“Progressives” the world over are pretty much all the same. Kevin Williamson on the Greek crisis:
When Greece’s sham economy went ass over teakettle, it agreed to a bailout package, finalized in 2010. That deal is now widely blamed by the Left for exacerbating Greece’s economic crisis with excessive “austerity.” The problem with that line of argument is that there was no Greek austerity: Greece lied about its debts before the crisis, and it lied about its reforms after the bailout. It didn’t take the meat axe to its public sector: Greece went out and hired 70,000 new government employees instead. It stopped selling government assets, which it had agreed to do, and government’s share of GDP actually increased rather than declining.
Lying about finances to lull the gullible? Sounds like the DFL to me.
Greece’s problem – and you’re seeing it here, too – is that “progressive” economists (and the governments who love them) have the wrong measure of economic health:
As one Greek supporter of Tsipras’s wheedling told the New York Times: “We’re all pensioners here.” Indeed, and that’s the problem. A society’s wealth may be measured by its consumption, but its wealth consists of its production. One cannot consume what has not been produced, and consumption can exceed production only as long as your credit lasts, and credit — n.b., congressional clown conclave — is never eternal. Greece has too few people working in productive business enterprises and too many receiving government checks, either as employees or as welfare recipients — a distinction that is increasingly difficult to make in Greece and elsewhere.
Keep that in mind, as America’s employment participation rate drops below its lowest levels in a generation or two, even as our population – especially the population with a Greek-like love of getting something for nothing – grows.
Unwinding debt is difficult.
There are runs on banks and ATMs. No one spends cash. Even if people want to, they can’t. Businesses without reserves go under, lay off employees, stop buying goods and services, and making debt payments. This deepens the crisis and causes businesses with moderate reserves to tighten their belts. They lay off employees and reduce consumption of goods and services.
The people with portable wealth will do okay. I imagine a lot of wealthy Greeks have been trying to convert capital investments to portable wealth lately.
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I know what you’re peddling is wrong because every person in our society is productive. I learned it on TV.
We’re overdue for a global crisis.
“There are runs on banks and ATMs. No one spends cash.”
A bank account is just an IOU from a bank. In this case, the bank is out of cash and has been for months. All of the withdrawals have been satisfied by short-term loans from the Bank of Greece as authorized by the ECB under ELA.
“All of the withdrawals have been satisfied by short-term loans from the Bank of Greece as authorized by the ECB under ELA.”
Such confidence!
“Limiting ATM withdrawals is just a temporary measure until the crisis is past! If the ATM is empty today, just get in line earlier tomorrow, and you may receive your 66 euro daily withdrawal. You don’t have to take the full amount! You can withdraw less if you like!”
Did you go long on Greek bonds, Emery?
One of the terrible things about a banking crisis is that the bad economic effects snowball. The non-productive time a person spends standing in line, rushing here and there to find a bank or ATM with money, or trying to sell some personal belonging for needed cash is a drag on the economy. Even leisure time has a calcuable value. Economists even have a word for this, it’s called “shoe leather cost.”
The thing about fiat money and fractional reserve banking is that banks actually create money when they lend it out. When the bank makes you a home loan and it doesn’t have the actual, fully physical amount to make that loan (and they rarely do), then money has been created in the form of that new credit you received. In this way, private banks actually create more money than the Fed does, all by taking advantage of the fractional reserve nature of modern banking.
The best way to think of the money that you deposit in the bank is as a liability, not an asset. The bank is just as liable for that money that you might want to withdraw as you are liable for the loan you took from the bank.
This is all pretty funny when you consider that some banks in Europe are actually charging money to hold deposits. It’s a pitiful situation when you actually keep more of your money by putting it in the mattress than by putting it in a bank.
PM:
How many Euro notes do you think are actually in those ATMs at this point?
The entire Greek banking system would have collapsed this week, if it were open. When the banks do reopen, they won’t be using Euros unless the ECB allows it.
On Monday, who knows what will be in Greek ATMs. As of today withdrawals are limited to 60 euro/day. The banking crisis is hitting the Greeks especially hard because tourism is a big part of their economy.
“Greek deposits are guaranteed up to €100,000, in line with EU banking directives, but the country’s deposit insurance fund amounts to only €3bn, which would not be enough to cover demand in case of a bank collapse.
With few deposits over €100,000 left in the banks after six months of capital flight, “it makes sense for the banks to consider imposing a haircut on small depositors as part of a recapitalisation. . . It could even be flagged as a one-off tax,” said one analyst.”
http://www.ft.com/cms/s/0/9963b74c-219c-11e5-aa5a-398b2169cf79.html#axzz3esYm9ZhR
I’m not predicting a Greek collapse, Emery, but someone is going to take a haircut. It looks like it won’t be “the rich.”
The ECB can increase or decrease ELA with a phone call.
I think the likely sequence of events is a “yes” vote (or canceled referendum), followed directly by a new government whose stated objective is to bend over / strap on / whatever the Germans — pardon, “Europeans” — ask. Somewhere in there the ECB cranks up ELA enough to let the banks reopen, as a reward for making the right decision. The rest is just details. Bridge loans, reactivate the old program, whatever.
