Permit me to issue and control the money of a nation and I care not who makes its laws.
Mayer Amschel Rothschild 1744-1812
Thanks everyone for holding the fort during my absence; as a matter of fact, I’ve been on the road this week and only arrived home a few hours ago.
I’ll post the article on the gold standard later this week; the quote above serves as a conversation starter for this thread and the next. Today, I’d like to focus the debate on the impending collapse of the economy in Greece, and as has been predicted by many, the domino effect it may have on Portugal, Italy, Ireland and Spain: the so-called “PIIGS” of Europe. Clearly, these countries have been living beyond their means, spending more than they earn—year in, year out. Eventually, the credit card limit is reached.
In the last thread, Meltemian posted this link to a blog suggesting that Greece may well be on the verge of dropping the Euro and returning to the drachma; initially offered at one-to-one parity, it will quickly plummet in value, giving the Greeks an escape route from their current woes; one of them, anyway.
And if Greece does break away, will the escudo, lira, punt and peseta replace the euro as well? And will it lead to a repudiation of the Treaty of Lisbon, and even the Maastricht Treaty? Given that (as I have read), 85% of Britain’s laws are now made in Brussels, on the basis of an international agreement to which British voters never assented, we here at LibertyGibbert should, on the face of it, be cheering these developments. But what are the wider ramifications?
I look forward, as always, to reading your views.
Be Responsible - Be Free! 
Two useful articles in to-day’s ST Business Section. A ‘comment’ by Erik Britton concludes with ‘Greece could be forced to exit the Euro, no matter how stout are current denials’.
I shall be taking a party of 26 walkers to Samos in May NEXT year, should we buy our Drachmas now or later?
Buy gold coins. More later – Oz
The plight of the PIIGS (I love this acronym) should serve as a cautionary tale for the rest of the western world and not the least of which, the United States. Any country which spends more than it brings in is headed for disaster. Entitlement spending is perhaps the number one threat. FDR foisted Social Security on the US in 1935 and established the age 65 paradigm in this country. At the time it was a good deal for the federal government. In 1935 the average life expectancy was 63. Most people didn’t live to 65 and relatively few lived significantly past 65. The system was supposed to prevent the penury of old age. It morphed into a giant vote buying Ponzi scheme.
Thirty years later LBJ dumped gasoline on the fire with the enactment of Medicare and Medicaid. From 1965 on it was considered normal and appropriate that the working population should fund your healthcare upon your retirement until your death.
Labor unions (both private and public sector) fueled the fire by forever demanding higher and higher wages, more generous benefits and earlier retirement options while all the while demanding less work per unit of pay. Quite naturally businesses respond by pulling up stakes and moving their operations to friendlier locations.
We have reached a point in this country where 50% of the nation pays no income tax. You don’t really care about tax policy or higher taxes if you don’t have to pay any. Today 1 in 7 Americans receive food stamps. Almost 50% of the nation receives some sort of government benefit (food, housing, medical, social security, welfare, etc.). We have public school teachers retiring in their mid-50s with million dollar pensions.
Since WWII our government’s policy is to buy goodwill and influence with foreign aid and to serve as the world’s police force. We provide very expensive military “protection” for most of western Europe, Japan, South Korea, Saudi Arabia and Kuwait (among others) and we do this free of charge.
Democrats (i.e. Progressives) love greater dependence on government. That’s why they were so hot for nationalized health care. The tentacles of Progressive government control are extending into everything; food, water, housing, private property, free speech. They are socialists.
The average life expectancy in the US today approaches 80. My parents quite literally lived the last third of their adult lives on the government dole. A hundred years ago relatively few people ever enjoyed retirement. They died first. Others saved and invested for their retirement. Working 6 days a week for 10 hours a day was not at all uncommon. Retirement was not determined by age but rather by accumulated wealth
What surprises me is that Europe actually managed to get into a bigger mess faster than even the USA. One of the threats I leveled against my previous employer was that I would reduce my work week to 40 hours…all they paid me for. That made them squirm. When I first moved to the town I live in now the local hospital sent out a memo to employees reminding them that it was against regulations to sleep on the job! I thought it was a joke. Nope. Recently French police officers protested new regulations that would prevent them from drinking on the job. Personally I’d feel safer around a cop who been drinking than with a nurse who is sound asleep at the nursing station.
This is a rot of both government and society. We need to change our expectations. PIIGS might be lost causes, but the lessons shouldn’t fall on deaf ears.
‘France24’ is currently reporting that Strauss-Kahn’s arrest in New York, for attempted rape, removes one of the most vocal advocates of the Greek bail-out.
Was it MacMillan who said ‘Events, dear boy. events !’
toad,
That is interesting. The news reports over here make it sound like this guy decided to rape the girl and then just jump on a plane and make all the unpleasantness fade away with the miles over the Atlantic. They actually dragged his sorry ass off the airplane and this is VERY unusual. I suspect he’s in a whole heap of trouble. I’ll leave the “Greek analogies” up to the readers’ imagination. I’m none too fond of the IMF to start with.
I know Ozboy would probably prefer that discussions of climate change be carried out on those sites best suited for such debate (e.g. Climate Audit, WUWT). But I would be remiss if I didn’t point out another economy destroying initiative – renewable energy. Absent lavish taxpayer subsidies, no sane engineer would advocate for the development of wind power. One of my oldest and best friends in the whole world is a mechanical engineer and a “Distinguished Scientist” at Sandia National labs (“Distinguished Scientists” are at the top of the hierarchical food chain in national labs). He simply shakes his head in disgust at wind power. Why? Because it is inherently stupid. The same could be said for solar arrays except that they are even MORE stupid. Only a government bureaucrat, an eco-zealot or a rent-seeking profiteer could possibly love wind or solar power.
