WatchHere's the timeline as I understand it. I welcome anyone to make corrections or additions since this is a complicated subject. Greece is currently experiencing a Lehman Brothers style credit deterioration/meltdown. The cost of borrowing is going up faster than Greece can cut their deficit.
I also want to point out that by EU standards, the United States is insolvent. Our debt will exceed 100% of our GDP this year and our budget deficit is 12.4%. (EU limits deficits to 3% of GDP) The only thing protecting the United States dollar is momentum and faith. Anyway here is the time line:
- Greece allowed their budget deficit to exceed EU rules by 400% and their own estimates by more than double.
- The old government hid this fact in an apparent attempt to defraud the EU central bank and keep their bond rating high.
- In November, the new government announces desperate measures required to save nation from bankruptcy and default.
- On December 7th, S&P puts Greece on the downgrade watch list.
- On December 8th Fitch cuts Greece from A- to BBB+ with a negative forecast.
- On December 14th the Greek government slashes spending everywhere in a desperate attempt to eliminate the budget deficit. Wages are cut, people are laid off, social programs are slashed, taxes are raised on the rich.
- On December 16th S&P downgrades to BBB- saying even these radical steps aren't going to help much.
- On December 22nd Moody's cuts Greek debt from A2 to A1. Bond selling accelerates and Greek stocks get caught in the crossfire.
- In January the EU shows up and demands answers.
- In response, Greek government announces new even more drastic cuts in government spending.
- Unions have had enough and plan massive nationwide strikes.
- On February 2nd, the Greek government freezes all government wages for 2010 including people making under 2000 Euros per month. (low income)
- On February 10th Unions hold the first nationwide general strike shutting down nearly all transportation, government services, and hospitals.
- Also on February 10th Moody's threatens to cut bond rating to A3 or even Baa1 if budget cutting efforts are only partially successful.
- On February 11th the European Central bank starts to panic. They imply that the EU will not let Greece default on its debt without actually guaranteeing they will cover the debt. Greek bonds improve slightly.
- Prior and up to Friday February 12th there is widespread speculation that other EU nations may be in similar trouble, and passing the hat for a Greek bailout might send Spain and Portugal over the edge next. It is believed that both of these nations are in worse shape than Greece. Both have larger debt imbalances. The fear is a cascade failure on the scale of an entire continent.
- Stay tuned for Monday!
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Update: Greece will default on its debt and both Portugal and probably Spain will follow. That seems to be the consensus now, and is the reason the stock market took a dive earlier in the week. The potential consequences depend on who you're listening to:
1. Nothing. Investors will understand that Greece (and Spain and Portugal) are small nations relative to the world economy and will absorb the losses.
2. Chain reaction systemic collapse of European credit. Losses in G.S.P. will result in defaults elsewhere and the result will be Icelandic-style bank failures for poor nations and USA-style bank bailouts for rich nations. Money will flood into the Untied States as the mythical last safe haven and cause a much bigger recovery than anyone expects. (alternate: Money will flood into China)
3. Chain reaction systemic collapse of world Credit. Investors will realize that United States and UK books are actually much worse off than Greece, and on a scale hundreds of times larger. Money will flood into gold and the bond bubble will collapse in every nation. Both the Euro and the dollar will begin terminal devaluation.
Place your bets folks, place your bets............
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iwog says
I'm thinking they just kick Greece out and postpone the break up in the Eurozone.
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Postpone is right. I remember thinking back in the 1990s when all this was coming together that a group of nations full of prejudice and hatred and bloodshed going back 3000 years was not likely resist the temptation to cheat on the currency.
I'm not sure what's going to happen.
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What happened in Greece... stays in Greece.
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iwog's posts on this thread are outstanding. He definitely has an an ability to think out of the box. Regarding his 11:40am 4/29 post/question, I think it will start like #2, then US credit rating will deteriorate, although not to the same extent as the PIGS (Portugal, Italy, Greece, Spain)
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Grecian formula? http://ur.lc/j2a
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iwog says
Has there ever been a time in history where countries didn't cheat on their paper currencies with international trade?