One of the most delicious outcomes of the Greek financial crisis is that hedge funds run by crony capitalists Marc Mezvinsky (Chelsea Cinton’s husband) and John Corzine have lost big time on Greek bond derivatives. Supposedly they went too long and couldn’t make their margin calls.
Tsipras & co. are betting that (a) the vote comes back “no” and (b) that Europe caves as a result. The alternative is writing off hundreds of billions of their precious multi-colored funny money and setting a precedent for Eurozone secession. It’s a huge gamble, and an interesting one. I actually do not know which way the vote is likely to go (although I’m guessing “yes”). A yes vote, or canceling the referendum, means the end of the Syriza government and a resumption of business-as-usual can-kicking. A “no” vote puts us into an interesting place.
As far as I can tell, Tsipras & Syriza want the people to vote “NO!” on allowing Mussolini to base Italian troops in Greece.
The one thing that Krugman & I see eye2eye on is that European currency union without political union is not going to work.
The European powers–that–be and their journalist microphones are sending a clear message.
So, voting “yes” we have: (a) Everybody who voted against Syriza and wants to spank them (already a majority); plus (b) everybody who voted for Syriza but believes European propaganda that the referendum is Euro vs. Drachma. The people on the streets are the Greek equivalent of Occupy Wall Street.
I wonder if the referendum will even happen.
Oh, the referendum will happen. I’m willing to bet that Syriza won’t like the results.
The problem is that pensioners will make the decision that a small cut in their payments is far better than what would happen if Greece left the Eurozone: a massive crash, followed by massive inflation to destroy all government debt, and then a recovery, but with pensions now denominated in worthless, inflation ravaged drachma. Instead, we’ll be stuck with Greece perpetually trying to get away with as much socialism as the EU will tolerate, constantly on the edge of leaving the Eurozone, and pathetic growth. It’s not like the Greeks have ever been good stewards of money or their economy.
As far as the banks, Cyprus replayed is my bet. If you’re a depositor, they’re going to “reward” you and turn your deposit into an “investment” and “ownership” with shares in the bank instead of your actual euros. But anybody smart has already moved their money out of Greece anyway. What’s left is stealing from the common working folks’ checking accounts.
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I have to say the planted FT story about Greek depositor haircuts is pretty funny.
I wonder how large the “yes” margin will be.
http://www.ft.com/intl/cms/s/0/9963b74c-219c-11e5-aa5a-398b2169cf79.html#axzz3exQIoMkj
Emery, compare that with the <a href="http://www.reuters.com/article/2015/07/03/us-eurozone-greece-imf-idUSKCN0PD20120150703"? leak/release from the IMF that showed (a) that Greece will never recover without massive debt relief (b) that everyone knew that back in 2010 (c) that a massive transfer of bad private loans from French and German banks to the Greek public sector was a money laundering of a massive bailout by the EU that further impoverished the Greeks. If there’s anything that should get the Greeks’ goat and a massive “no” vote, it’s that. But again, I’m willing to bet that pensioners will sink the referendum since a Grexit will cause them much direct pain in the short run, and they’ll prefer to beggar their children to preserve their pensions.
Ok, so I can’t type. The report from Reuters about the IMF report is here.
Now, I want to point out that a Grexit isn’t the end of the world. If you compare how countries outside the Euro fared and compare that to Greece you’ll find life outside the Euro is better for the little guys. Even Iceland, devastated by the 2008 crash and marginalized by international banking after refusing to take private debt public and bugger their populace, has managed to grow since 2000. Greece hasn’t.
The Euro is a nice idea, but the differences in economic systems and strengths between the Germany and countries like Portugal are such that Germany is getting a weaker currency and the ability to export their way to prosperity at the expense of the weaker southern periphery. Without a political unity to spread the wealth, it’s the Germans who will profit at the expense of the weaker south. The Germans and French really screwed the Greeks in their “bailout”, all to bail out their banks on the Greeks’ backs and to preserve the illusion that the Euro leaders were good stewards of their constituents’ cash.
The Greeks should never have been allowed into the Euro. The Greeks should never have been allowed to have the Euro credit card. But the Euro leaders have been unreasonably harsh and have been leading the Greeks on in their “bailout” that even they knew could never succeed and would leave the Greek people in misery for as long as anyone can see.
If there is another bailout after a default, EU will loose all credibility. EU is already suffering from EU devaluation, and now you would add Spain, Italy, Portugal and g*d knows who else to the “default without consequences” watch. Creditors will start calling in their IUO’s. With China’s debt crisis, all bets are off. I wonder if Mitch has access to a time machine. Trulbert EoW scenario is not that far-fetched.
Nerbert, your comment(s) are correct. Inadequate fiscal policies led to the need for a bailout. The poorly designed bailout program has stifled the Greek economy. The current proposals indicate the creditors want more of the same, expecting a different result; voting ‘Yes’ seems like the definition of insanity. But a ‘No vote will mean complete havoc.