The one glimmer of hope we have in the USA is that all this green rhetoric is starting to fall on deaf ears as we find ourselves paying more for energy when we have boatloads of it sitting right beneath our feet. Burn coal and split atoms you dolts! Wind and solar may appear fashionable but believe me…they’re a bust.
Country debt burdens keep bubbling to the surface as serious concerns, even as a lengthening string of positive US economic data suggests some of the worst risks to markets have been skirted.
Nuanced attitudes are emerging to the problems plaguing the PIIGS – Portugal, Ireland, Italy, Spain and Greece.
Hedge fund managers, who are often willing to rush in where fools fear to tread, have begun making positive noises about some PIIGS even as they write off the hopes of others.
Greece is a basket case, widely expected to default, with the only argument left being how long it will take.
Portugal doesn’t look much better.
But Ireland is in favour as a bargain for debt securities because its underlying economy is holding up better than expected and Spain is being viewed as a near miss for collapse and consequently a golden opportunity.
Who will bounce back?:-
So what is the distinction between PIIGS that will flounder and those that will bob back up to the surface again?
The magic words are “economic growth.”
Spain and Ireland are expected to return to growth and thereby reduce their debt burdens in relative terms, whereas Greece and Portugal have not grown significantly for years and are largely regarded as incapable of changing their ways.
These distinctions in assessment of peripheral Europe are relevant to New Zealand, because as its finance minister Bill English likes to point out, New Zealand is right up there with the PIIGS if its public and private debt are summed up together.
Even more piquant, we have a new budget coming up and former National leader Don Brash is now the leader of the Act Party.
The degree to which this budget will be about economic growth that will haul New Zealand out of the PIIGS’ sty and Dr Brash’s ready criticisms and existing political manifesto in the 2025 Taskforce reports will be the defining issues of the general election campaign to be decided on November 26.
The best pro-growth policies are the core election issue and they have bearing not only on the long-term prosperity of New Zealand but also its very viability as a civilised Western country future-proofed against relapse into the economic stone age.
The Brash factor:-
New Zealand’s fundamental problem is to generate the type of growth that will avert a mandatory diet of PIIGS swill and while Prime Minister John Key and Labour leader Phil Goff have displayed little appetite for this necessary discussion, with the revival of the political fortunes of Dr Brash they will find this particular dish rammed down their throats.
Politics is filled with cruel ironies and its twists of fate have odd ways of coming back to haunt people.
Former Act leader Rodney Hide had Dr Brash appointed to head the 2025 Taskforce as part of his party’s confidence-and-supply deal with the National minority government and must have chortled at the thought of his political in-joke.
Messrs Key and English lost no time publicly consigning the taskforce’s results into the rubbish bin, sneering their hubristic contempt.
The upshot is that the scorned and underestimated Dr Brash is leading the charge at this election for the revitalised right wing of the National Party under the Act flag of convenience.
Will the Key gamble pay off in having imitated Tony Blair’s New Labour approach of wearing the guise of the displaced former government to win subsequent terms in office?
Mr Blair’s challenge was to appear Tory enough to be trusted with re-election, whereas Mr Key has aped a born-again social democrat, for example praising the ruinous Working for Families that he once condemned as communism by stealth.
Mr Blair was seen as to the right of New Labour, whereas Mr Key is likely to be perceived as to the left of his “New National.”
Key’s red shift:-
The Labour-lite regime of Mr Key has Mr Goff on the ropes, with distinctions hard to make from when Helen Clark ran the roost, given that both former and current prime ministers like to wear the trousers around the House.
But this regime will find it more difficult to deal with a combative National right wing trading under another brand and claiming to represent what National actually stood for until it succumbed under Mr Key to retaining whatever of the Clark era might cost it votes to repudiate and resorted to appeasing the racist Maori Party as a coalition partner insurance policy.
The upcoming election is essentially about the National right versus the National centre-left fighting over economic growth policies.
We already have Mr Key hypocritically dismissing Dr Brash as “extremist” – despite cheerfully serving as opposition finance spokesman under his old political boss rather than sit in protest on the backbenches like Katherine Rich – and having ruled out the 2025 Taskforce’s reports as unacceptable.
Back into the avaricious arms of the Maori Party, anyone?
Copyright.
Ozboy gold is going to be worthless if they pull an FDR on you and they will.
As for the Euro the whole idea was to have a crisis so they could enact a full union of all member states minus the inconvenience of democracy. Somehow I think it’s going to be the anger of the German people having to pay for it that will save them all ironically.
If gold ever does become worthless, it’ll be the first time, ever; and the fact that FDR confiscated it all shows us what his administration thought of its value. Civil disobedience, folks, civil disobedience. But hold that thought for a few more days, until I knock the next article into shape.
You’re right in that Europe (along with the rest of the West) is suffering a creeping loss of democracy. Hence this site. And I also agree that the German people will decide in the end that they’re not on this earth to be sugar daddies to a bunch of euro-freeloaders. We’ll see – Oz
Ozboy I will hold all my gold arguments until then as for democracy the Romans ended deciding it was over rated but they had to keep the plebs in line with bread and circuses.
very much like today with barbarian hordes settling in the West and rampant inflation and tax dodging by the rich. A budget deficit finished off the Romans an unsustainable one. When the day comes when what they pay the armed forces is worthless and supplies are intermittent is the day our politicians and the rich will regret what they have done.
OK mate. Re your last point, they could learn a lesson or two from my own forebears (their jailors anyway); that is, when currency fails, commodities take over – Oz
Ozboy how odd alcohol forming the basis of Australia who would have thunk it.
