patrick.net

Strategist says

thunderlips11 says

This is great. The Euro primarily benefits Germany and hurts Southern Europe. Germany has made out like a bandit on the EU and Euro Currency.

Thunder, you really think living beyond your means is advisable?

The US doesn't do so? Not just the Public Gov't debt, but the Private Debt.

Before Americans complain about Greece, they oughta start with many aspects of our own system. Mote in eye and all that.

In a world full of fiat currencies, arranging a common currency for separate national entities with separate governments is just a recipe for disaster. Why should smaller nations like Greece care about the strength of such a currency? Instead it's every nation for itself, out for as much "free money" as possible, which inevitably leads to yet another "tragedy of the commons."

Even states like we have in the US often chafe at having to balance their budgets. Some even come close to bankruptcy like Michigan, Illinois, and California. All blue states, btw.

thunderlips11 says

If Greece starts causing trouble, Spain and Italy will start causing trouble... then possibly France...

France is also paying for Greece. Do you think they want to pay more and see the Greeks having fun while themselves are forced to consolidate?

You may say whatever you want about the austerity imposed, the facts remain: others are paying for Greece, they don't like it, and Tsipras (and Greeks) would do well recognizing that and start acting like they are doing him a favor.

They all know Greece doesn't really belong in the euro.
They all know it should get out.
They all know Greece will eventually default, meaning they know they are losing all the money they are lending.
They have all prepared and are still preparing for that. And when it happens, it's not the rest of Europe that will suffer the most.

thunderlips11 says

There's a whole lotta bad blood in the Eurozone over Austerity, Strong Euro Policies, etc.

To say a country like France is running austerity policies when they still have a large deficit and a fast growing debt doesn't make a lot of sense.

To say that they have 'strong euro' policies when they are printing a trillion and the euro is plunging also is doesn't fit with reality.

Most of what they are doing is not austerity, they are trying to do structural reforms to enhance competitiveness, and this is what is extremely unpopular because some people see their little advantages going away. Tough.

Heraclitusstudent says

To say a country like France is running austerity policies when they still have a large deficit and a fast growing debt doesn't make a lot of sense.

Explain Iceland. A country with few resources, it flips the bird, and recovers the fastest. The rest are flagellating themselves - some like Spain and Greece to a great degree, others like France where workers have more balls to a lesser degree. In those countries who think austerity will appease the Econ God to make the rain fall again, they've recovered the slowest and the weakest. Some really aren't recovering at all.

It's hard to fire up demand and bring jobs when wages and benefits are being slashed. We already learned this lesson 1929-1932.

Austerity is a pleasing, but false, morality tale.

Heraclitusstudent says

To say that they have 'strong euro' policies when they are printing a trillion and the euro is plunging also is doesn't fit with reality.

It doesn't matter how much they print, when the Euro remains relatively strong against other currencies.

Same with the US, the Fed can print like a madman, but the USD is still the currency of record and stays strong, so it doesn't matter - at least not yet.

thunderlips11 says

Explain Iceland. A country with few resources, it flips the bird, and recovers the fastest. The rest are flagellating themselves

That's BS. Of course you can let you entire financial industry go bankrupt and recover after that. And that means you stop borrowing. THIS is austerity, not what Europe is doing.

What Europe is doing is trying to have it both ways: keep their generous social lifestyle and at means keep borrowing, and that means honoring past debts. Generous social lifestyle in Europe requires bending to the will of a large financial industry. This is the exact opposite of what lefties would have you believe.

I wonder if the lenders were smart enough to require collateral?

Lenders knew from the get go they would not be repaid.

thunderlips11 says

If Greece starts causing trouble, Spain and Italy will start causing trouble... then possibly France...

correct that is why the EU can't just let Greece get better terms. I disagree that germany got the better of the deal
Its the other way around the poor countries because they were part of the euro got to borrow tons of money at super low rates to pay for their spending programs. If they were not in the Euro they could not have raised that much dough and would not owe so much now-dual edged sword.
With out european backing how is Greece going to pay for all the promises. Even if they get out from having to pay past obligations, they still have no tax revenue or assets.

thunderlips11 says

Explain Iceland.

Iceland is totally different and much smaller. Greece didn't get screwed at all -THEY overspent and came running for a bailout that had surprise surprise conditions which they call "austerity" attached.
No one can answer WHO is going to pay for the new benefits, higher minimum wage etc .
Unlike venezueala , greece has no oil

Heraclitusstudent says

What Europe is doing is trying to have it both ways: keep their generous social lifestyle and at means keep borrowing, and that means honoring past debts. Generous social lifestyle in Europe requires bending to the will of a large financial industry. This is the exact opposite of what lefties would have you believe.

