically provided by EU's socialist leaders went into the pockets of the Greek elite that was in charge of the EU transition. And now this same elite, doubtless, is negotiating the Greek posture as regards the financial streamlining that must take place. If we can figure out what actually occurred, we don't think that it is hard for the average Greek to do so. When one reads about what is being negotiated, and puts it into the context of what went before, we think the average Greek may start to become fairly upset, if he or she is not already so. ...
It is actually kind of mind-boggling what Greek citizens are apparently being asked to do. It is not just that public pensions are being renegotiated, but that the age at which one can retire is going up by FIFTEEN YEARS. Is this really acceptable? People in Europe (and Greece) have accepted all sorts of regulatory nonsense (and even the erection of a quasi-authoritarian state) in return for financial security. But now they are to be left with the dregs of the deal and the sweetener is turning sour indeed.

The people have been screwed, they know it, they are mad as hell, and they are on strike and in the streets. Frazzi fears that America will become like Greece--people fighting back against the banksters and the corporatocracy. I on the other hand think it is just what we need.

[Raz]

Re: Is Greece a preview of Our Future?

... Frazzi fears that America will become like Greece--people fighting back against the banksters and the corporatocracy. I on the other hand think it is just what we need.

I don't think that's what Frazzi was saying, but I could be wrong since he is part of the financial industry and might well be deluded enough to think he's also doing "god's work".

The message I took from him was that when a nation votes into office politicians who espouse a "Nanny State" they can expect huge amounts of deficit spending, increasing regulation in every part of their lives and a stagnant or declining standard of living. None of this is good for a nation's work ethic or the retention of equity in such a society.

I agree with you that we need a rebellion against the FIRE interests that presently own the government of the United States.
But we're not going to see it by electing RepubliCrats, with the possible exception of Ron Paul or a younger version of him.

[Rajiv]

Re: Is Greece a preview of Our Future?

A newer version of Marshall Auerbach -- Repeat After Me: The USA Does NOT Have a ‘Greece Problem’

To paraphrase Shakespeare, things are indeed rotten in the State of Denmark (and Germany, France, Italy, Greece, Spain, Portugal, and almost everywhere else in the euro zone). An entire continent appears determined to commit collective hara kiri whilst the rest of the world is encouraged to draw precisely the wrong kinds of lessons from Europe's self-imposed economic meltdown. So-called serious policy makers continue to legitimize the continent's fully-fledged embrace of austerity on the allegedly respectable grounds of "fiscal sustainability."
The latest to pronounce on this matter is the Governor of the Bank of England, Mervyn King. This is a particularly sad, as the BOE - the Old Lady of Threadneedle Street – has actually played a uniquely constructive role amongst central banks in the area of financial services reform proposals. King, and his associate, Andrew Haldane, Executive Director for Financial Stability at the Bank of England, have been outspoken critics of "too big to fail" banks, and the asymmetric nature of banker compensation ("heads I win, tails the taxpayer loses"). This stands in marked contrast to America's feckless triumvirate of Tim Geithner, Lawrence Summers, and Ben Bernanke, none of whom appears to have encountered a banker's bonus that they didn't like.

But when it comes to matters of "fiscal sustainability" King sounds no better than a court jester (or, at the very least, a member of President Obama's National Commission on Fiscal Responsibility and Reform). In an interview with The Telegraph, the Bank of England Governor suggests that the US and UK – both sovereign issuers of their own currency – must deal with the challenges posed by their own fiscal deficits, lest a Greece scenario be far behind:
"It is absolutely vital, absolutely vital, for governments to get on top of this problem. We cannot afford to allow concerns about sovereign debt to spread into a wider crisis dealing with sovereign debt. Dealing with a banking crisis was bad enough. This would be worse." "A wider crisis dealing with sovereign debt"? Anybody's internal BS detector ought to be flashing red when a policy maker makes sweeping statements like this. The Bank of England Governor substantially undermines his own credibility by failing to make 3 key distinctions:

1. There is a fundamental difference between debt held by the government and debt held in the non-government sector. All debt is not created equal. Private debt has to be serviced using the currency that the state issues.
2. Likewise, deficit critics, such as King, obfuscate reality when they fail to highlight the differences between the monetary arrangements of sovereign and non-sovereign nations, the latter facing a constraint comparable to private debt.
3. Related to point 2, there is a fundamental difference between public debt held in the currency of the sovereign government holding the debt and public debt held in a foreign currency. A government can never go insolvent in its own currency. If it is insolvent as a consequence of holdings of foreign debt then it should default and renegotiate the debt in its own currency. In those cases, the debtor has the power not the creditor.