Well the UK is in for a rough time if this is agreed on Tuesday. Can’t believe the government can be so stupid. I expect most people will have seen this but I haven’t seen it mentioned here yet.
http://www.guardian.co.uk/environment/2011/may/14/historic-climate-change-deal-agreed-chris-huhne
I’d say by 2020 or so we’ll be seeing “boat people” refugees from Britain – Oz
Great post OZ,
I’m on the road, and just lost a long comment, so I’ll fire this off quickly.
Folks might like to take a look at Bagus; Trajedy of the Euro
and
Bagus & Howden; “deep Freeze” which covers the Icelandic Collapse.
You can download both free from mises.org http://mises.org/daily/5262/How-Iceland-Became-Paperland
The authors both view their economics through the lens of the Austrian School, which provides a few more insights than Morgan Kelly’s editorial piece does.
In both there is a “tragedy of the commons” with “private” banks expecting the central bank, as lender of last resort, to pick up the pieces. The national central banks and governments expected foreign knights in shining armour to come to their aid.
The €uro central bank, is not under direct control and has been letting rip with the printing presses, and directing that counterfeit money loose in the PIIGS, where it has funded inflationary bubbles, which have destroyed real wealth in mal-investments.
Just so their is no confusion, “PIIGS ‘R’ US” Britain and the US are in worse financial shape than the PIIGS. Except they retain the keys to their own money printing presses. Something that the German tax payers and savers would never let the PIIGS near while they share the same currency.
This means BIG inflation, probably with new bubbles for Britain and the US.
Talking to Brits, there is a bubble inflating in agricultural land there at present. prices have gone absolutely stupid, and will crash sooner or later.
OZ,
Just to add an alternative investment to Au
Pb + (CU 70%, Zn 30% )
I think most regulars will understand that, cryptic as it must be in these times.
Democracy has many boxes.
I’ve mentioned this a couple of times before folks, but if you want to compose a long post, do it first in Notepad, Word or some other more secure software; I’m not sure whether dropped posts are a browser issue or a WordPress one, but I feel bad when my community invests their valuable time in LibertyGibbert, only to see it disappear down some electronic black hole.
And yes Ian, the thread on firearms is on its way – Oz
If things get bad enough, lead and brass may indeed prove to be the the most effective de facto currency.
Dr Dave in other news Barney Frank has gone under the knife for gender reassignment surgery which must a late April fools joke.
Life imitating art – Oz 😕
Oz that was on the teaparty grapevine I think highly tongue in cheek, what has got me down at the moment is realizing Obummer is a shoe in for 2012 there is no one who can defeat him with all the media bias. Even the DT has been given orders to harry any candidate and take a pro Obummer stance. Heck the man is going to tour Ireland after the Queen to show his Irish roots and he hates white people and they don’t come whiter than the Irish. So it really is O’Bamas of county Kerry.
Kitler,
Obama is easily beatable in 2012. The GOP can run just about anybody and beat him. You can only kill OBL once and his October surprise of his long form birth certificate has been spoiled by being forced to reveal it too early. Do you remember anyone talking about the national debt in 2008? It’s dinner table conversation today. The fact is the Democrats have been driving the economy of the nation since Jan ’07…that’s almost 4 1/2 years now. People are waking up to what happens when you keep spendin’ when the money’s all gone. Today we have Greece as an example. In 2008 too many people bought into the vacuous “hope & change” mantra. Today they’re more concerned with survival. The MSM plays up Obama like he’s unbeatable…but they’re wrong…VERY wrong.
Exactly, Dave. Who in Britain, in the euphoria of V-E Day, would have thought Churchill could be defeated in a general election only a few weeks later? – Oz
Oz viz a viz Churchill my grandparents for one they remembered the General Strike pay backs a bitch.
Dr Dave we are about to undergo a media barrage telling us everything is fine in wonderland and any and all dirt is going to be fired at any candidate and don’t think they are not going to rig the election in as many states as they can get away with. This will be a dirty fight and tacking into the wind. Also no one will ask him one damn hard question such as what is your name.
Ozboy,
I’ve used the Churchill example (as have many American commentators) as well as the example of George H.W. Bush. Bush (41) stood before a standing ovation of a joint session of Congress at the end of the first Gulf War. He had a public approval rating of nearly 90%. Who, at the time, would have guessed he would be defeated a year later by a no-name putz like Bill Clinton? Bush broke a tax promise and we had a sluggish economy we would kill for today. Standing on his own record, Obama is in a MUCH deeper bucket of shit today. Obama got about a 3 point bump in approval after the killing of OBL…and it has worn off. Lot’s of folks are single issue voters, but the single issues that carry the most weight are selfish ones – the voter’s job, the voter’s pension, the voter’s retirement, the voter’s prospects for the future. It’s hard to spin this stuff.
Kitler,
The MSM have been shamelessly liberal all of my life (which now spans a little over half a century). I’ve paid attention to the liberal media bias since the election of 1976. Clinton was a HUGE victory for the liberal media and a validation of their relevance. The American public dared to ignore their will and elect Reagan (twice) and George H.W. Bush once. Clinton’s election was crucial for the liberal MSM. They were still “king makers”. Unfortunately for them, Clinton’s reelection in 1996 was almost their last Huzzah. And they were helped mightily by Independent candidate Ross Perot who split the GOP vote. There were 8 years of whining, howling, gnashing of teeth and blind vitriolic hatred directed at Bush (43) when he defeated both Gore and Kerry in 2000 and 2004. Finally 2008 arrived and they were presented with a gift of the perfect storm. They had an unpopular lame duck incumbent to run against, the GOP offered up the weakest candidate imaginable and all they had to do is promote a seemingly charismatic unknown with no apparent public record.
