Greece, what the fuck?

[dismal]

They could've said "no, fuck you, we have enough funds to keep paying interest, we don't need to borrow any addl funds. Either roll over the existing debt or we'll default and you'll get nothing."

Why didn't they do that?

By the time Syriza was elected it was too late for that. The prior government had already implemented a host of Eurozone austerity demands which then drove the country from a primary surplus to a deficit.

No, the reality is the bailouts, debt forgiveness, and modest government reforms converted a huge primary deficit in 2009 to one that was small enough to allow socialists and their apologists to fudge the numbers a bit to claim and/or forecast a primary surplus but there was never actually much of the sort of surplus that actually showed up as cash in a bank.

And also whatever damage a modest primary surplus may have caused Syzira is now plotting a course that will be many times more destructive. People waiting in line for an empty ATM in hopes of getting their money to the safety of their mattress are neither particularly good for production or demand.

 

[Loren Pechtel]

Venezuela has basically gone from a society that had poor, middle class and elite to a society with only poor and elite.

Before the poor were faced with goods on the shelf that they couldn't afford. Now they can afford the empty space on the shelf with no goods in it. I don't see that their lot has improved.

Their lot definitely improved when the oil money was being used to help them out. If that was all that Venezuela did, they'd be in OK shape. However, along with that came the near total destruction of the private sector and the spending every penny they made from the oil rather than saving a portion of in a rainy day fund for when prices inevitably crashed.

It just took time for their policies to wreck their economy.

 

[Loren Pechtel]

Loren: Do you actually have a full fledged hatred going on inside agains Greek people? You want their economy to burn?
You are telling us the Greeks have made their bed and they can just sleep in it. I have already pointed out that for a period of time, the technocrats took over Greece and they delivered nothing at all. What I keep referring to you just deny over and over...the debt was not incurred in a democratic manner. The people were just dragged into this by their leaders. I agree there was a lot of fraud, but this is not caused by the average Greek.

I have no hatred of them, I just feel no obligation to lift a finger to help any more than I would feel any reason to help any other fraudster whose fraud was catching up with them. The Greeks are the instigators of their problems.

- - - Updated - - -

There you go. Proving my point. Disconnect from euro. No Keynes doesn't specify what the source of funding need be. It may be as simple as the government choosing to print money. Let output balance with input by floating the currency and printing money for internal use. Its the same solution I recommend for the US. Create money and pay off debt. We got the power to do so so we should do it. Greece must be limited to internal measures. The EU is showing that they can do it with no effect on full faith and trust with their money printing or hadn't you noticed.

Not being part of the Euro would make no difference as to whether people would be willing to loan to them. Their debt load was unsustainable, they would have had to resort to the printing press and that would inflate their currency into worthlessness.

 

[Jayjay]

Not being part of the Euro would make no difference as to whether people would be willing to loan to them. Their debt load was unsustainable, they would have had to resort to the printing press and that would inflate their currency into worthlessness.

The point is not that being part of Euro would help them get loans, it's that if Greece does not get loans, it most likely has to leave Euro to avoid a complete crash.

If Greece can control the drachma, they can let it float until price of Greek goods, services and labor becomes attractive to foreign investment. Sure at the same time the price of foreign goods would rise but that would help the local farmers and producers compete, and Greece government would not have to worry so much about running out of drachmas becuase they'd mainly just circulate domestically through wages and taxes. However if Greece sticks with Euro, it could go bankrupt and literally run out of money to pay wages, pensions, or benefits: chaos ensues when people start rioting in the streets and the police and military don't get paid, and Greek banks start defaulting on people's savings.

(Or that's how I've understood it anyway. I'm sure some more economy-savvy posters will correct me if I'm wrong.)

 

[Horatio Parker]

Not being part of the Euro would make no difference as to whether people would be willing to loan to them. Their debt load was unsustainable, they would have had to resort to the printing press and that would inflate their currency into worthlessness.

The point is not that being part of Euro would help them get loans, it's that if Greece does not get loans, it most likely has to leave Euro to avoid a complete crash.

If Greece can control the drachma, they can let it float until price of Greek goods, services and labor becomes attractive to foreign investment. Sure at the same time the price of foreign goods would rise but that would help the local farmers and producers compete, and Greece government would not have to worry so much about running out of drachmas becuase they'd mainly just circulate domestically through wages and taxes. However if Greece sticks with Euro, it could go bankrupt and literally run out of money to pay wages, pensions, or benefits: chaos ensues when people start rioting in the streets and the police and military don't get paid, and Greek banks start defaulting on people's savings.