Functionally, the euro dilemma is somewhat akin to the Latin American dilemma, such as countries like Argentina regularly experienced. The nations of the European Monetary Union have given up their monetary sovereignty by giving up their national currencies, and adopting a supranational one. By divorcing fiscal and monetary authorities, they have relinquished their public sector's capacity to provide high levels of employment and output. Non-sovereign countries are limited in their ability to spend by taxation and bond revenues and this applies perfectly well to Greece, Portugal and even countries like Germany and France. Deficit spending in effect requires borrowing in a "foreign currency", according to the dictates of private markets and the nation states are externally constrained.
King implicitly recognizes this fact, as he acknowledges the central design flaw at the heart of the European Monetary Union - "within the Euro Area it's become very clear that there is a need for a fiscal union to make the Monetary Union work."
This is undoubtedly correct: To eliminate this structural problem, the countries of the EMU must either leave the euro zone, or establish a supranational fiscal entity which can fulfill the role of a sovereign government to deficit spend and fill a declining private sector output gap. Otherwise, the euro zone nations remain trapped - forced to forgo spending to repay debt and service their interest payments via a market based system of finance.
But King then inexplicably extrapolates the problems of the euro zone which stem from this uniquely Euro design flaw and exploits it to support a neo-liberal philosophy fundamentally antithetical to fiscal freedom and full employment. The Bank of England Governor – and others of his ilk – are misguided and disingenuous when they seek to draw broader conclusions from this uniquely euro zone related crisis. Think about Japan – they have had years of deflationary environments with rising public debt obligations and relatively large deficits to GDP. Have they defaulted? Have they even once struggled to pay the interest and settlement on maturity? Of course not, even when they experienced debt downgrades from the major ratings agencies throughout the 1990s.
Retaining the current bifurcated monetary/fiscal structure of the euro zone does leave the individual countries within the EMU in the death throes of debt deflation, barring a relaxation of the self-imposed fiscal constraints, or a substantial fall in the value of the euro (which will facilitate growth via the export sector, at the cost of significantly damaging America's own export sector). This week's €750bn rescue package will buy time, but will not address the insolvency at the core of the problem, and may well exacerbate it, given that the funding is predicated on the maintenance of a harsh austerity regime. José Luis Rodríguez Zapatero, Spain's Socialist prime minister, angered his trade union allies but was cheered by financial markets on Wednesday when he announced a surprise 5 per cent cut in civil service pay to accelerate cuts to the budget deficit. The austerity drive – echoing moves by Ireland and Greece – followed intense pressure from Spain's European neighbors, the International Monetary Fund on the spurious grounds that such cuts would establish "credibility" with the markets. Well, that wasn't exactly a winning formula for success when tried before in East Asia during the 1997/98 financial crisis, and it is unlikely to be so again this time. Indeed, in the current context, the European authorities are simply trying to localize the income deflation in the "PIIGS" through strong orchestrated IMF-style fiscal austerity, while seeking to prevent a strong downward spiral of the euro. But the contradiction in this policy is that a deflation in the "PIIGS" will simply spread to the other members of the euro zone with an effect essentially analogous to that of a competitive devaluation internationally. The European Union is the largest economic bloc in the world right now. This is why it is so critical that Europeans get out of the EMU straightjacket and allow government deficit spending to do its job. Anything else will entail a deflationary trap, no matter how the euro zone's policy makers initially try to localize the deflation. And the deflation is almost certain to spread outward, if sovereign states such as the US or UK absorb the wrong lessons from Greece, as Mr., King and his fellow deficit-phobes in the US are aggressively advocating. There are two direct contagion vectors off the fiscal retrenchment being imposed on the periphery countries of the euro zone. First, to the banking systems of the periphery and the core nations, as private loan defaults spread on domestic private income deflation induced by the fiscal retrenchment. Second, to the core nations that export to the PIIGS and run export led growth strategies. So 30-40% of Germany's exports go to Greece, Italy, Ireland, Portugal and Spain directly, another 30% to the rest of Europe. These are far from trivial feedback loops, and of course, the third contagion vector is to rest of world growth as domestic private income deflation combined with a maxi euro devaluation means exporters to the euro zone, and competitors with euro zone firms in global tradable product markets, are going to see top line revenue growth dry up before year end. Let's repeat this for the 100^th time: the US government, the Japanese Government, or the UK government, amongst others, do NOT face a Greek style constraint – they can just credit bank accounts for interest and repayment in the same fashion as if they were buying some helmets for the military or some pencils for a government school. True, individual American states do face a fiscal crisis (much like the EMU nations) as users of the dollar, which is why some 48 out of 50 now face fiscal crises (a problem that could easily be alleviated were the US Federal Government to undertake a comprehensive system of revenue sharing on a per capita basis with the various individual states). But, if any "lesson" is to be learned from Greece, Ireland, or any other euro zone nation, it is not the one that Mr. King is seeking to impart. Rather, it is the futility of imposing arbitrary limits on fiscal policy devoid of economic context. Unfortunately, few are recognizing the latter point. The prevailing "lesson" being drawn from the Greek experience, therefore, will almost certainly lead the US, and the UK, to the same miserable economic outcome along with higher deficits in the process. As they say in Europe, "Finanzkapital uber alles".

[Starving Steve]

Re: Is Greece a preview of Our Future?

I didn't like that part either, Dave. While the Greeks have brought most of this on themselves by electing and re-electing Socialist governments, it's not at all fair to overlook (excuse) the EU leaders who made loans and grants to the Greek government in order to "help" them get their fiscal house in order so that they would be accepted into the monetary union.
Much of that money found its way into the pockets of Greek politicians and bankers.

http://www.thedailybell.com/1041/Gre...ay-Spread.html

You imply that socialist governments in Europe are the reason for deficits and economic chaos now in Europe, especially unrest now occurring in Greece. So, you imply that America with its forty years of Republican Party rule in Washington, D.C. (from 1968-2008) would be prosperous and deflationary, with budget surplusses thanks to supply-side economics..... But nothing could be further from the truth: America is now drowning in red ink, thanks to the failure of supply-side economics and the unwillingness of the Republican Party leaders to break with supply-side economics orthodoxy. The Republicans have refused to raise taxes and, simultaneously, cut spending in order to pay-down deficits....The bottom-line is that the unrest now in Europe may spread to America next.

The message that I am getting from the gold market is that a sovereign-debt crisis is now emerging, and this is likely to spread to America. Confidence in the U.S. Dollar may be in decline, and the world might not be willing to buy American bonds at low interest rates in future.... That would mean that the world's bond market would impose fiscal discipline on America.

[Starving Steve]

Re: Is Greece a preview of Our Future?

Dear supply-side economists:

Where is your beloved "supply-side economic recovery" that would make the current deficits being run in America small and relatively unimportant? How come the U.S. is not "growing its way out of these deficits"?

Starving Steve