Slashed spending aggressively

Unemployment rate skyrocketed, remains sky high past 20%, with only the slightest improvement recently:

Raised Taxes

Except on Corporations, which had their taxes cut:

Only to end up with about one year of "meh" growth after about 4-5 straight years of Austerity with increasing spending cuts and tax increases. How much of that is a general European extremely weak recovery, and how much is a result of policy? Who knows:

Heraclitusstudent says

What Europe is doing is trying to have it both ways: keep their generous social lifestyle and at means keep borrowing, and that means honoring past debts. Generous social lifestyle in Europe requires bending to the will of a large financial industry. This is the exact opposite of what lefties would have you believe.

What Germany is doing is trying NOT to devalue the Euro to benefit exporters, particularly the agra and tourism heavy economies of Southern Europe, in order to maintain German Financial Sectors. They are pursuing the same "Strong Currency" policies the Fed tried at the onset of the Depression.

Strong currency to help the financial industry is also why the UK and US lost their industries in the 70s and 80s. Pittsburg and Manchester were thrown to the dogs to protect Wall Street and the City. Berlin is doing the same to Rome and Madrid to keep Frankfurt on top.

It is a current account thing, there are two sides of a trade. Germany made the loans in order to have customers. This automatically increases the money supply in the PIGS and forces saving in Germany. The saving is at the national level not at the consumer level. This is the same deal in China, in both cases it is mercantilism China by lowering the value of the Yuan and Germany though controlling the interest rates.

Spain will leave the Euro first, they have no choice it is either that or continued 25% unemployment.

The source of my thinking is from Michael Pettis' "The Great Rebalancing"

TL, did you not get the memo; the ECB has fired up the printing presses.

EBGuy says

TL, did you not get the memo; the ECB has fired up the printing presses.

I was speaking historically. But it's wonder that FINALLY, the ECB is engaging in some serious printing. That strong Euro was a killer. The ECB finally gave in to pressure - lots of elections around the corner, Greece just happened, and Spain is coming up real soon.

Now, watch some magic happen - in fact, it already has been for several months as the Euro has declined.

thunderlips11 says

I was speaking historically. But it's wonder that FINALLY, the ECB is engaging in some serious printing. That $1.30+ Euro was a killer.

Taint gunna work. The reason that is has the appearance of working in the US is that we are a debtor nation, Japan and Germany are a net saving countries, so inflation does them no good, just the opposite.

indigenous says

Taint gunna work. The reason that is has the appearance of working in the US is that we are a debtor nation, Japan and Germany are a net saving countries, so inflation does them no good, just the opposite.

Deflation makes debtors default, so a balance has to be struck somewhere. There's a ton of politics in here of course - I amended my above post to reflect it.

There was also an attempt by Euro Neolibs (and led by Germany) to stop QE in the Courts, they have failed. Now they are trying to limit it.

TL said: Now, watch some magic happen - in fact, it already has been for several months as the Euro has declined.
The magic is going to happen in the countries that got lean and mean. I fear that Greece is not one of them. Its generational warfare over there and when you break the bank, the pensioners will get clobbered. Ultimately, its probably better for the young, but, as HS said, it will be a true austerity felt across all of Greek society.

thunderlips11 says

Deflation makes debtors default, so a balance has to be struck somewhere. There's a ton of politics in here of course - I amended my above post to reflect it.

Deflation is going to occur no matter what Draghi does, it is part of the business cycle, the cheap money Draghi created exacerbated the problem.

The politics are that Draghi is fighting for his life. In the end the Euro will disband, I guarantee it, the PIGS first, led by Spain

indigenous says

Deflation is going to occur no matter what Draghi does, it is part of the business cycle, the cheap money Draghi created exacerbated the problem.

I thought Austrians believed that money printing inevitably results in hyperinflation. Just like it did in 2010-2012. :)

The PIGS may still leave, that I agree with.

The spending habits are created by the countries monetary policy not the other way around.

The consumers in countries change when the policy changes. Germans were not always savers nor were Chinese.

thunderlips11 says

I thought Austrians believed that money printing inevitably results in hyperinflation. Just like it did in 2010-2012. :)

Some did, Mish pointed out that it did not occur because 4 trillion is 6% of the money supply.

It actually created deflation in 08 as lenders pulled back on loans.

thunderlips11 says

Only to end up with about one year of "meh" growth after about 4-5 straight years of Austerity with increasing spending cuts and tax increases. How much of that is a general European extremely weak recovery, and how much is a result of policy?