(Or that's how I've understood it anyway. I'm sure some more economy-savvy posters will correct me if I'm wrong.)

The first salvo has been fired, with the ECB maintaining ELA at current levels when Greece has asked for more. Businesses in Cyprus started to fail after banks were closed 12 days; Greece is in worse shape. Without extra cash, the banks can't open and businesses that depend on them can't operate.

The can't print Euros and it would take something like six months to launch a new currency. What they can print and probably will are IOUs.

Yves Smith:

As much as I’d like to be hopeful about the Greek vote, I’m deeply concerned that like the Arab Spring uprising, which in the end seems to have done little to help struggling people in the Middle East, and led to civil war in Syria, that what seemed like a promise of a better day for ordinary people will lead to even worse outcomes. As much as the Eurocrats have become unaccountable and causally malevolent in how they operate, Greece is too weak a vehicle to take up a successful, frontal revolt. Greece’s defiance may put forces into play that will accelerate the dissolution of the Eurozone, which is inevitable given Germany’s insistence on running trade surpluses and its refusal to finance its trade partners or more to greater fiscal integration that would do more or less the same thing. But the Greek people themselves are not likely to come out winners.

 

[bilby]

Normally a country would either sell bonds or if that wasn't an option just print the money. A sovereign nation will never be without cash in their account. Which is why Greece is having a lot of difficulty managing their down economy since they gave up control over the only means to fight it and made themselves overly dependent upon others.

Can you give any example throughout history where a country that "just printed the money" successfully avoided a deep recession and eventually led to a good economy? That did not enter into a massive inflationary phase? Or is this just a faith based position?

Well, that's been US and UK strategy since 2008, and seems to largely have been successful.

Tim Worstall has a crack at a 'layman's terms' explanation of how it works here.

QE is not a strategy that is available for Greece though, not because it would cause inflation - they could use a touch of inflation right now - but because they are not using their own currency, so making more of it is not an option for them.

If the Eurozone is ever to work, it must accept that the rich states have to subsidise the poor states. The Germans want the benefits of monetary union - which causes wealth to flow from poor states to rich - without the necessary balancing subsidies from rich to poor. These subsidies take a variety of forms; in Australia, the poor states get more GST revenue from the feds than their citizens pay in GST, and the rich states get proportionally less; In the USA various federal taxes are similarly disbursed to the poorer states in larger proportion than the take in taxes from the citizens of those states, while rich states get less tax from the feds than their citizens pay.

The Germans wanted to make these necessary subsidies into loans, and to have the money paid back to them. That was just stupid. The Greeks joined the euro anyway. That too was stupid. Not having a single currency is OK; Having a single currency, and a common fiscal, taxation, and monetary policy is also OK. Having a single currency with a whole swathe of differing fiscal, taxation, and monetary policies was always going to fail. It is quite impressive that it has survived for so long.

 

[Axulus]

Well, that's been US and UK strategy since 2008, and seems to largely have been successful.

False. Every dollar spent by the US or UK governments has either been borrowed or taxed. ksen was suggesting printing the money and the government then spending it as a way to avoid austerity (government spending falling).

Tim Worstall has a crack at a 'layman's terms' explanation of how it works here.

QE is not a strategy that is available for Greece though, not because it would cause inflation - they could use a touch of inflation right now - but because they are not using their own currency, so making more of it is not an option for them.

If the Eurozone is ever to work, it must accept that the rich states have to subsidise the poor states. The Germans want the benefits of monetary union - which causes wealth to flow from poor states to rich - without the necessary balancing subsidies from rich to poor. These subsidies take a variety of forms; in Australia, the poor states get more GST revenue from the feds than their citizens pay in GST, and the rich states get proportionally less; In the USA various federal taxes are similarly disbursed to the poorer states in larger proportion than the take in taxes from the citizens of those states, while rich states get less tax from the feds than their citizens pay.

The Germans wanted to make these necessary subsidies into loans, and to have the money paid back to them. That was just stupid. The Greeks joined the euro anyway. That too was stupid. Not having a single currency is OK; Having a single currency, and a common fiscal, taxation, and monetary policy is also OK. Having a single currency with a whole swathe of differing fiscal, taxation, and monetary policies was always going to fail. It is quite impressive that it has survived for so long.

