Greece Vote

[LibertyTurns]

It seems to me the Eurozone has no motivation to negotiate with Greece except the devastation to the Greek economy and people during the weeks it takes to crank up the drachma again.

There was one of the "few in the world" currency developers on Sunday morning and he said it would be 9 months before Greece could float a new currency.

First there's the technical issues- design, security features, etc plus sourcing of the paper. Then there's reprogramming of the ATM, banks, cash registers, etc.

Last but not least is what is the currency worth compared to anything else. You have to be able to give someone your "new drachma" and have them hand over your goods or provide your services. Would you do that? I wouldn't. They're broke and can't generate enough cash to pay their bills until post-2025. Look at Argentina for a good example and they're sitting on a ton of oil. Greece has nothing.

 

[awbuzz]

Come on now... Greece has Tourism!!!

 

[GTNavyNuke]

It seems to me the Eurozone has no motivation to negotiate with Greece except the devastation to the Greek economy and people during the weeks it takes to crank up the drachma again. The loss of a member nation hurts but probably not as much as saying the membership rules don't matter.

Still, I expect them to blink.

I expect some deal to kick the can down the road another year. Here are some interesting charts. The last one shows that Germany would lose massively if the Eurozone were to break up. http://www.bloomberg.com/news/articles/2015-07-06/greece-s-problems-explained-in-six-charts This chart is partly due to the size of the German economy relative to the others and the advantage that Germany has with a more efficient manufacturing sector in a weak currency union.

Greece is like 2% of the EU GDP so they are just a whipping boy to keep others in line. There is a lot of talk but what matters is what actions are actually taken. I really have feeling other than the solution will be a short term one since that is what is usually done.

Let the second chart on 20-50% unemployment depending on age demographic sink in. Those are the conditions which have lead to an extremist dictator (right or left) in other countries. It's why the current regime is in power and the vote went the way it did. Greece has no good choices.

 

[AE 87]

I expect some deal to kick the can down the road another year. Here are some interesting charts. The last one shows that Germany would lose massively if the Eurozone were to break up. http://www.bloomberg.com/news/articles/2015-07-06/greece-s-problems-explained-in-six-charts This chart is partly due to the size of the German economy relative to the others and the advantage that Germany has with a more efficient manufacturing sector in a weak currency union.

Greece is like 2% of the EU GDP so they are just a whipping boy to keep others in line. There is a lot of talk but what matters is what actions are actually taken. I really have feeling other than the solution will be a short term one since that is what is usually done.

Let the second chart on 20-50% unemployment depending on age demographic sink in. Those are the conditions which have lead to an extremist dictator (right or left) in other countries. It's why the current regime is in power and the vote went the way it did. Greece has no good choices.

I think you really allow your view of Germany to give you a distorted impression of the situation. However, you are not alone in your feeling that the "No" vote was a good idea.

Argentine President Cristina Kirchner, whose country defaulted on a mountain of debt more than a decade ago, called the vote a victory.
...
Evo Morales, Bolivia's leftist president, congratulated Greece on Sunday, calling the referendum a defeat against "European imperialism."

Morales, a harsh critic of free-market economies, said the referendum was "the beginning of the liberation of the European people."
...
Cuban President Raul Castro echoed the other leaders, congratulating Greek Prime Minister Alexis Tsipras Monday in Granma, the official state newspaper.

"I extend sincere congratulation for the 'No' victory in the Greek referendum," he said.​

I guess my line of thinking just runs in different circles than yours.

 

[GTNavyNuke]

I'm sure Putin liked the vote too .....

 

[AE 87]

I'm sure Putin liked the vote too .....

Probably. I was quoting an article but forgot to link it.

http://news.yahoo.com/latin-america-celebrates-greek-austerity-no-vote-095822566.html

 

[GTNavyNuke]

#ThisIsACoup ---- quite interesting.

First the Greeks overplay their hand. Now it's the German's turn. No idea where this will end but kicking the can down the road a few years became a lot less likely.

I usually disagree with Paul Krugman, but not this time ..... http://krugman.blogs.nytimes.com/2015/07/12/killing-the-european-project/?_r=1

 

[AE 87]

LOL the creditors destroyed Greece's economy.

 

[Northeast Stinger]

Nice discussion but I am frankly a little surprised that no one has spent much time talking about the Great Recession and its impact on Greece. Paul Krugman's analysis is that 1 Euro of austerity was yielding only 0.4 euros of reduced debt. The C.I.A. World Factbook painted a much gloomier picture. Greece was showing improved budget deficits until the recession, which started in the U.S. in 2007, hit the Greek economy in 2008. At that point there was virtually no economic growth which meant that austerity measures were only going to increase unemployment and compound the problem.

