Greek Situation

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prothero
 
Reply Fri 30 Apr, 2010 12:57 am
@Deckard,
Deckard;158270 wrote:
So is the bubble associated with Greek bonds somehow related to the real estate derivative bubble that popped and started the US/global recession? Or is the Greek crisis independent of that one?
Pretty much independent. The Greek crisis is sovereign debt problem (many years of government spending deficit covered by bonds, to the point that Greek government debt is now larger than Greek annual GDP) investors now are declining to buy Greek bonds and the government can not refinance or pay the interest on their debt. If you are a Greek bond holder you will not get your interest payment unless the world bank or Germany comes through with a loan and your bond may be worthless on the market. Sort of like an individual going bankrupt making it hard to borrow money in the future.

Many other countries have a sovereign debt problem as well aggravated by the global economic crisis (lower taxes, higher government expenditures, larger deficits, larger cummulative national debts). Even countries can only borrow so much money before investors wont loan them anymore, and if they default on current debt, it will be impossible to finance more debt. Economics 101.
 
jeeprs
 
Reply Fri 30 Apr, 2010 01:06 am
@Deckard,
Deckard;158270 wrote:
So is the Greek bond bubble somehow related to the US real estate derivative bubble that popped and started the US/global recession? Or is the Greek crisis independent of that one?


Independent, in some respects. The Greeks blew their budget badly in the lead up to the Olympics, they have a huge public sector, tax avoidance is a national sport, and they don't have much to export.

HOWEVER there are many who believe that the coming Public Debt crisis is actually Chapter 2 of the Crash of 08. Enormous amounts of public money were pumped into the world economies to keep them afloat. This has left a number of countries with huge national debts. The US Budget Deficit is in the trillions. The UK will soon have debts equal to 85% of their Gross Domestic Product. And what is worrying the markets is that if Greece defaults, it will have a knock on effect, first to Portugal, Spain, Ireland and Iceland. Then you will have a number of countries defaulting on their debts. This is what happened in Argentina in the 90's. It is called 'economic collapse'. So if they can prop up Greece, the market will retain confidence, we might squeak through. That is the thinking, although the Germans are going to make sure that the Greeks really clean up their act - read, slash their public payroll - so expect to see much more news footage of cars burning in Athens.

OK that is a worst case scenario. But don't let anyone tell you that everything is just fine and once demand picks up, it will be business as usual. Not true.
 
Deckard
 
Reply Fri 30 Apr, 2010 01:12 am
@prothero,
Is it that the UW real-estate derivative crisis was a global wake-up call that has caused all investors to become more conservative in their investments and since Greek bonds are too risky an investment? I mean are bubbles popping just because they were initially inflated with irrational exuberance and now since the crisis in the US no one is irrational and exuberant anymore? I mean is it just a matter of investors lacking confidence?

---------- Post added 04-30-2010 at 02:17 AM ----------

jeeprs;158279 wrote:
Enormous amounts of public money were pumped into the world economies to keep them afloat. This has left a number of countries with huge national debts.


Are you saying here that the money that was pumped into world economies was pumped in, in the form of loans to those world economies? And that it is these post 2008 loans that Greece is defaulting on?

Sorry I'm not very knowledgeble on this topic but I think I am asking the right questions.
 
wayne
 
Reply Fri 30 Apr, 2010 01:26 am
@jeeprs,
Some of our American cities are moving to a system where they hire a city manager to run the financial aspects instead of the politicians making those business decisions. Maybe we need to hire a federal manager to manage all of that from a business standpoint rather than letting politics ,with it's agendas, make the business decisions.
Good corporate managers seldom run for office, but we might be able to hire one.
 
jeeprs
 
Reply Fri 30 Apr, 2010 02:22 am
@Deckard,
Deckard;158284 wrote:


Are you saying here that the money that was pumped into world economies was pumped in, in the form of loans to those world economies? And that it is these post 2008 loans that Greece is defaulting on?

Sorry I'm not very knowledgeble on this topic but I think I am asking the right questions.


I am not schooled in economics, but I read The Economist, Time, a few of the papers. I recently read Niall Ferguson's The History of Money. That is about as much as I know. If anyone knows better, I will happily acknowledge it.