Times have changed. Most of the Bush (43) years were years of plenty. Bush’s foreign policy may not have popular on the left, but it was sound and effective. Back in the mid-90s FOX news didn’t exist, conservative talk radio was primarily confined to just Limbaugh and an alternative media didn’t exist. Today the landscape has changed. People no longer depend solely on the big three alphabet broadcast media, the AP, the NYT, the LAT and the WaPo for information. Conservative talk radio has exploded as has the alternative media. This scares the liberal left shitless. They’re not afraid of people telling lies about them…they’re afraid of people telling the truth!
More and more people are today aware of things that were non-issues in 2008; national debt, unemployment, insolvency of entitlement programs, looming disaster in the Middle East, election fraud, crony capitalism and the fraud that is AGW. One needs only to be unemployed and pay $4/gal for gas for a little while before they wake up and smell the catfood.
Believe me, Kitler, Obama will exist with a near constant sheen of sweat on his upper lip between now and election day. The MSM, bought and paid for as they may be, just ain’t that influential anymore.
Dr Dave never underestimate the enemy they are ready with lawsuits and ready to file charges against any site that has allowed any hate crime speech threats loud mouth idiots etc etc to close down any avenue of free speech on the internet and the people who run a lot of it are Obama supporters. Until election time expect a lot of fun and games from the left as they try everything they can to cling to power.
I want him out as much as you but it’s going to be a lot harder than you think that’s all.
I do not meqan to belittle the importance of the debt/PIIGS issue or diminish the significance of what currency is used or who ends up ‘paying’ the outstanding ‘debt’.
But from my POV this is the quintisenstial politico-economic froth.
Greece has around 10 million people on around $30k a year, slightly below the EU average and the wealth distribution is a little more unequal than the EU average. The economic crash is a product of the private finance industry ‘inventing’ money by trading in ‘credit swaps’ which effectively creat6ed money unrelated to material or service resources that could be consumed. As money is just a ration token for a real product if money is generated over and above the material and service consumerables it can buy then its value drops.
The result is infaltion, the ‘cost’ of raw materials and finished goods rises, as does the charge for services because the amount of ration tokens has increased faster than the amount of consumer goods and services. Mainly as a result of banks trading ration cards for ration cards instead of for goods and services and creating extra ‘ration cards’ unrelated to any material benefit.
The solution is to reduce the general standard of living, something happening in most societies with exposure to the recent economic crisis. This can be done by inflation – the cheif method employed by the UK at present – or wage and benefit reduction.
That is the path that the EU and the IMF are trying to impose on Greece.
But there is a limit, governments that fail to maintain the standard of living of their populations tend to get thrown out. In the EU with decades of improvement, a government that presides over a reduction in living standards is going to be doubly unpopular. While the ‘Arab Spring’ phenomina is a demographic effect as well as triggered by politics, it is a reminder that whatever the ideological and economic preferences of the big players in how to deal with the deficits in the PIIGS, the population will also have a say, they will remove any government that repays the banks at the expense of the general population.
It is unlikely that any Greek government could reduce the general standard of living in Greece by more than 10% without loosing support and legitimacy. The level of social unrest at present indicates that. It is unclear why any greater reduction than this would be needed, until the banking crisis the average Greek citizen was consuming around 75% 0f the resources an Australian consumes and it is not evident that this needs or could be changed significantly.
It is not clear that the virtual debts the banks generated from creating ‘virtual’ money could be cleared by removing spending power from the general population, and if that amount of ration cards were transfered from population to banks just what the banks would spend it on…. CEO bonuses perhaps?
Good for the luxury boat market, not so good for the mass consumer market.
As the USA and German experience shows public investment in infra-structure during a recession can be more effective in promoting real economic growth than cuts.
There is an underlying resource problem behind the recent economic crash. Basic raw material costs have been rising for almost the last decade after almost a century of FALLING raw commodity prices, the gain modern societies have got from cheaper energy and food is now dissappearing as fuel and material costs grow.
I was going to try and construct a thesis that the economic difficulties of varies EU countries was a result of the economy being distorted and corrupt from past military/authoritarian governments. It works for Greece, (the Colonels) Portugal (Salazar) Spain (Franco) but gets a bit flaky with Ireland and Italy unless you are willing to copunt the dominant influence of the Catholic church as equivalent to a military dictatorship! -grin-
Izen, interesting commentary from you (if I take it that your numbers are correct). The only sentence I didn’t really get was this one: ‘As the USA and German experience shows public investment in infra-structure during a recession can be more effective in promoting real economic growth than cuts’. Better than cuts in spending — well, maybe– depends where, I suppose — but surely not better than tax cuts? That’s not what you mean, is it?
@-Amanda
No, I wasn’t meaning tax cuts, I don’t think any major government has actually made significant tax cuts for over a century. They may rename and re-target the taxes, changing the balance between direct income and indirect retail taxes, or taking money out of the system via other creative measures, but just about all modern societies run on between 40% and 50% of the GDP. The take and spend vary by less than 10% in general and the froth is usually about small fractions of a percent change in what is taken by various means.
Advanced technological capitalist societies ALL use a government take of around 40% of GDP to redistribute wealth and ‘improve’ the GINI index. Otherwise you end up with the sort of medieval differences between the wealthy and poor in a society that you can still see some South American and Arab countries with all the associated disease and social unrest it brings. Capitalist economies are only stable if that redistributive action is taken, otherwise they degenrate into repeated cycles of revolution and authoritarian oppression.
Izen your model holds up for Italy they had Mussolini and Ireland was was run on quasi National socialist lines while pretending to be a democracy. Your argument overall is fairly valid.
As for the USA the stimulus spending has not been spent on infrastructure projects but been siphoned off to pet schemes, or special interest groups or just outright theft leaving the tax payer with nothing to show for 10 trillion dollars.