By contrast the U.S. chose monetary easing and stimulus. This along with having the most robust economy in the world allowed us to reduce unemployment in rather rapid order.

 

[GTNavyNuke]

Nice discussion but I am frankly a little surprised that no one has spent much time talking about the Great Recession and its impact on Greece. Paul Krugman's analysis is that 1 Euro of austerity was yielding only 0.4 euros of reduced debt. The C.I.A. World Factbook painted a much gloomier picture. Greece was showing improved budget deficits until the recession, which started in the U.S. in 2007, hit the Greek economy in 2008. At that point there was virtually no economic growth which meant that austerity measures were only going to increase unemployment and compound the problem.

By contrast the U.S. chose monetary easing and stimulus. This along with having the most robust economy in the world allowed us to reduce unemployment in rather rapid order.

For Greece 8 years ago, they were forced to have austerity while others were not. The Greeks got themselves into that situation by borrowing too much. I agree entirely with this quote "There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt." - John Adams (1735-1826)”

But I think you are right that stimulus for the Greeks would have been far far better in both the short run and long run than the 25% GDP contraction they have seen.

I think monetary easing and stimulus are appropriate when you are in a low point of the economic cycle. My problem with Krugman (and the Fed in the last decade) is that there is always a reason to continue the easing and stimulus. That's why the Fed hasn't raised rates for 10 years and has bought over $3T in various bonds (which they keep rolling over thus effectively having printed money). There was a study done which concluded that world wide rates are the lowest in history (actually 5000 years), whether that is accurate or not, the point is they are very low on any historical basis. We'll see if the Fed raises rates in the fall and stops buying back maturing bonds. My best guess is that some other excuse will come along and they won't. And that many of our bonds will be incrementally defaulted upon via inflation.

 

[AE 87]

Ireland and France also faced austerity iirc.

 

[TechnicalPossum]

Looks like a tentative deal has been reached.

http://www.bbc.com/news/world-europe-33503955

Nice discussion but I am frankly a little surprised that no one has spent much time talking about the Great Recession and its impact on Greece. Paul Krugman's analysis is that 1 Euro of austerity was yielding only 0.4 euros of reduced debt. The C.I.A. World Factbook painted a much gloomier picture. Greece was showing improved budget deficits until the recession, which started in the U.S. in 2007, hit the Greek economy in 2008. At that point there was virtually no economic growth which meant that austerity measures were only going to increase unemployment and compound the problem.

By contrast the U.S. chose monetary easing and stimulus. This along with having the most robust economy in the world allowed us to reduce unemployment in rather rapid order.

You also have to account for the reduced annual deficit when looking at austerity, not just the debt reduction since the Greek budget was not balanced to start with. Krugman is also an advocate for the welfare state by his own admission, so I generally take anything he has to say about reductions in public spending with a grain of salt.

I also think that you may possibly overestimate the true recovery in the US as the QE money has not been pulled back out of the economy and the true unemployment is closer to 10% when workforce participation and underemployment is accounted for. When the QE money comes out of the economy and the interest rates increase, we will see the long term effects of monetary easing.

Ireland and France also faced austerity iirc.

As did Cypress and Portugal.

 

[GTNavyNuke]

....
I also think that you may possibly overestimate the true recovery in the US as the QE money has not been pulled back out of the economy and the true unemployment is closer to 10% when workforce participation and underemployment is accounted for. When the QE money comes out of the economy and the interest rates increase, we will see the long term effects of monetary easing.

As did Cypress and Portugal.

I didn't comment, I don't think, on the durability of the US recovery. I think the "recovery" has been largely in part time and low paying jobs.

You said "When the QE money comes out of the economy .....". That may never happen. I think we are as likely to see QE4 than a rate rise. The problem is going to be that the economy stalls and the Fed is going to have to play the same song; to other wise will be to admit they were wrong on QE2 and QE3. I know of no binding economic constraint (e.g. improving market liquidity) that the QE2 and QE3 solved. I think those QE's were largely to manipulate the stock market, sorry, that was politically incorrect, I should say "those QEs were to maintain asset values and prevent deflation." There is nothing more that the central banks no fear than deflation since countries need to inflate away the value of the debt.

 

[GTNavyNuke]

Looks like a tentative deal has been reached. ......

Yup, they are trying to kick the can down the road. But where are the $55B in asset sales going to come from? http://www.bloomberg.com/news/artic...ests-on-asset-sale-plan-that-s-already-failed

If I were a Greek politician, I would try and sell to the Chinese ..... http://www.davidmcwilliams.ie/2015/...ould-enable-the-greeks-to-have-the-last-laugh . The Chinese love big capital projects in Central America where they provide the labor for the job and then the people stay there. That may be the motivation behind the Nicaraguan Canal.