You might have heard the term 'economic stimulus' - that was the various Governments launching spending programs in the aftermath of the Sept 08 crash to prevent a recession, or depression. Enormous amounts of money. Some economists have argued that the net effect was to transfer the huge GFC liabilities from the balance sheets of private enterprise, to the public sector. Budget deficits are at record levels in US, UK, Japan, and quite a few other countries.

Governments have to borrow, same as anyone. They often borrow by way of bonds - that is what US treasury bonds are. When the bonds fall due, they are repaid, with whatever interest was promised. The Greek Government is getting to the point where it may not be able to repay its bonds. This is called 'defaulting on sovereign debt'. It means the country looses all credit-worthiness, and basically the Government goes bust. This has happened in Argentina - when was that, during the 90's I think. It ain't pretty. One of the stories that has come out in the last few days is that Goldman Sachs made 800 million or so, in the last several years, advising Greece on how to manage its debt. Again, GS walks away with a fortune. Funny that.

I don't know all the background on Greece in particular. I was dimly aware in the lead up to the Athens Olympics that their finances were said to be a mess. But now it is really coming to a crisis.

But the problem is that with all this red ink all over the government balance sheets, there is only so much that can be done if more bail-outs are needed. As I said in the OP, 2 years ago we were bailing out AIG and GM. But now we are bailing out national economies, not just companies. They are saying, well Greece is one thing, but what about Spain?Spain is much bigger than Greece. The economists are very worried there will be a knock-on effect - if Greece defaults, borrowing costs for the other vulnerable Euro-zone economies will put a squeeze on them. Iceland was decimated by the GFC, as you may recall, Ireland has just had the mother of all boom-and-busts in the property sector...it goes on.

I am hoping it will be managed. It might well be. There is a tendency in this day and age to feel the end of the world is nigh. But there are many clever people trying to manage it. Hopefully they will succeed.
 
Ali phil
 
Reply Fri 30 Apr, 2010 05:33 am
@jeeprs,
The Problem with Greece is that the governments have been so corupt ever sence the dictatorship the greeks dont trust the government. thus dont pay their taxes.
But the truth is nothing has changed in Greece, American Financers just chose Greece to attack to get at the euro.
J.P morgan and his 'Economic Eliteism facism' buddys are orchastating the whole thing. the fact is all countrys run off of dept. If all money owed was payed money wouldnt exist. Economics is made to look complicated, but really its all just enslavment.
Greece was just plot. And all your worries are just, as the world is basicaly screwed as long as there in a monatary systm in place.

---------- Post added 04-30-2010 at 11:38 PM ----------

All crisses are built into the system. Every one owes money. There is no way around it.
All Books from the 60s 70s 80s, about totaltarism and mass control/police state. It's all around us but we fail to see. All we can see is T.V, Porn (not that there is much difference) and illusions like equality and peace. when wars are also built into the system.


Zeigtgeist is an amazing documenty (both of them)
Anyone interested in this should watch it. its free just put it in google its very easy to find.
 
jeeprs
 
Reply Fri 30 Apr, 2010 05:46 am
@jeeprs,
I am starting to think that there is one thing that I absolutely, definitely want to get rid of in the next 2 years. So that, come Christmas 2012, I will have none of it left, not one bit of it, nothing.

And that is DEBT.
 
kennethamy
 
Reply Fri 30 Apr, 2010 05:58 am
@Deckard,
Deckard;158270 wrote:
So is the Greek bond bubble somehow related to the US real estate derivative bubble that popped and started the US/global recession? Or is the Greek crisis independent of that one?