I agree that having a union with a common currency has few advantages and far too many disadvantages. Just keep it as a free trade and open border zone and let each individual country have their own currency and manage it as desired.

 

[bilby]

False. Every dollar spent by the US or UK governments has either been borrowed or taxed. ksen was suggesting printing the money and the government then spending it as a way to avoid austerity (government spending falling).

Nope. In Quantitative Easing, the central bank just invents some money, and uses it to go out and buy assets (usually, the government's own bonds, but it doesn't have to be) thereby boosting money supply. That's not borrowing, nor is it taxation.

 

[Axulus]

False. Every dollar spent by the US or UK governments has either been borrowed or taxed. ksen was suggesting printing the money and the government then spending it as a way to avoid austerity (government spending falling).

Nope. In Quantitative Easing, the central bank just invents some money, and uses it to go out and buy assets (usually, the government's own bonds, but it doesn't have to be) thereby boosting money supply. That's not borrowing, nor is it taxation.

Ok, in a roundabout way I suppose that is true - the central bank's actions do allow the US federal government to borrow at lower rates since it creates additional demand for debt. The federal reserve is not giving the printed money directly to the treasury, though. The key difference in this scenario is that the central bank is acting independently of the federal government, consistent with its dual mandate of full employment and price stability. It is _not_ engaging in these actions with the goal of giving the federal government more money to spend so that the government doesn't have to cut back spending (engage in austerity), which is what ksen seemed to be suggesting.

A central bank with a mandate for price stability as it's primary goal, independent of political influence or political goals such as preventing austerity, has been proven to reduce economic volatility and strengthen the overall long-term health of the economy.

If Greece was in a similar fiscal situation with its own currency, it is not at all clear to me that both price stability and fiscal stimulus would've been achievable. If the goal of price stability is _abandoned_ in order to avoid having to engage in austerity (any reduction in government spending), meaning that avoiding austerity overrides the goal of price stability and central bank independence, I know of no example in history where such action turned out well. Losing central bank independence and abandoning price stability has always been very destructive for an economy. The Latin American countries (except Venezuela) learned this lesson the hard way in the 80s after much suffering and have since seen a dramatic increase in price stability and economic prosperity for the most part.

 

[tupac chopra]

I’m seeing more and more indication that the Us might be pressuring the Europeans to sort this out and keep the Greeks in the Euro.
I guess they don’t want Russia (or China) helping Greece out.

 

[barbos]

Can you give any example throughout history where a country that "just printed the money" successfully avoided a deep recession and eventually led to a good economy? That did not enter into a massive inflationary phase? Or is this just a faith based position?

Well, that's been US and UK strategy since 2008, and seems to largely have been successful.

Tim Worstall has a crack at a 'layman's terms' explanation of how it works here.

QE is not a strategy that is available for Greece though, not because it would cause inflation - they could use a touch of inflation right now - but because they are not using their own currency, so making more of it is not an option for them.

If the Eurozone is ever to work, it must accept that the rich states have to subsidise the poor states. The Germans want the benefits of monetary union - which causes wealth to flow from poor states to rich - without the necessary balancing subsidies from rich to poor. These subsidies take a variety of forms; in Australia, the poor states get more GST revenue from the feds than their citizens pay in GST, and the rich states get proportionally less; In the USA various federal taxes are similarly disbursed to the poorer states in larger proportion than the take in taxes from the citizens of those states, while rich states get less tax from the feds than their citizens pay.

The Germans wanted to make these necessary subsidies into loans, and to have the money paid back to them. That was just stupid. The Greeks joined the euro anyway. That too was stupid. Not having a single currency is OK; Having a single currency, and a common fiscal, taxation, and monetary policy is also OK. Having a single currency with a whole swathe of differing fiscal, taxation, and monetary policies was always going to fail. It is quite impressive that it has survived for so long.

Did you just call geniuses who created European Union and Euro stupid?

 

[bilby]

Well, that's been US and UK strategy since 2008, and seems to largely have been successful.

Tim Worstall has a crack at a 'layman's terms' explanation of how it works here.

QE is not a strategy that is available for Greece though, not because it would cause inflation - they could use a touch of inflation right now - but because they are not using their own currency, so making more of it is not an option for them.