Izen remember the derivatives market is still 500 trillion that’s a lot of pretend money out there created by people behaving as children when it comes to money to get that big bonus. It is all going to end in tears.
Izen: Thanks for that. And people still cry out for more! Geez. ‘Go and make your own wealth, why don’t you?’ A good definition of Leftist (well, here’s one, anyway) is: a person that puts equality of means and opportunity above everything else, in theory, i.e. exceptions may be made for himself, and who thinks that wealth is a finite quantity already discovered and incapable of expansion by hard work and human ingenuity.
Amanda he has a lot of good points about the finance people literally giving themselves what amounts to counterfeit cash and in effect stealing from us through inflation. It is an entirely criminal enterprise and will only stop when we hang them en masse. I would also bring back the concept of usury for excessive interest rates especially credit card companies. Roasting over open coals would be my solution for those people.
I’m going to disagree almost totally with what Izen has written.
First and root points are the idea that these were in anyway “Private” or “Capitalist” events. The source of Euros and the credit which nominally “private” banks lend, is the centrally planned European Central Bank.
To add in Britain, the US and Iceland, they each have a nationalised central bank, with a monopoly on money printing and the issuing of new debits to “private” banks, which are then traded and leant out.
This is state central planning with state manipulation in the US UK and Iceland, and international central planning and control in the case of the PIIGS on the yoyo. Whether you call it state corporatism or German/Prussian model socialism, amounts to the same thing, but this was in no way “private”, “Free Market” or “Capitalist”, in whatever way you distort those words.
izen,
The United States grew to be a world power precisely because we didn’t apply systematic governmental redistribution of wealth. We had a pretty good run, too. We got by for about 150 years before socialism crept in. It started with Social Security (which is an inherently unsustainable Ponzi scheme). Then we added “little” programs to prop up food prices. These include the school lunch program and the early iterations of food stamps. Then we got the big boat anchors of Medicare and Medicaid. Then we had federal welfare, housing assistance, an explosion of social programs like food stamps and government subsidies for damn near everything. None of this has been healthy or beneficial for this country. It is little more than legalized theft and results in dependency on government. That is NOT the role of government.
The other important concept to understand is that in a free market society you have two groups – the productive members of the private sector and the parasite class. The parasite class consists of all government employees and those living wholly on the government dole. “Parasite” sounds harsh but it’s accurate. Government may provide essential services (e.g. public school teachers, police fire fighters, military and various bureaucrats), but government produces no wealth. It is wholly funded by taxation of the productive private sector. When a society reaches a point where half the population has their salary or livelihood paid for by government they are essentially living off the labor of the other half that produces real wealth (and wealth need not necessarily be a physical asset). This is the point where free market societies begin to unravel and fall apart.
Luton Ian yes and the Fed is actually a private bank as is the bank of England they are printing money not for the state but for the banks and them alone to prop up a rotten edifice built on sand.
Izen Wrote
Greece has around 10 million people on around $30k a year, slightly below the EU average and the wealth distribution is a little more unequal than the EU average. The economic crash is a product of the private finance industry ‘inventing’ money by trading in ‘credit swaps’ which effectively creat6ed money unrelated to material or service resources that could be consumed. As money is just a ration token for a real product if money is generated over and above the material and service consumerables it can buy then its value drops.
The result is infaltion, the ‘cost’ of raw materials and finished goods rises, as does the charge for services because the amount of ration tokens has increased faster than the amount of consumer goods and services. Mainly as a result of banks trading ration cards for ration cards instead of for goods and services and creating extra ‘ration cards’ unrelated to any material benefit.
Essentially what you seem to be saying is the Greeks were “earning” beyond the level of their productivity in things which consumers would want to buy. Note however that the only bank in the Euro zone capable of “producing” fiat money, is the European Central Bank. I am sure that they would be very interested in pursuing any other source of money within the Euro Zone. Criminally perusing!
A bit more later on your proposed top down solutions and Keynesian fallacy about the alleged instability of “Capitalism” without statist interference.
gotta go
Perusing / pursuing
darn spell check (dissleckseeer)
Greece has about half the population of Australia.
I am sort of guessing that if Greece, with its 10 million people, occupied 4 million square kilometres (instead of its 132,000 km2), much of it desert and semi-arid, yet produced enough food to feed three times its own population, and a sizeable percentage of the world’s mineral resources, and had to harvest and produce all this food and minerals, and transport it across its vast area and export it, plus provide a navy responsible for patrolling all of the Mediterranean and about a third of the Atlantic, plus was expected to provide the bulk of the “peacekeeping” forces every time squabbles broke out in Albania, Macedonia (or FYROM if you’re touchy, or Greek) and Tunisia…
If Greece had to do all that, I reckon (and again, this is just a guess on my part), that Greeks would consume rather more that the “75% of the resources an Australian consumes” suggested by Izen. Furthermore, I would guess that, in time, rather than the second-largest Greek city (Melbourne) being located in Australia as at present, the immigration tide might turn, and Aussies might decide the Hellenic Republic really is a better bet after all.
I never could grow olives down here in Tasmania anyway…
Ozboy considering all the problems Greece inherently has got you can understand why they would wish to live elsewhere where the rule of law exists and is enforced but with a similar climate and more opportunities.
Which is why your Joolia is insane to let in the muslim hordes because they will rapidly turn your country into a third world sh*t hole. If she thinks for one minute she won’t be wearing a burkha she is sadly mistaken and her colleagues shall all be wandering around minus one hand.