Not that I know of. Greece has outspent income for some time now. Just the other day, Standard and Poor, the bond rating firm, reduced its bonds to junk bond status. That means that buying its bonds is a risky proposition. Many won't buy its bonds, and some cannot, by law, buy its bonds. And those who do bey its bonds will demand higher interest to make up for their risk. Therefore, increasing Greece's debt. Therefore it cannot finance its debt. Therefore, unless it is rescued, it will default on its debt. Nothing very complicated about it. It is a Greek tragedy, and like all Greek tragedies in the theater, it is of its own making. You spend more than your income, you get into financial trouble. Portugal seems to be next, and now, Standard and Poor has lowered Spain's rating too.
 
prothero
 
Reply Fri 30 Apr, 2010 02:18 pm
@kennethamy,
[QUOTE=Deckard;158284] Is it that the UW real-estate derivative crisis was a global wake-up call that has caused all investors to become more conservative in their investments and since Greek bonds are too risky an investment? I mean are bubbles popping just because they were initially inflated with irrational exuberance and now since the crisis in the US no one is irrational and exuberant anymore? I mean is it just a matter of investors lacking confidence? [/QUOTE]Well economic bubbles are a long term historical feature of markets even back to the famous tulip bubble in Holland in the 1600's. Yes, the recent economic downturn has reintroduced a semblance of sanity back into markets in all areas and the notion that values must continuously go up an up has been discounted. So investors are in fact being more cautious which is both a necessary and a good thing. Stock prices should reflect the actual profits and values of a company, home prices should reflect what real families can afford, etc. PE10 (profit to earnings rations over ten years) for equities are still well above historical averages, as are home prices to wages, and government debt to GDP. In short by historical standards things are still overvalued.

[QUOTE=Deckard;158284] Are you saying here that the money that was pumped into world economies was pumped in, in the form of loans to those world economies? And that it is these post 2008 loans that Greece is defaulting on? [/QUOTE]No, although the recent economic crisis has increased federal debts due to stimulus spending, loans, tax cuts and reduced revenues, the total federal debt is the result of decades of deficit spending (financed by bond issues) and is a result of an imbalance between government revenues and government expenditures. It is a systemic long term problem which now is becoming a crisis as investors begin to doubt the ability of the Greek government to reduce spending, increase revenues or pay the interest on their bonds.
kennethamy;158366 wrote:
Not that I know of. Greece has outspent income for some time now. Just the other day, Standard and Poor, the bond rating firm, reduced its bonds to junk bond status. That means that buying its bonds is a risky proposition. Many won't buy its bonds, and some cannot, by law, buy its bonds. And those who do bey its bonds will demand higher interest to make up for their risk. Therefore, increasing Greece's debt. Therefore it cannot finance its debt. Therefore, unless it is rescued, it will default on its debt. Nothing very complicated about it. It is a Greek tragedy, and like all Greek tragedies in the theater, it is of its own making. You spend more than your income, you get into financial trouble. Portugal seems to be next, and now, Standard and Poor has lowered Spain's rating too.

It is not rocket science and it is not that different from a small business or a household either. You can not indefinitely spend more money than you make (taxes for government) or can borrow (bonds).

There are several countries that have less severe but similar problems. Most of the "advanced economies" find themselves with extensive public service obligations(think roads, schools, education, courts, military, etc), large entitlement programs (think Social security, unemployment insurance, national health care), aging populations and smaller number of younger workers to be productive, pay taxes and support these service and entitlement obligations. The demographics are not pretty. It is unpopular to cut services, reduce entitlements or to increase taxes so many governments are running deficits and increasing national debt (national debt is typically financed through the sale of bonds). Several countries have federal debt burdens which are equal to or greater than their annual GDP (total value of goods and services for a year). Frankly when your national debt gets too high investors begin to doubt your ability to pay them back. They refuse your bonds, shun your currency, lower their holdings of your stocks or equities and refuse to make capital investments in your country. If a country actually does default on its debt all these things happen to a greater degree and it may be years before outsiders are willing to invest in your country in any manner. That can not be good for your economy.

Why not just print more money? Some countries have tried that and it just leads to runaway inflation and all the same results as default. Your money supply has to stay in some reasonable ratio to your actual GDP.
 
kennethamy
 
Reply Sun 2 May, 2010 09:50 am
@jeeprs,
And today (May 2) in the New York Times, a long report on how the evasion of taxes is a way of Greek life, and the reluctance to collect taxes is a set policy of the Greek government. What a tragic-comedy, evasion of taxes combined with a reluctance to collect any taxes, and a policy of insane spending on social entitlements! And what a recipe for financial disaster!

Greeks receive their annual pay in 14 salaries, receiving extra at Christmas, Easter and for their summer vacations.