Let me explain these charts for you: Spain had a large account deficit before the crisis. It was living off increasing debts, private debts in that case (it was more gov debt in Greece), caused by a housing bubble.

They HAD to solve this through the only ways possible: increasing productivity and cutting spending. Increasing productivity means cutting corporate taxes (and deregulation). Cutting spending means cutting gov deficit (raising personal income taxes) + cutting private spending (sales tax).

What they saw during these 5 years is not the consequences of austerity policies. These policies and the rest are just the fallout of the orgy in the years before that. And they are in a FAR better position now, in spite of what you can say of the unemployment. At least they have a path forward.

If you think there is a combination of weak money and gov spending that would have allowed the previous orgy to continue, you must believe in Santa Klaus.
Just because the US is doing it doesn't mean Spain could do it.

Heraclitusstudent says

Let me explain these charts for you: Spain had a large account deficit before the crisis. It was living off increasing debts, private debts in that case (it was more gov debt in Greece), caused by a housing bubble.

It was experiencing a housing bubble, caused by banks (including foreign banks) inflating the property markets in Spain.

Let's remember the same banks that caused the property bubble were the ones that fought and got deregulation over the past few decades. They insisted that more was necessary, even until that brief moment when "Wile E Coyote" was flailing in space just off the ledge above the chasm, that it was merely a rest period before continued growth.

They then begged for bailouts and got them. Government borrowed and printed and guaranteed with the public purse outrageous sums for these private institutions' bad debts.

We should remember that under post-Depression laws in most of the World (including original EU legislation) tightly regulated banks and no serious asset bubbles worldwide (or really nationwide) had appeared in property markets the late 90s, early 2000s super deregulation round.

Not only did deregulation cause the asset bubble, it misdirected countless trillions to construction and land purchases, at the opportunity cost of other segments of the economy, from retail to R&D to manufacturing.

In a word, huge scale "Malinvestment" that went unrevealed much longer than it should have.

Now, let's think about who is recommending Austerity. Banks who started the asset bubbles in the first place, like DeutscheBank. Institutions that backed deregulation to the hilt, like the IMF.

So the solution isn't to continue to starve non-financial segments of the economy through weakened spending, lowered demand thanks to stagnant/lower wages and higher unemployment, and increased taxation, but stop further damaging these sectors by forcing them to pay off the debt to the very banks and institutions that started the crisis.

We missed the opportunity to take a short term big hit by eliminating bad debt, making financial companies and investors eat their losses, and spreading their remaining good assets to new or more conservative institutions.

The solution now is most certainly not to continue to feed the parasite that caused the illness, but rather feed the rest of the body to get strong and healthy again.

Money is not backed by gold. Anything "Destroyed" by tossing out bad loans can be printed (or really created digitally) again and reinserted into the economy by a variety of transactions: Large infrastructure projects, R&D Grants, and flat out checks written to households.

thunderlips11 says

Now, let's think about who is recommending Austerity. Banks who started the asset bubbles in the first place, like DeutscheBank. Institutions that backed deregulation to the hilt, like the IMF.

Funny stuff, they make loans to countries who were not credit worthy and then want austerity.

thunderlips11 says

Not only did deregulation cause the asset bubble, it misdirected countless trillions to construction and land purchases, at the opportunity cost of other segments of the economy, from retail to R&D to manufacturing.

Nope once again, Glass Steagall did not regulate the derivative market, so it would have made no difference.

The solution is NO bailouts to mark to market, and let the market figure it out. It is infinitely smarter than you or Yellin or Bernanke or Draghi.

thunderlips11 says

Not only did deregulation cause the asset bubble

Non-recourse mortgage lending came about after banks gave out suicide loans and then picked up the collateral for a song once the loans blew up (while keeping the debtor in debt bondage for the full amount)

But, being a nation of children, we know little of our economic history.

Spain of course has horribly anti-borrower lending terms.

"Also problematic are Spain's punitive personal bankruptcy laws, which don't allow unpaid debt to be canceled and make it difficult for bankrupt persons to enter all kinds of contracts, from apartment leases to cellphone plans. Bankruptcy protection is so onerous in Spain that only 235 families applied for it in the fourth quarter of 2012—a 15% increase over a year earlier."

http://www.wsj.com/articles/SB10001424127887324077704578362693213191094

(don't read the rest of that, it's just the wsj being the wsj)

thunderlips11 says

it misdirected countless trillions to construction and land purchases

Ireland was the Atlas of poster children here.

http://en.wikipedia.org/wiki/Irish_property_bubble#Poor_financial_sector_supervision

Brother Vlad has reached out:
Russia "may lift its ban on food imports from Greece in the event it quits the European Union"

Robert Sproul says

Brother Vlad has reached out:

Russia "may lift its ban on food imports from Greece in the event it quits the European Union"

An example of losers sticking together. :)

thunderlips11 says

It was experiencing a housing bubble, caused by banks (including foreign banks) inflating the property markets in Spain.