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theoakman says
Why restrict your thinking to paper currency? There hasn't been a time in history when countries didn't cheat on their currencies of any type.
The cat is out of the bag on Greece. The IMF will be picking up over 30% of the bill as junior debt. Why does this matter? Because the IMF is 40% funded by US taxpayers. So our tax dollars will be subordinate to the money owed to European banks. IMF has been almost always senior debt in the past. The US taxpayer will be on the hook subsidizing Greek style wages and benefits, including almost unbelievable retirement benefits for Greeks who can retire at age 53. Of course the possibility exists that the Greeks will put their fiscal house in order for the first time since Plato, repay all the debt, and everything will be fine.
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Huge flight to the dollar today due to predictions that the Greece bailout is too little too late.
The dollar is up over 1% across nearly every currency.
It's also causing a dip in interest rates. If you need to lock in a mortgage, today is probably the day to do it.
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What's going to happen if Spain and others have a similar issue? Or are they not in as much trouble?
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mthom says
Depends on who you ask. Some people say that Spain and Portugal are in more trouble than Greece. It's generally accepted that all three will eventually default without a bailout of some kind.
I'm waiting for a plan to consolidate the Euro back to the original 7 nations and allow weaker nations to opt out. I think that's the best plan to fix this. Then the default might only be a default back to a depreciated currency, and not something that threatens the entire Eurozone.
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Spain is a MUCH bigger economy than Greece, so Spain's problems matter a whole lot more.
Maybe we should let California out of the union, give it its own currency and let it default. After all, any country stupid enough to give home buyers money as it goes under a tsunami of red ink would not get an IMF bailout.
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iwog says
I think that such a blow would weaken the Euro to the point where the monetary union would dissolve. I wouldn't be surprised to see the Euro drop to the $0.75 range in such an event.
Beyond that, it's not clear that the other Eurozone countries are all that sound. France has an enormous debt problem. Germany is OK (relatively speaking), but the union as a whole isn't all that sound.
I'm guessing that the ECB will start an inflation inducing policy, though they'll try to time it to coincide with similar actions from the federal reserve.
I'm guessing that the Swiss are feeling pretty smug about now.
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robertoaribas says
California pays more money to the federal government than it receives. Cutting California off from the rest of the country would actually FIX the entire problem since we could use the money to balance the books.
Gotta be careful when considering states that provide the largest share of wealth production in the country. You need us, we don't need you. =)
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iwog says
What the hell happened? Aren't we supposed to get our fair share? Californians are so smart. We make a lot of $$ and pay a lot in taxes. Why the hell did we vote for stupid politicians that couldn't negotiate for our fair share of the tax money?
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iwog says
Not to mention all of the federal taxes being paid by hollywood and silicon valley that would go to CA instead of the fed. You could probably provide the equivalent of social security, expand medical to match medicare/medicaid, raise a reasonable army, and still wind up with lower taxes than the current federal + CA burden.
Hell, California might be worth moving back to if that happened.
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Anyone notice how the rugged individualist anti government states like Alaska and Wyoming get a lot more money back from the federal government than they put in, yet they never complain about it? Why didn't Sara Palin just sent the money back?
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Could it be because they have better negotiators/politicians? I say demand our stupid politicians to negotiate for our fair share of the tax revenue and hang other states high and dry. Maybe by then, they would listen to us. Who knows, they might even move to California since we have so much $$.
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No, it's because every state has two senators, and the senate has a disproportionately large influence compared to the house. This is a fairly well established issue. Idaho gets the same say in the senate as California.
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That may have been true in the past, but not true over the past couple of years http://ur.lc/j56 , and probably will not be true for many years. From a study commissioned by Barbara Boxer:
With an economy in a downward spiral and state & local pensions and other spending out of control, I see no end in sight to CA becoming a massive leech off of taxpayers in other states in the foreseeable future.