This article on China talks about how Ireland helped get out of its difficulty. One thing is certain; there are no good or simple choices for the Greeks now.

 

[TechnicalPossum]

I didn't comment, I don't think, on the durability of the US recovery. I think the "recovery" has been largely in part time and low paying jobs.

You said "When the QE money comes out of the economy .....". That may never happen. I think we are as likely to see QE4 than a rate rise. The problem is going to be that the economy stalls and the Fed is going to have to play the same song; to other wise will be to admit they were wrong on QE2 and QE3. I know of no binding economic constraint (e.g. improving market liquidity) that the QE2 and QE3 solved. I think those QE's were largely to manipulate the stock market, sorry, that was politically incorrect, I should say "those QEs were to maintain asset values and prevent deflation." There is nothing more that the central banks no fear than deflation since countries need to inflate away the value of the debt.

I agree 100% with this set of statements.

 

[GTNavyNuke]

I agree 100% with this set of statements.

"When two people agree all the time, one is unnecessary." is what I was told by a boss. But glad we agree on something and don't always agree!

There is nothing simple about what we are going through. Good article on German ascension and tormenting Greece. I find this to be history in the making and very well may be as important as the Fall of the Berlin Wall. It will be very interesting to see whether the message Germany sent to try and keep Portugal, Spain and Italy in line works or backfires over time. http://www.irishtimes.com/opinion/t...message-that-we-are-now-in-a-new-eu-1.2283593

Here in the US we have two major default problems in our sphere; Puerto Rico and Illinois. Interesting article on Illinois where we may very well see a State go "bankrupt". http://www.mauldineconomics.com/frontlinethoughts/public-pensions-live-and-let-die But neither Puerto Rico or Illinois is supposedly allowed to go "bankrupt" by law. So there will be drama as the process is invented like is happening with Greece leaving the EU (IMHO).

 

[TechnicalPossum]

"When two people agree all the time, one is unnecessary." is what I was told by a boss. But glad we agree on something and don't always agree!

There is nothing simple about what we are going through. Good article on German ascension and tormenting Greece. I find this to be history in the making and very well may be as important as the Fall of the Berlin Wall. It will be very interesting to see whether the message Germany sent to try and keep Portugal, Spain and Italy in line works or backfires over time. http://www.irishtimes.com/opinion/t...message-that-we-are-now-in-a-new-eu-1.2283593

Here in the US we have two major default problems in our sphere; Puerto Rico and Illinois. Interesting article on Illinois where we may very well see a State go "bankrupt". http://www.mauldineconomics.com/frontlinethoughts/public-pensions-live-and-let-die But neither Puerto Rico or Illinois is supposedly allowed to go "bankrupt" by law. So there will be drama as the process is invented like is happening with Greece leaving the EU (IMHO).

I wonder though as a flip side, if Germany had refused to loan the money to Greece on grounds that they would not be able to repay, would they also be viewed as the economic aggressor?

The Puerto Rico and Illinois items I see a little differently than Greece since their debt is more based on future obligations, rather than already borrowed and spent money. If I had to guess what happens there, the feds will bail them out at some point. I think a lot of states are waiting to see how Illinois handles the underfunded pension issues before making their own choices. Regardless, someone will be left holding the bag, be it the taxpayers or the retirees.

 

[Northeast Stinger]

We'll see if the Fed raises rates in the fall and stops buying back maturing bonds. My best guess is that some other excuse will come along and they won't. And that many of our bonds will be incrementally defaulted upon via inflation.

We shall see. Fed chair made her first "definitive statement" to that effect. Prior statements, I am guessing, were temperature taking and vague to see how the markets would react. Not that the Fed serves the markets but they were perhaps looking for signs. Noticed after this latest statement the markets did quite well.

John Adams quote is O.K., but the last few decades I have been more impressed with a quote that cuts quicker to the bone. Don't know who first said it but I first heard it in my high school economics class. "Destroy the middle class and you have destroyed the nation."

 

[Northeast Stinger]

When the QE money comes out of the economy and the interest rates increase, we will see the long term effects of monetary easing.

I seriously doubt we will be seeing the long term effects of monetary easing. I suspect instead we will see a watered down version of the "pain that was already in the pipeline." The market lost, by conservative estimates, about $4 trillion dollars in a assets and liquidity through Wall Street shenanigans, as well as the government incurring about $3 trillion dollars in unsecured debt from "trying to find weapons of mass destruction" in Iraq. Both of those bills have not been fully paid yet.

 

[Northeast Stinger]

"When two people agree all the time, one is unnecessary."

And old quote from marriage counselors too!