What are you arguing here? That banks are bad by default? That no one else was involved? The Spanish government fully agreed with what was happening. And this was not unpopular with the spanish people. No one complained on the way in, like people complain about the consequences now. Everyone was in it.

Are you arguing that we should have let banks failed after the crisis? Then again, austerity would have been much worse. No banks, no loans. You would have gone to 35% unemployment. Then maybe after that you would rebound faster. This is the Austrian argument.

Are you arguing to default on the banks? Without bailing them out? That means letting banks fail.

You bail these banks out. Or you bail out people and they pay the banks. That's the same thing.

You have to see the obvious: you can't punish the banks without punishing people. You can't save people without saving the banks. Contrary to what lefties would want. People and banks go together.

The rest has nothing to do with banks, at least directly. It's a matter of how much the country as a whole consumes, and how much it produces. And this HAS to balance over time - unless you are the US. Hence Spain had to face reality and cut spending AND raise its productivity.

Heraclitusstudent says

Hence Spain had to face reality and cut spending AND raise its productivity.

That is not going to happen, like you said it is a current account thing the increase in liquidity increased consumption instead of investment. Which means 25% unemployment. They only real option is to leave the EU as then they can debase their currency.

U.S.A.,U.S.A.,U.S.A.

http://www.usdebtclock.org/

blue is Federal debt (ex-SSTF, ex-Fed) / GDP

red is interest expense / GDP

we're not really Greece, cuz we got a Fed.

Bellingham Bill says

red is interest expense / GDP

With interest rates at almost zero, when the interest rate goes to anything approximately the norm we are toast.

Bellingham Bill says

we're not really Greece, cuz we got a Fed.

We have the reserve currency. What is our debt to GDP compared to Greece?

indigenous says

The solution is NO bailouts to mark to market, and let the market figure it out.

"Indeed, a major source of objection to a free economy is precisely
that... it gives people what they want instead of what a particular
group thinks they ought to want. Underlying most arguments against
the free market is a lack of belief in freedom itself."

-Milton Friedman

darlag says

"Indeed, a major source of objection to a free economy is precisely

that... it gives people what they want instead of what a particular

group thinks they ought to want. Underlying most arguments against

the free market is a lack of belief in freedom itself."

-Milton Friedman

Do you want fraud, coercion, anticompetitive behavior? That's what a free market generates.

I believe in freedom, but I understand that freedom isn't as profitable as coercion...Guess which one companies opt for without any rules?

Anyone care to speculate when Greece will exit the Euro and/or declare bankruptcy? It's matter of when than if, but I have no idea when they will actually do it.

tatupu70 says

Do you want fraud, coercion, anticompetitive behavior? That's what a free market generates.

So you are saying that people are basically stupid and incapable of thinking and acting for themselves. That they won't vote with their feet when a bad bank or a bad company takes advantage of them or provides poor, inadequate services. That the poor peons need to be told what to do by a benevolent government that takes care of them and protects them.

Here's another quote from a founding father,

"The duty of government is to leave commerce to its own capital
and credit as well as all other branches of business, protecting
all in their legal pursuits, granting exclusive privileges to none."

-Andrew Jackson

America has become a nation of exclusive privileges for the TBTF crowd which is being supported on the backs of taxpayers. Moral hazard is alive and well in the U.S.

The companies bailed out in 2008-09 were given a Get out of Jail card when they should have been put in jail. The regulations you seem to think will somehow protect against fraud and coercion actually protect the perpetrators, not the people.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/30/greece-really-might-leave-the-euro/

Predicts more extend and pretend as a "solution" to Greek debt.

zzyzzx says

Anyone care to speculate when Greece will exit the Euro and/or declare bankruptcy? It's matter of when than if, but I have no idea when they will actually do it.

I read Spain will be the first to leave, perhaps because Spain's economy is too big to bailout.

As to Greece Draghi is fighting for the existence of EU, so he is literally fighting for his career. Germany would take it in the ass big time if the Euro dissolves so they also are going to go to great lengths for it not to happen.

As Mish indicated they are not going to force Greece to "mark to market", they are going to pretend and extend. Since Draghi has just started his version of QE it could be a while as in Draghi has played every card he has. I would guess a few years?

See what happens when greedy bastards play with mercantilism.