If the Eurozone is ever to work, it must accept that the rich states have to subsidise the poor states. The Germans want the benefits of monetary union - which causes wealth to flow from poor states to rich - without the necessary balancing subsidies from rich to poor. These subsidies take a variety of forms; in Australia, the poor states get more GST revenue from the feds than their citizens pay in GST, and the rich states get proportionally less; In the USA various federal taxes are similarly disbursed to the poorer states in larger proportion than the take in taxes from the citizens of those states, while rich states get less tax from the feds than their citizens pay.

The Germans wanted to make these necessary subsidies into loans, and to have the money paid back to them. That was just stupid. The Greeks joined the euro anyway. That too was stupid. Not having a single currency is OK; Having a single currency, and a common fiscal, taxation, and monetary policy is also OK. Having a single currency with a whole swathe of differing fiscal, taxation, and monetary policies was always going to fail. It is quite impressive that it has survived for so long.

Did you just call geniuses who created European Union and Euro stupid?

I am pretty sure I did; but if I didn't, that was an oversight on my part

 

[barbos]

Did you just call geniuses who created European Union and Euro stupid?

I am pretty sure I did; but if I didn't, that was an oversight on my part

OK, I was just making sure.

 

[Lumpenproletariat]

What should Greeks do now?

What would be wrong with the following steps?

• Default -- end all the obligations, so they can begin with only current costs to worry about, like infrastructure etc. (Maybe even default on pensions, or pay them with IOUs.)
  
  
• Do everything without any new debt, pay-as-you-go only, for the forseeable future.
  
  
• Drastically cut wages/salaries/benefits to all employees, high- and low-level, including those in high office. And pay them partly with IOUs.
  
  
• Pay contractors partly with IOUs. (some desperate companies will take them)
  
  
• Recruit volunteers to do some of the public services, to replace some paid workers. Especially for community policing/security patrols to put down riotors.
  
  
• Print Drachmas as needed, but recognize both Drachmas and Euros (make them both legal tender). Pay bank depositor-withdrawals with new Drachmas, perhaps also partly with IOUs.
  
  
• Hire foreigners (possibly even some of the refugee immigrants) for low-paid jobs that Greeks refuse to take.

Obviously the above won't happen. But, what would go wrong if they did the above? What should be done instead? New bailout? still higher debt and more payments due in 6 months or a year which cannot be paid?

 

[Jayjay]

What would be wrong with the following steps?

• Default -- end all the obligations, so they can begin with only current costs to worry about, like infrastructure etc. (Maybe even default on pensions, or pay them with IOUs.)
  
  
• Do everything without any new debt, pay-as-you-go only, for the forseeable future.
  
  
• Drastically cut wages/salaries/benefits to all employees, high- and low-level, including those in high office. And pay them partly with IOUs.
  
  
• Pay contractors partly with IOUs. (some desperate companies will take them)
  
  
• Recruit volunteers to do some of the public services, to replace some paid workers. Especially for community policing/security patrols to put down riotors.
  
  
• Print Drachmas as needed, but recognize both Drachmas and Euros (make them both legal tender). Pay bank depositor-withdrawals with new Drachmas, perhaps also partly with IOUs.
  
  
• Hire foreigners (possibly even some of the refugee immigrants) for low-paid jobs that Greeks refuse to take.

Obviously the above won't happen. But, what would go wrong if they did the above? What should be done instead? New bailout? still higher debt and more payments due in 6 months or a year which cannot be paid?

If as first step Greece is going to default or cut down on pensions and wages anyway, which were the only sticking points with the eurozone, what reason would Greece has to turn down the free bailout money? They could always default after they run out.

 

[Canard DuJour]

If the Eurozone is ever to work, it must accept that the rich states have to subsidise the poor states. The Germans want the benefits of monetary union - which causes wealth to flow from poor states to rich - without the necessary balancing subsidies from rich to poor. These subsidies take a variety of forms; in Australia, the poor states get more GST revenue from the feds than their citizens pay in GST, and the rich states get proportionally less; In the USA various federal taxes are similarly disbursed to the poorer states in larger proportion than the take in taxes from the citizens of those states, while rich states get less tax from the feds than their citizens pay.