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I agree that spending reform needs to be broad based, and that welfare and illegal immigrants are a huge drain, but I disagree with your trying to minimize the pension problems. CA's largest 3 pension funds are facing a $500 billion shortfall. The problem is that public employees were bestowed lavish pension programs which enable them to retire at age 50 or 55. The number of govt employees retiring at a relatively young age with $100k/year pension packages has got to end. When you speak of "taking it from the working people", that's exactly what the govt pension programs are doing - if not slashed, they will end up forcing average workers to bust their @ss to age 67 or 70 in order to subsidize Carribean vacations for 52 yr old government retirees. Overly lavish govt. pensions are probably the largest financial timebomb that we face. Govt employees should pay for their own retirements by saving for themselves using IRA's and 401k's just like the rest of us.
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The alternative to these dreaded riots is to sock it to average workers to subsidize lavish pension and benefits programs for govt. employees. Government offered too-lavish pension programs that never should have been offered in the first place. We can't afford them. It's either make other non-govt workers pay to subsidize these extraordinary cushy benefits, or cut the pension benefits for the govt workers, which never ever should have been so generous to begin with.
Yes, govt. workers had a contract. But those govt. entitities which offered those contracts are, or will be, bankrupted as a result. Let the pensions fight it out in bankruptcy court like any other creditor who also has contracts. The alternative is to raise taxes and retirement ages on average workers to pay for government pensioners retiring at age 50. It's not "rubbing their faces" in anything to ask govt workers to save for their own retirements just like everyone else. I don't have any pension. I won't get paid for accumlutated sick days at retirement. Neither do most workers in private industry. Let the govt. employees save for their own retirements like everyone else and get their hands out of my pockets.
Out of control welfare, fraud under govt. programs and illegal immigration are also very costly problems. But the cost of the inflated number of govt. employees, who have inflated wages (federal workers now earn substantially more than their private industry counterparts, not including benefits which widen that gap further) and their lush pension system is a large, perhaps the largest financial time bomb that we face. It must be dealt with
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Here is a classic example of the problem http://ur.lc/j59
This is exactly what needs to happen with these public sector unions. Those govt. salaries and benefit packages never should have been inflated to that extreme to begin with. Bring them back down to earth to live like the rest of us. More firings and cutbacks like this need to happen across the country.
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Well, converting a pension to a defined contribution plan means more drain on the tax payer dollar for the short-term, as the new hires would no longer be required to pay in and the tax payer has to fully foot the bill for the current and future retirees who already have a pension contract. We wouldn't see any savings, if there are any, for at least another 10 or 15 or perhaps more years. Defined contribution plans don't perform as well as pensions anyway, but that's a whole 'nother topic (have we forgotten already what happened to our 401ks in 2008?).
For every dollar that tax payers put in to a public pension plan, some multiple of that is paid out to retirees. Not funding it just means more poor retirees, and now we're back to tax payers footing the bill. There's really no way around it. Pay less now or pay more later. Those seem to be the choices.
Pensions are always underfunded. It's the nature of the instrument. That's not really a sky-is-falling issue though, because we will never have a day when all government employees in a pension decide to all retire on one particular day and start taking benefits.
I don't think we have to have a riot about it. Besides, U.S. citizens are panzies compared to the Greeks and the French. We don't scare our government nearly as well as they do.
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Your suggestion is based on the premise that we must pay for the pension contracts. Let the states and local govts go bankrupt and have the Cadillac gold plated pension funds fight it out for the leftovers in court with other creditors who also have contracts. In other words, fight like hell not pay for those lavishly inflated pension benefits which never should have been offered in the first place.. there was not enough money to make good on those contractual offers and they never should have been made. Let the bankruptcies begin so that we can create a more realistic, and more stable foundation for future economic growth in this country.
It is not "written in stone" that we make good on those pensions.. because if we do, we're forcing average workers to work until 67 or 70 to subsidize govt. pensioners retiring at 50. Screw that.
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Your suggestion is based on state and local governments (i.e. employees of the state and local government) filing for bankruptcy so as to avoid paying pensions to state and local government employees (i.e. themselves).
It seems unlikely.