Ozboy,
I hope your piece on the gold standard addresses the difference between money and wealth. izen is essentially correct that “money” (or currency) is merely the vehicle we use to trade in wealth. But wealth doesn’t necessarily have to be defined as physical assets or the provision or services of value. A home mortgage is a useful example. When I bought my home the greatest value or unit of wealth was not my physical house or the land it sits on. It was the mortgage. The mortgage is essentially a promise to pay off the loan. The interest paid on the loan over the term of the mortgage is greater than the value of the home when I bought it. Bonds, stocks and even derivatives all represent real wealth. The derivative trader or the speculator is risking real wealth. Wealth can be gained or lost by an individual, a state or a country.
Monetary policy is something else. This is where centralized banks and governments screw things up. Participants in a free market economy can grow wealth, but only governments can print money. I’m not familiar with how these international credit default swaps work, but I suspect it boils down to trading and therefore represents actual wealth. These guys are not “inventing” money out of thin air.
Here in the US the Fed has decided to monetize a big chunk of our debt. This actually is “printing money” and leads to inflation and making money worth less. We have had these poisonous “quantitative easing” (Part 1 & 2) which was “sold” as a means to prevent deflation. In reality it was to prop up the stock market and deliberately cause inflation which makes debt repayment easier (for the federal government at least). If I had a barrel of light, sweet crude oil out in the garage and the global price for this was $100, I would have $100 worth of “wealth”. If inflation kicks in and the global price climbs to $110 a barrel I still have exactly as much wealth, it just now takes more dollars to buy it from me. Wealth and currency are very different concepts.
Izen,
I’ve got to thank you for the exercises which you give us (I am of course assuming that you are not an Oz Boy alter ego – probing to see whether we go beyond simple superficial slogans, and can indeed think, at least within limited bounds…).
Izen also wrote: ” It is not clear that the virtual debts the banks generated from creating ‘virtual’ money could be cleared by removing spending power from the general population, and if that amount of ration cards were transferred from population to banks just what the banks would spend it on…. CEO bonuses perhaps?
Good for the luxury boat market, not so good for the mass consumer market.
As the USA and German experience shows public investment in infra-structure during a recession can be more effective in promoting real economic growth than cuts.”
Why should a government “cut” national income regardless of productivity, inactivity or involvement in the mal investments?
A market is well able to organise incomes and rewards; Those who are efficiently providing what consumers want, and, this is the vitally important bit – which consumers are willing to pay for (- which is another way of saying “choice” – we all want abstract things, but resources; natural ones, human labour, ours and other people’s time and other priorities are all limited and other choices butt in on those priorities, so we are limited in our INDIVIDUAL & SUBJECTIVE decisions and desires by how we are rewarded for the service which we provide to others and which they voluntarily buy from us – in other words our incomes! – what we can afford!).
Those who are inefficient or provide services which are not wanted – however worthy they may seem in a clip board survey, a meeting or a power point presentation – must (under free market capitalism) find other outlets for their abilities, which are more acceptable to others.
In a free market (which is not at all which we have), there is no “too big to be allowed to fail” or its unspoken logical corollary, “too small to be allowed to succeed”.
In an inflationary boom
(- which fractional reserve banking leads to, and which governments enjoy as it allows them to expand their spending (of what is effectively counterfeit excess printing) during the boom and to extend their powers during the inevitable crisis which follows the realization that the mal investments made during the boom are unsustainable and must be liquidated at considerable loss resulting in massive re-organization of labour to more viable employment.)
Wealth is destroyed, due to mal investment in “capital goods” far removed from what the consumers would normally buy, like second homes, investment properties in County Carlow, County Leitrim or Bulgaria. New business parks which now stand empty, Pre-cast concrete plants and builders merchants which are now closed and will likely go as scrap to build Chinese warships.
“Infrastructure” spending is the last thing which the PIIGS, or the other economies need now. You are right about one thing; the dictatorships were very big on state spending. The first motorway in the World was between Milan and Como – one of Benny’s vanity projects, and never used to capacity before the 1980s or 1990s – work out the net present value of that investment and tell me how negative it is.
Infrastructure spending is just one of the many Keynesian (?Kenyan) fallacies – liken it to a “hair of the dog” the morning after a really heavy binge.
Governments are not able to provide anything with anywhere near the efficiency of a free market (note that I am not saying “private sector” – a state enforced monopoly or oligopoly is no better than state provision and is not in any way a free market big businesses love that sort of thing – in a market there are economies and dis economies of scale – but one of the economies of scale is the buying of political influence) the state is a monopoly, it does not have anything like the timely information of local need which is dispersed through society- which only a free market can draw upon, it is a monopoly and like all monopolies it is not responsive to a market – and doubly so, it is able to cover its losses by armed theft – tax! and armed intimidation – Law!
I completely disagree that state infrastructure is real economic growth, if it had a positive NPV, you would have private providers fighting each other to provide it.
I’m not saying that there are no private sector supporters of it, I’m sure that a certain very frequently seen drug store and a certain cut price superstore – with headquarters in Arkansas would love improved interstates – sure, socialise their distribution costs! shed one more of the dis-economies of scale!
More blatant examples would be the late Bill Ruger seeking bans on high capacity magazines and imports on military style semi autos – so his own mini 30 semi auto didn’t have to compete with semi auto AKs, or S&W pushing for stupid key locks to protect them from competition from the likes of Taurus.
Mercantilism / state corporatism / government industrial complex or, to give it its present name, Crony Capitalism.
Dr Dave credit default swaps do not represent wealth just the opposite these days full of toxic assets from lots of bad loans especially mortgages. The system worked well while everyone believed the lie and deluded themselves, it’s when they were revealed for what they are junk paper that the sh*t hit the fan.