Associated Press. May 2.
 
jeeprs
 
Reply Fri 7 May, 2010 05:42 am
@jeeprs,
so the world markets have just had their worst week since Nov 2008, which was the height of the (first phase) of the Global Financial Crisis, mainly due to uncertainty over the depth of the Greek problems. As forecast, footage has been shown of violent riots and cars burning in Athens, tragically also causing the death of three bank staff whose building was firebombed. And lest you think that this is just a Greek problem, the larger issue is that a number of European banks are in hock to the Greek government for many billions of euros....and also to the Portugese, Spanish, and several other Euro-zone countries with large deficits.

At least the Greek government, with commendable fortitude, actually passed the measures the World Bank wanted to see for debt reduction. Almost as a footnote, this will doubtlessly condemn many Greeks to years of reduced living standards and maybe actual poverty. Hopefully the problems can be staunched here and not spread to the other vulnerable EU economies. But at time of writing, this is far from certain.

Here's a philosophical question. There is a lot of talk about belt-tightening, reining in deficits, becoming more fiscally responsible. What does it mean for each of us? Or is it always only a problem for somebody else?
 
kennethamy
 
Reply Fri 7 May, 2010 05:54 am
@jeeprs,
jeeprs;161186 wrote:

Here's a philosophical question. There is a lot of talk about belt-tightening, reining in deficits, becoming more fiscally responsible. What does it mean for each of us? Or is it always only a problem for somebody else?


How is that a philosophical question, I wonder? It may be a personal question, of course. But what makes it philosophical?
 
prothero
 
Reply Fri 7 May, 2010 02:13 pm
@jeeprs,
The problems that got the Greek economy into trouble are not limited to Greece. There are any number of countries with aging populations, swelling government service and entitlement obligations, annual federal deficits and large total federal debt burdens. In fact most of the "advanced industrial" economies of Western Europe fit this description.

The population and the politicians are mortgaging the future and the living standards of future generations for their own current benefit. It is unsustainable. Take heed for there are many countries following in the footsteps of Greece. Markets can, should and will punish this kind of fiscal and economic irresponsiblity.
 
polpol
 
Reply Fri 7 May, 2010 02:27 pm
@kennethamy,
kennethamy; I suppose, then, that you are spending too much on these programs too. Canada is more socialist than the United States, but we are catching up ([I wrote:
tempis[/I]) so don't fret. What does one do when one overspends? You cut down on spending. What is more obvious?

You spend too much time alone with your computer (probably your best friend), to know what is going on in your own backyard, so don't even try to understand what is happening in Canada or in Greece, it's too much for you. You should take a break from the internet, you are getting pathological, pathetic...in case I did not make myself clear, I don't like you and your extreme rightist mentality.
 
jeeprs
 
Reply Fri 7 May, 2010 05:16 pm
@prothero,
prothero;161365 wrote:
The population and the politicians are mortgaging the future and the living standards of future generations for their own current benefit. It is unsustainable.


The thought that worries me is that the whole of Western society is doing this, and has been for more than a century. We have been writing checks against the future and they are being called in. Athens today, London 2012, and on and on. I really hope not.

Political leaders need to work out how to talk to the populace about taking responsibility. I don't know how it translates into policy - but there will have to be very big changes in social and economic policies to deal with what is developing.

Haven't reviewed this link in detail but it seems relevant:

Money as Debt, Animation by Paul Grignon
 
prothero
 
Reply Fri 7 May, 2010 05:47 pm
@jeeprs,
jeeprs;161420 wrote:
The thought that worries me is that the whole of Western society is doing this, and has been for more than a century. We have been writing checks against the future and they are being called in. Athens today, London 2012, and on and on. I really hope not.

Political leaders need to work out how to talk to the populace about taking responsibility. I don't know how it translates into policy - but there will have to be very big changes in social and economic policies to deal with what is developing.

Haven't reviewed this link in detail but it seems relevant:

Money as Debt, Animation by Paul Grignon
It has been said that democracy is an inherently unstable political system.