There are just too many people with a vested interest in keeping their own contributions that they made into the system. Same holds for Social Security. As broken as it might be, we want ours, because we paid in too.
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I've gone out of my way to point out the pensions are not the "only" problem. In fact, I've repeated that point. I can only assume that any future assertions from you on this point are willfully dishonest. I have SS income coming, hopefully, and I have my personal savings through IRA and 401k. My problem is with public employees who demand retirement pension far beyond anything that they've contributed.. because anything beyond what they've put in beyond reasonable interest (5% annual compounded interest) is coming out of the backs of hardworking Americans. Fck the public sector employees who demand one cent beyond that. Let them live like the rest of us. Because regular Americans will end up subsidizing their excessively lavish retirements.
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If a public sector employee retires now at around $90k/year income after 30 years in public service.. that means that they likely started out at around $18K/year back in 1980 which wasn't bad back then if benefits were good. Public sector employees don't have to pay SS like most regular folks. So if you take the 6% annual pension payment that we pay in the private sector for SS compounded and they pay that into their pension program without obligation to pay into SS, my problem is that these individuals, at age 51 or 52, are demanding that we pay retirement benefits to themselves of 80% or more of their peak salary years. Please. No one gets that who works in the real world. Yet that's what govt. employees receive. It's outrageous. Fck public employees who leech off average Americans. They are a huge part of the problem even if they're too dishonest to admit it.
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ZippyDDoodah says
Why are people continuing to repeat this lie in 2010?
Most public sector employees, including *ALL* federal government employees pay social security taxes. Some state programs (those that have private retirement plans) opt out, though most do not. The SSA estimates this to be less than 30% of state and local employees at present according to their website. Note that these people pay no SS tax *AND* receive no benefits, because they have a separate retirement plan.
Not all states are stupid like California and paying out 90% of peak salary to people for 30+ years after they retire.
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Zlxr says
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I stand corrected. Federal employees started paying SS back in 1984. Previously federal employeed did not pay into SS. Many state and local govt. workers (and railroad employees) do not pay into SS. Although that's useful to know, it doesn't change my main point. There still remain some serious questions to be answered - Do these govt employees who pay SS, are they able to collect SS benefits + govt. pension, or only SS like the rest of us in the private sector? If they collect SS + govt. pension, what, if anything did they contribute into that pension system versus what are they collecting, and when can the begin to collect? Can they start collecting benefits at age 50? If they can collecting their govt. pensions at age 50 or 52, that's a huge problem, because that lavish benefit has to be paid for by others.
With SS, you can't start collecting until you're 65 unless you agree to take reduced benefits.
Another point - With the massive expansion of government, Federal workers are now paid FAR more than their counterparts in private industry http://ur.lc/j6i . On average, federal employees earned $71,206 per year, compared to $40,331 in the private sector. Are these federal employees also getting a lavish pension that they paid little or nothing into which is being subsidized entirely by the "average $40,331" folks? Leeches sucking the blood out of private sector workers
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I don't believe it. Please cite. As I understand it, there's not a state/local/federal worker who worked at least 20 years, who will these days (now) retire at anything less than 50% of their highest years salary. But they can start collecting after just 20 years. Why, at such a young age, are they not required to work until 65 before receving their benefits like the rest of us? It's the early retirement age, like in Greece, which is sucking the money out from everyone else. And I use the term "sucking" because they are taking out far more in benefits then they ever put into the system.. the opposite of what happens to most of us with SS, in which our contributions keep increasing but the benefit rise does not correspond to the increased contributions
Those that worked for government for 30 years retiring now get 70% - 90% of their HIGHEST EARNING years in pension, and often they artificially inflate those "highest" earning years with overtime and sick days, or transfer to a temporary high-paying job. Google it.
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I think you're mistaken in that 70% - 90% of peak salary in pension, even if they're only 50 years old, is paid out by city and state govt. pension plans across the country. I had my eyes opened to this recently with a 51 year old neighbor who "retired" from the City of Houston at 50% of her salary after only 20 years of working there. That, and other pension program articles I've read lead me to believe that it's not "just" California, but the modus operandi for many/most city and state pension retirement systems.