Luton Ian,
Excellent comment! Keynesian economics simply don’t work. There are only a few things governments should do in an economy. One is to bust up monopolies. Others include a few (very few) regulations to assure a free market. Most of Obama’s “stimulus” went to state and local governments to protect the jobs of government workers. It did nothing to stimulate the economy or promote economic growth in the private sector.
There have been significant tax cuts in recent US history, most notably those from Kennedy and Reagan. The result has always been the same. It resulted in increased economic growth and increased tax revenues. The other side of this equation is spending cuts by government. Politicians simply make promises they know damn well they cannot keep, but the bill won’t come due until they’re either dead or out of office. You can’t tax and spend an economy into prosperity.
Dr Dave,
Thanks for reminding a poor beer and port soaked fool about natural resources.
The world (as known to the west) had a pretty much a fixed quantity of gold in 1490. Over the next century, that quantity doubled, and prices in Spain approximately doubled, associated with massive mal investment in Seville, the port of entry for the New World precious metals, and starvation of investment in the much more fertile north of Spain. The Catholic Scholastics of Salamanca were able to work that out, along with the subjective marginal utility theory of value, two centuries ahead of Adam Smith “inventing” economics and a labour theory of value (progress eh?).
Oz,
You are probably much more knowledgeable about this than me:
Post WWII, Australia banned export of iron ore, as it thought it didn’t have enough – so no one bothered to look for it as the only market would have been domestic steel makers (I have distant family in Wyala – I’ve been drinking or I would have kept that quiet!!!!!), so no point.
Fortunately the export ban was lifted after the accidental discovery of the Hammersly mountains deposits.
New sources of natural resources are only explored for in times of very high price – the funds are not available in times of low prices and abundance. It does not indicate that we are running out.
Dr Dave is again right on the money, if speculators did think something was running short, then their investing in that resource speeds the market signal to conserve its use – use it only where you must – explore for new resources – investigate cheaper substitutes.
Evil, price gouging, greedy…
are the epithets applied to speculators by socialists, who’s centrally planned societies are characterised by shortages, including famines killing tens of millions.
Now to the third world:
I’ve done some of Africa’s shit holes, I’ve also done some of its better places yes, I have two African Presidents at one step of separation (in one case, it is real “last king of Scotland” stuff – I know the former speech writer for an African Dictator) and I have another president at 2 steps, via his most powerful general – big dog’s bollocks – I shit ye not!
Africa lacks capital
The people do not lack drive or imagination (don’t let the mean IQ figures fool you – they seem to have a larger SD in their distribution – the bell curve seems to be flatter than European’s, they do not lack seriously high performers), they hesitate to do well, knowing that success will attract predatory bureaucrats who will plunder the proceeds of their acumen, insight and hard work.
Somewhere I have a photo of the dozen or so certificates displayed in a vehicle windscreen; taxes for road use, taxes to carry passengers, taxes to carry tourists, compulsory insurance, certificates of registration, taxes for … they take the whole height of the windscreen. They do not lack stupid laws and central control.
My driver on one job, Amadeo (literally “My God”) used to joke when he saw a vehicle stopped by the cops, “He has a problem; a $50 problem!”. they do not lack for enforcement of stupid laws.
They also don’t lack for state sector or aid agency spending – check out all of the UN badges on white Toyota Land Cruiser Prados, or the Mercs and Hummers with government plates, or the Man 8X8 trucks filled with special forces troops.
I’m hammerin’ the gold into shape as we speak, lads (interleaved with everything else; gold leaf, you might say)…
Give me 24-36 hours.
Dr Dave,
I’ll land on my ass yet! just give me time.
Dr Dave wrote:
“Politicians simply make promises they know damn well they cannot keep, but the bill won’t come due until they’re either dead or out of office. You can’t tax and spend an economy into prosperity.”
You hit one of the more glaring Keynesian cop outs;
When Hayek (who actually counted Keynes as a personal friend, despite Hayek having completely demolished Keynes’ theory of money after a year of working on it for Keynes to shrug it off by saying “oh, that? I don’t believe that any more…”) asked Keynes about what happened in the long run, Keynes’ reply was “In the long run we’re all dead”.
It fell to Hazlitt ( http://mises.org/resources/3655/Failure-of-the-New-Economics ), who had no formal economics training to do a line by line refutation of Keynes, Hayek never bothered, as he didn’t believe that Keynes theory would ever be taken seriously – it was that bad ( http://mises.org/resources/1000/Keynes-the-Man ).
Rothbard’s essay in the link gives a flavour of just how self avowedly immoral Keynes was as a person; he really was at the extreme end of the bitchy camp gay man stereotype.
Oz,
We’ll still be here, just don’t hammer it too thin to meet a deadline none of us are inclined to enforce.
Let your priorities be the decider
Kitler,
The housing bubble in this country was caused by the government forcing lenders to make loans to people who would otherwise not qualify for the loans. This by itself wasn’t too disastrous, the problem was caused by packaging these bad loans up as securities and selling them. Twenty years ago if a loan was defaulted on, the house would be foreclosed upon and resold. A new mortgage would be made and the real “wealth” would be preserved. When these securities are loaded with bad mortgages much of the real wealth is lost. But the “wealth” was real…ask anybody who lost their ass.
Suppose you buy a house for $165,000 and make a down payment of $15K. You have a $150,000 mortgage. Assume your principle & interest payment is $1,000/month for 30 years. At the time of closing the house is worth $165,000 in terms of its inherent value. The total amount you must pay over the term of your mortgage is $360,000 and $210,000 of this will be interest on the loan. To the guys who buy and sell mortgages, this total interest payment is the real “wealth”. They will only foreclose, repossess and resell your house if they absolutely have to and for them this would represent a loss. Not so much if you defaulted 25 years into your mortgage by absolutely if you default only a few years in. It’s still wealth and the fact that it ends up in securities that are tanking in value doesn’t make it anything other than wealth, rather it was lost or gained.