Complete havoc? Maybe, but I wouldn’t bet on it. The EU (and particularly the Germans and Spanish) will never let the CDSs trigger — they didn’t during Cyprus, and they wouldn’t during a Grexit simply because it would trigger a massive number of investment bank failures and deeper depression than the Obama Depression we just went through. They’ll find a loophole or create one, but they won’t allow the CDSs to trigger. Which kind of leads you to ask what good a CDS is if it can’t trigger in this case, except as a means to enrich bankers…
‘Yes’ is insane for the Greeks. But a ‘No’ (leading as I type this) is dangerous for the ECB because the political fallout from all those bad loans will be dangerous for Merkel and company, and will expose their perfidy. I hate the pain that a ‘No’ will lead to, but short term pain with the promise of a brighter future is better than long term pain with no hope down the line.
Looks like a big “No” with 20% of the vote in. Returns show a consistent lead for “No” across districts. Yikes.
Long term, the EU was supposed to increase economic growth and prevent war in Europe. Is there even a plan B?
First Official Projection Says at Least 61% of Greeks Voted ‘No’ in Referendum
http://www.wsj.com/articles/polls-close-in-greek-referendum-1436113280
The margin makes all the media talk of 50:50 look suspicious.
If only the US had allowed its population to vote on TARP!
Plan B may be for the Eurocracy to maintain the fiction that it is going to allow the Greeks to exit the monetary union “temporarily”, and thus retain the principle that once in, you can never leave.
If the Greeks do leave the Euro, it might not be a bad time for a vacation there. I wonder how much those 80% of working wages Greek pension checks will be worth when they are drafted in drachmas?
The Eurocrats will do what they always do when a vote goes the wrong way: Turn the screws, then ask again. “No” just means the Greeks haven’t suffered enough yet.
Still, today I am happy to have been wrong. That there is yet some fight left is a pleasant surprise.
Nationalism is a powerful force. Mussolini is supposed to created fascism because he found that among the masses, class loyalty was weaker than national loyalty.
Read Ambrose Evans-Pritchard in the Telegraph. He isn’t crowing but he does have an incisive analysis of the very difficult position Germany and France are in, and the looming split between them.
http://www.telegraph.co.uk/finance/economics/11719688/Defiant-Greeks-reject-EU-demands-as-Syriza-readies-IOU-currency.html
French president Hollande seems to be assuring people that Germany will pay whatever it takes to keep Greece in the Euro.
This could get fun.
SRW has been at the top of his game lately.
http://www.interfluidity.com/
Now the Greeks are trying to calm the markets with talk of issuing “California-style” IOU’s. Did you know the Greeks invented irony? Aristophanes, 5th century BC.
When it comes to the IMF — and public sector actors in general — there is a huge difference between “not paying” and “default”.
A successful negotiation:
“Pay us the money you borrowed.”
“No!”
“Well, pay us half the money you borrowed.”
“No!”
“Howabout an IOU?”
“What’s and IOU?”
“A non-binding promise to pay us.”
“No!”
“Howabout an IOU for half the money you owe us?”
“What terms?”
“0% percent interest.”
“When do I have to pay the principle?”
“Never.”
“Okay, I’ll sign an IOU on those terms, but only for a quarter of what I owe you!”
“Deal!”
Austerity won’t fix Greece. It’s a huge component for future success, but by itself it’s not sufficient. But Germany’s internal politics won’t allow Merkel to take a haircut on the debt. Watch for Germany to stand firm and try to kick Greece out as penance for letting it into the Eurozone in the first place.
Grab the popcorn. The entertainment is beginning as the Eurocrats begin to worry that their enterprise starts to unravel. But it’s not a huge deal economically: it’d be like the US losing Atlanta. And most of the Euro banks are bailed out enough now to stay afloat.
The real worry is the ongoing crash in China. That stock market looks like it won’t stop crashing, and the PBoC has been directly intervening in the market to try and save highly leveraged market speculators. China is repeating the worst of our 1920s stock market mania with small investors heavily leveraging themselves in a “sure thing” that’s taking many of them down as shares crash 30% in the last 3 weeks. It’s a real mess out there and nobody’s paying much attention since it’s China and not Europe.
Well so much for peace in Europe. Who nukes who firsr?
Greece has to go back to the drachma (sp?) Which is going to be worth the same amount as a German dutchemark circa 1922. Who is going to become the next Hitler I wonder. Damn history repeating itself
The new Drachma can be a promise to pay you a Euro in 2115.
Maybe it will be worth more if they call it the iDrachma or @Drachma or something.
POD: if the drachma is going to be the new Reichsmark ( the Deutschmark came around after WWII), and dictatorship results, we would have to infer that the NSGAP (National Socialist Greek workers’ party) will blame the Germans for their DolchstoB. Which would be very ironic.
Seriously, the Greeks have something in their favor that also helped the Hungarians in their hyperinflation after WWII. They simply don’t have the industrial and cultural “oomph” the Germans had to give grievous lethal force to bigotry and grievances.