Saturday, July 18, 2015

Points to ponder on Greece‏

Currency value is related to the balance-of-trade.
Balance-of-trade is a country's economic output versus it's imports.
High exports and low imports indicate a healthy economy, strengthening currency value.
High exports may lead to occasional borrowing, as countries with surplus cash make this cash available.
Sometimes good to borrow, if it leads to investment in capital expenditures.

Example:  The US has ran a balance-of-trade (current account) deficit for most of it's history, with the exception only of 1991 (where it was merely balanced)  SOURCE: .

Countries were willing to lend to it at low interest rates because it was seen as having the potential to turn that cash into exportable product.

Greece joins the Eurozone, falsely propping-up it's currency by associating it with stronger exporting countries like Germany, but giving them a better interest-rate.  This allowed them to borrow more, increasing the import of cash, but not necessarily ensuring that  this money was put towards production of hard (and preferably exportable) goods. 

The single largest consumer in any economy is the Government, spending on the military, healthcare, infrastructure, plants and factories, and etc.  In Reagan's words, it was supposed to "trickle-down." (Reagan favored deregulation of banks, so than Bankers could get really rich and that would make laborer's rich as they picked-up the falling crumbs, but that's another story.)

The Greek government wasn't spending that way, and lots of their spending went unreported...  They were giving it to other, unreported businesses, for example.

But the current media blames a higher labor cost - which means unions are lobbying for better wages for their citizens.  Or, it's a problem with tax-evasion, but as already discussed a lot of that had to be due to unreported businesses (which is the way Greeks have been doing business for centuries).

There also is the unmissable facts (if you look for them) about Greece:  It's economy has always been heavily centered around shipping.  The economic crisis of 2008 (A mainly US phenomenon) hit Greece HARD, as worldwide shipping dropped-off and has not recovered to previous levels yet. 

So borrowing isn't a bad thing, if it leads to investments that lead to production that leads to the repayment of the debt.  This is a virtuous cycle.  Again, this is the US cycle for the economy and has been for the last 50 years. 

Greece has been running a current-account deficit for years now, made essentially worse by the relative  low-interest afforded by the Euro.  Once their deficit was exposed and other country's investors got nervous about their ability to repay the loans, their interest-rate went up.  This is a vicious cycle.  This was evident in 2010 to economists. This was the first Greek bailout.

Interest rates were creeping-up in other countries, leading to fears of contagion.  This contagion was to be feared because now it was international investors that stood to lose.  International investors do not like to lose, so they demanded more security for a new round of loans, intended mainly to bail their own sorry asses out.  They initially tried to raise the interest rates but that just made matters worse by making the cycle more vicious.  So in came the IMF.  This wasn't a gift.  The troika wasn't givingg anything for free, but something had to be done about Portugal, Ireland and Spain's rising interest-rates, because the whole of the Eurozone economies are connected.

Greece agreed to austerity loans, in a shift of debt repayment that is rarely seen in Capitalism.  Greek people were forced to accept conditions as security to the loans, which were contracted by the banks, the government and the businesses.   Taxes were raised and pensions were slashed because the Government had to correct a fiscal imbalance - one that happens when the Government is spending more than its economy earns, fueled by their lack of control over a currency which they lost due to the adoption of the Euro...  There can't be any correction by the normal process of a money-supply system.  The largest lenders to Greece (France and Germany) are asking the Greeks to further sweeten the pot of security for their loans by asking for Greek public property to be given to them, so that they can sell those assets in private transactions.  The Greeks will own nothing at the end of this and they can see that coming.

Which brings me to the unavoidable issue of the Greek economy's contraction.  Raising the VAT, threatening pension-control, and tightening tax controls will all have their consequence on an informed consumer.  Raise the VAT, and luxury spending will shrink (as will all non-essential spending).  It will increase the black market.  Pension-controls will  make pensioners nervous, and they are a considerable force among spenders (they actually have money whereas parents don't.)  Tightening tax controls will drive business further underground, especially large business transactions which tend to have access to unreported transaction mechanisms.  All of this leads to further tax shrinkage, and lost jobs.

New bailout money.  Another loan of 130B Euro.

30% of Greeks now live under the poverty line.  1 in 5 can't meet their daily nutritional needs.

Since 2010, Private European banks have been able to ship-off a lot of Greek debt than they did previously.   The economies of Ireland, Spain and Portugal are much healthier.  There is much less chance of an all-out economic collapse of the Euro.  Leftism takes hold in Greece.  Then came the Mexican stand-off:  Who will blink first?  "No more austerity, no more bailout money:  It never worked in the first place (for reasons stated above)" say's the Syriza government.  Of course, the referendum was symbolic anyway since it was held on July 5th while the Troika had pulled their offer on June 30th...  Corrupt much, Mr. Tsipras?

He dodged responsibility for the very predictable liquidity crisis that followed.  That's the price ou pay for voting democratically and letting the world know just what the "people" think:  Economic sanctions that are immediate.  Capital flights are alright, that's just the way capital works so tough luck if it leaves the country seeking new opportunities.  But if you vote in a way that Capitalists disagree with, they'll ensure that no one has access to capital in order to protect their interests.  The Greek bank machines dispense only 20's, but the daily limit is $50...  So I guess they only get $40....  No one knew THAT was going to happen in all of the banking system, right?

Normally, what would happen if a country had a 25% unemployment rate, a shrinking economy, etc. Greece would just print more money, which would create inflation by devaluing the currency out there by dilution, but essentially lending the money to the Greek people based on their ability to tax it back out of them - but it CAN'T!  They are part of the Eurozone and are being told how much Greek money can be printed at any time by the European Central Bank.

The European Union was created to change the course of history as it had until then been known:  Constant strife and wars between nations as distinct as can be and have ever been seen.  At least that is how it was sold to those few people who had even a slight understanding of European history.  Mix pure capitalism with an opportunity to blend this into an overall historical narrative and you have?  I know, Hitler comes to mind, but maybe not as grotesque as that:  Capitalists overarching plan to eventually rule the world?  Maybe. 

You have an occasion where the temptation to pull the sheets over your eyes and be lulled by the promise of something better to come is very strong.  People were able to see then, and should now, that the promise of a united Europe is basically good for the strong economies of Europe, bad for the soft ones and that the strong can exit at any time, leaving the weak ones even more vulnerable because they were made softer, not stronger during their encounter with unity.


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