Kitties,
an interesting way for you to not get invited to dinner again;
Get your host to explain which side of a bank’s balance sheet bad loans appear on, liabilities or assets…
The real answer is assets, people’s deposits in the bank are its’ liabilities
get ready for long and charged silences (there’s a reason I didn’t call you Sunday…).
Dr Dave because of the ability of anyone to get a mortgage at a reasonable interest rate for nothing down this ended up inflating house prices all over the country to about 5 to 10 times income when in reality bricks and mortar should only be 3-4 times income.
House sizes increased into small mansions in some areas and affordable smaller housing was just not built exacerbating the problem. All thanks to Greenspan, Bush, Clinton, Barney Frank and Osama bin Laden. I’m glad I missed out on the opportunity to own and I’m free to move around the country if needed for work.
If I could I would move out to the boonies with a small spread enough to feed ourselves from and some small livestock.
Luton Ian I was busy trying to repair a laptop keyboard and spent three days on it, it’s a hardware issue and a $30 dollar fix which will wait for pay day. Only after prolonged questioning will you finally get the answer from women as to what may have actually happened saving much time. Involving place a drink on the keyboard apparently.
During a very nice dinner tonight, one at the table who worked a whole career in the state sector pronounced that it was the “Private” banks who got us all into trouble.
I asked about where they got the credit from, and suggested that the ECB would be very interested in chasing any counterfeiters working on their turf.
The response was a silence with crossed arms, who knows? said person might actually wonder how they came to be caught without an answer.
I neither seek nor need their approval, as someone once described me; I behaved as “a lout”
incase said person is lurking, here’s this for the jukebox
a song with so many meanings
Kitties,
I’ve had drinks, cat piss and keys stolen by rodents – little buggers
all under SWMBO’s watchful gaze.
something to do with hormones :-¦
sorry, vital words missing:
Ive had drinks [spilled on the keyboard] cat piss [on it] and…
bed time for single, drunken commenters.
night all!
Kitler,
I vividly remember buying my first house back in ’84. My wife and I had not yet been married a year. The down payment used to be the deal breaker. If you could pony up 10% you could get a loan but 20% kept you from having to buy private mortgage insurance. The lender dissected our finances down to the finest detail. They knew how much we owed on our cars, what our insurance costs, every detail about my student loans…everything. Back in those days they measured a ratio of net income to house payment and if it was off by as little as $5 they would not approve the loan. We bought a big house with some land about 6 years later and the process was much the same. If you didn’t have 10-20% down payment and a net income of over twice expected payments, don’t even bother to ask. Something very strange happened between 1990 and 1995.
All of a sudden you could buy a house with 5% or less down and the lenders weren’t at all fussy about your income. The situation became ridiculous in the late 90s. Home prices went through the roof! Lenders started making “sub-prime” loans left and right just to keep the DoJ off their back. Idiots bought more house than they could realistically afford with 0% down and adjustable rate mortgages. Bush issued warnings but was resoundingly shouted down by the likes of Chris Dodd and Barney Frank. Lots of folks saw it coming and in 2008 the proverbial ship hit the sand.
Home ownership is a great deal for mature, financially secure, responsible folks. But if you’re living from paycheck to paycheck it might not be the best idea. A lot of folks got into way too much house on far too little income or financial security. A normal, free market economy wouldn’t let this happen, but when government interferes all hell can break loose. The collapse of the US housing bubble actually wreaked havoc on economies all around the world…and it was all due to government interference in pursuit of a social agenda.
Dr Dave bought into the housing market back in 94 and yes it was 5% but my ex and I only ended up getting what we could afford and lucked out on a good deal in a good city.
However she got greedy and we ended up in more house than we could afford just in time for the dot com bubble to burst.
That was the final nail in the coffin for that relationship as it stressed me way out. Always listen to the voice in your head that tells you that what your spouse wants is probably not a good idea and stay within your means. Do I ever listen heck no.
Dr Dave,
Lehman Brothers was the fat lady’s last note in the boom.
The Irish boom was already over, new house completions had been dead since April or May 2007, developments which I was visiting, that had been employing 75 to 100 guys were down to 15 or so, that decline was being discussed at senior management level at lunch time in construction federation and concrete soc meetings.
The banks were still desperately trying to make new loans to keep bonus propects going, my wife got her ears bashed by AIB, trying to get her to invest in some “product” or other. they told her she was a “walking economic disaster” for staying in cash, she still laughs about it;
her father lost a mass of savings a few years back, the bank claimed it was a totally safe product, then a year or so later called him to say that they had invested it all in Argentina, and all was lost, the small print saying that they could use their expertise to invest it justified their selling investments in one of the economically dodgiest countries on the planet as “safe”. She has no doubt that the AIB investment would have been in such safe things as now ghost housing estates, and the now completely diluted bank shares (trading at around €20 at the time, they were soon down to €0.9 and less).
All Lehman Bros did in Ireland was to highlight the lack of actual savings, as everyone rushed to get cash, bills weren’t payed and the banks chopped overdraft limits. The company that I was working for got its limit chopped about the end of October, I was out at the end of November and they weren’t able to get the redundancy payment to me until summer 2009.
Fun times!
House prices in Ireland are down over 50% in most places. They’re still high though, like 170 to 190k for a nice bungalow on an acre plot, that was making 400 to 600 k in the boom.
I haven’t checked what the prices in England are like these days. Supposedly they hadn’t gone down in number of pounds (internationally, they’re down a third witth the pound dropping), but I know of one village with about 1/3 the houses with for sale signs (it is a commuter village and they get hit badly if there’s snow) and some new builds empty for 4 or 5 years…