What's even more unfair is that the govt. pension programs are defined payouts. That is, while the rest of us watch our IRA/401k retirement nesteggs rise and falll with the stock market, government employees are insulated from any downside because taxpayers end up subsidizing them if there's a shortfall. They're "special" in that that they a) demand that taxpayers fund any shortcoming to their lavish pension system b) they can start collecting at age 50 and c) they typically collect FAR more in pension $$ and benefits than they put into the system, even considering compound interest
68 year old private sector workers having to work to subsidize the lavish retirement cruise ship vacations of 'retired' 50 year old government workers is not an exaggeration.
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Why should govt workers be treated any more "special" than everyone else? Do you think that private sector workers who don't have lavish retirement plans like govt workers aren't also facing trouble taking care of family members who were laid off? That's what chaps me off, is that the govt workers demand that they be treated more special than others. It's like a welfare mentality, and it needs to stop
Regarding the 90% of highest earning years being typical or not typical, I checked locally the City of Houston, not known for lavish benefits, and their pension system pays out 90% of the City employee's highest 78 paychecks, and they can retire anytime with those benefits after 30 years, at age 51 if they started working at age 21 - http://ur.lc/j6n . On top of that, they also get health insurance and social security benefits (although they paid into SS, so that SS is not a big deal). Seems that 70% - 90% of top earning years in pension payments is TYPICAL across the US with govt pensions, not some isolated example like in California. Govt workers are sucking out far more benefits than they contributed and that's the crux of the problem.
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Public sector employees have become so spoiled and detached from the real world, that they believe that retirement at age 50 with 50% of their former salary is not being paid so well. Age 50, you should have to work until you're 65 unless you save for it YOURSELF.
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ZippyDDoodah says
What does that mean? When did pensions in the private sector get outlawed if you collect SS?
Zippy, although far too much of a drama queen, is correct. Like Greece government pensions in the US as currently structured are simply not financially sustainable and abuses of the systems are rampant. Not all, but a majority.
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theoakman says
It's a beautiful philosophy... If the economy recovers, claim success regardless of the degree government "stimulus" affected it. If the economy doesn't recover, simply claim that not enough was spent. Like many of Freud's theories, it's a blanket approach - covers all circumstances.
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ZippyDDoodah says
That's because they used to pay into a system just like social security that predated it by over 30 years -- a system that SS was based on. In 1984 they folded the old system into SS.
ZippyDDoodah says
Why on earth do you think private sector employees "only" get to use SS? I have an excellent private retirement plan from my private employer -- 50% match on my 401(k). Some people still get pensions, though that's pretty rare these days.
And, yes, many public sector employees (the unionized ones in general) do have separate pensions in addition to social security, and they pay into them.
This isn't exactly hard information to find.
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Congrats. That comes out of private money, not taxpayers' and that's a huge difference. Also, you can't collect on that $$ at age 50 without massive penalties, can you? The main problem, which you appear too dishonest to address, is that public pension recipients are taking out FAR more than they contribute, and average taxpayers are being asked to foot the difference.. Which means 68 yrs olds asked to continue to work so that govt. retirees can enjoy 90% of their peak earning years starting at age 50 or 52. It's absurd beyond belief, and like in Greece, it's bankrupting our country. Earlier you made the assertion that 90% pension payouts after 30 yrs were uncommon for govt. employees. Yet the 90% payout, or a percentage very close to it, is common. I cited an example upthread.
It's not like that information was exactly hard to find asswipe
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ZippyDDoodah says
Oh, it gets worse. Did you know that their SALARIES and BENEFITS come out of tax dollars? You'd almost think that they were employees of the government or something!
ZippyDDoodah says
If you have a problem with the way that a public employer chooses to compensate its employees, why not vote for people who will change it? If you can't find someone who will, why not run your self?
ZippyDDoodah says
Yes, you found an example. That still doesn't make it common. I can find an example of a giant idiot posting on a forum, but that doesn't necessarily make it common.