That once the populace discovers it can vote itself current benefits at the expense of future generations (or by taxing the minority) and politicians learn to pander to it for power and elections (populism) that the system becomes corrupt and unsustainable. In the end you get the government you deserve and vote for.
 
jeeprs
 
Reply Fri 7 May, 2010 06:02 pm
@jeeprs,
I actually trust Government rather more than I trust the banking sector. I don't think there is too much wrong with the theory of government, but there is obviously a lot wrong with the financial sector. As that Money as Debt film says, why is it that at the end of all this, everyone is in trouble, and we all end up having to give the banks trillions of dollars? There is a lot wrong with the theory of money.
 
prothero
 
Reply Fri 7 May, 2010 06:55 pm
@jeeprs,
jeeprs;161435 wrote:
I actually trust Government rather more than I trust the banking sector. I don't think there is too much wrong with the theory of government, but there is obviously a lot wrong with the financial sector. As that Money as Debt film says, why is it that at the end of all this, everyone is in trouble, and we all end up having to give the banks trillions of dollars? There is a lot wrong with the theory of money.
I would say you shouldn't. There is a lot wrong with the theory of government. It is government that sets the money supply and the federal funds rate (which controls most interest rates) and inflation. It is government that set taxes and controls federal spending (hence national debt levels and annual deficits). It was government that decided everyone should own a home and decided to back most home loans to low income and disadvantaged groups with federal guarantees. It was government that decided that investment banks did not need to have adequate reserves like commercial banks. Government sets the rules on the playground and then the smart guys play the game to their advantage as any rational and intelligent person would expect.

It is government that promises entitlement and security programs (national health care, social security, unemployment, medicaid) and then fails to adequately tax to pay for them or to maintain their fiscal solvency. True markets (those with true competition and multiple players) are ruthlessly efficient and allocate resources much more efficiently and effectively than politicians and governments. Markets represent the theorectically free choices of consumers, employers and producers and thus are in many ways in theory more democratic than politics. Governments often distort markets and delay the inevitable corrections.

True there is always a balance between "free markets" and "government regulation" but in many ways the financial crisis was government backed and government inspired (moral hazard). There is actually more than enough blame to go around (consumers borrowing, and buying beyond their means), creditors making loans without adequate security , and government regulators and politicians doing what is popular instead of what is fiscally responsible.
 
jeeprs
 
Reply Fri 7 May, 2010 07:01 pm
@jeeprs,
but we get to participate in the process of government. There is no way to participate in the machinations of the financial industry, unless you're one of the Elite. All of this 'small government' theory of Reagan and Thatcher is what opened this can of worms in the first place.

Left to its own, the free market will become dominated by those ruthless and cunning enough to rule it. There is an inexorable movement towards monopolization of resources and power by the wealthy. So the rich get richer and the rest get shafted. This is measurably the case in the United States of America. A larger and larger proportion of the national wealth has ended up in the hands of the top 5 percent, while the number of working poor continue to grow and real income for the middle class stagnates. This can all be documented, it is not simply my opinion.

The way in which the GFC was government-inspired was simply because the republican cronies of the financial sector let them play fast and loose with other people's money - our money, and our children's money.
 
salima
 
Reply Fri 7 May, 2010 07:17 pm
@jeeprs,
the banks control the governments, not the voters...or so it has been said.

there really is no good way to change anything by going through the process of government-that is why the world is starting a revolution, one country at a time, and where it will end nobody knows. in the old days, sit-ins and non-violence could make a difference-but they have lost their power, they are not a surprise any more, and people have become disillusioned and feel there is no way to make an effective change, so now i think they are beginning to vent about it-they also must know that revolution is not going to bring about anything but total destruction.

i do believe it is the economy that will bring down the destructive value system that progress has adopted. it is like a baby eating candy-he discovers it, he loves it, he eats it, and if there is no one to stop him he will get sick on it before he figures out there is a problem. that's ok, he will learn something. but if it is rat poison he has been eating, he wont get a second chance.

of course it is a philosophical question; this involves values and ethics among other things. but again it is only a case of trying to think what went wrong.

i dont think anyone can do anything about it, the people who are running the show are going to get caught in their own trap, and we will all go down with the ship. whatever comes out of it, whatever is left, if there is anything left at all, will be a new beginning and another chance. probably the last one.
 
 

 
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