The Germans wanted to make these necessary subsidies into loans, and to have the money paid back to them. That was just stupid. The Greeks joined the euro anyway. That too was stupid. Not having a single currency is OK; Having a single currency, and a common fiscal, taxation, and monetary policy is also OK. Having a single currency with a whole swathe of differing fiscal, taxation, and monetary policies was always going to fail. It is quite impressive that it has survived for so long.

This

Did you just call geniuses who created European Union and Euro stupid?

I am pretty sure I did; but if I didn't, that was an oversight on my part

Although 30+ years ago, an EU more like the alternative you allude to was envisioned. Britain is a big part of why it never happened. It's since been mostly hijacked by the neo-liberal economic agenda along with so much else.

While Greece isn't entirely blameless here, if this is what's going to happen whenever one of the little guys gets in trouble, it's pointless and unworkable.

Shame, really.

 

[untermensche]

What would be wrong with the following steps?

• Default -- end all the obligations, so they can begin with only current costs to worry about, like infrastructure etc. (Maybe even default on pensions, or pay them with IOUs.)
  
  
• Do everything without any new debt, pay-as-you-go only, for the forseeable future.
  
  
• Drastically cut wages/salaries/benefits to all employees, high- and low-level, including those in high office. And pay them partly with IOUs.
  
  
• Pay contractors partly with IOUs. (some desperate companies will take them)
  
  
• Recruit volunteers to do some of the public services, to replace some paid workers. Especially for community policing/security patrols to put down riotors.
  
  
• Print Drachmas as needed, but recognize both Drachmas and Euros (make them both legal tender). Pay bank depositor-withdrawals with new Drachmas, perhaps also partly with IOUs.
  
  
• Hire foreigners (possibly even some of the refugee immigrants) for low-paid jobs that Greeks refuse to take.

Obviously the above won't happen. But, what would go wrong if they did the above? What should be done instead? New bailout? still higher debt and more payments due in 6 months or a year which cannot be paid?

This is a recipe to kill your economy.

The way you improve an economy is to put as much money into as many hands as possible.

Raising taxes on the wealthy and raising pay for workers. If the private sector is not providing jobs then the government has to step in and provide some. There are always things that need to be done like maintaining and improving infrastructure.

The US does a lot of this with it's massive defense spending which is really a government directed economic stimulus, not the best way to do it but it can work to a degree.

 

[ksen]

I don't know that there ever has been a country that controls its own currency that has found itself not being able to borrow more. Currently Japan has over 200% debt/GDP and has no trouble selling bonds to continue financing itself.

I see no reason to think that if Greece were able to start selling drachma denominated bonds again that there wouldn't be a market for it.

Some countries with their own currencies that found themselves no longer able to keep borrowing more:

Argentina

And how did controlling their own currency and being able to "just print the money" work out for them?

The economy shrank by 28 percent from 1998 to 2002.[2][6] In terms of income, over 50 percent of Argentines were poor and 25 percent, indigent; seven out of ten Argentine children were poor at the depth of the crisis in 2002.[1][6]

Or how about the Latin American debt crisis, which led to Mexican default? These countries all had control over their currencies and had the ability to "just print the money".

The debt crisis of 1982 was the most serious of Latin America's history. Incomes dropped; economic growth stagnated; because of the need to reduce importations, unemployment rose to high levels; and inflation reduced the buying power of the middle classes.[5] In fact, in the ten years after 1980, real wages in urban areas actually dropped between 20 and 40 percent.[7] Additionally, investment that might have been used to address social issues and poverty was instead being used to pay the debt.[1

Another nice try since "print the money" wasn't my entire argument.

It's one of the tools in the toolbox of a nation that controls their own currency. Are you seriously arguing that having control of your currency isn't that big a deal when it comes to fighting down times in the economy?

 

[dismal]

What would be wrong with the following steps?

• Default -- end all the obligations, so they can begin with only current costs to worry about, like infrastructure etc. (Maybe even default on pensions, or pay them with IOUs.)
  
  
• Do everything without any new debt, pay-as-you-go only, for the forseeable future.
  
  
• Drastically cut wages/salaries/benefits to all employees, high- and low-level, including those in high office. And pay them partly with IOUs.
  
  
• Pay contractors partly with IOUs. (some desperate companies will take them)
  
  
• Recruit volunteers to do some of the public services, to replace some paid workers. Especially for community policing/security patrols to put down riotors.
  
  
• Print Drachmas as needed, but recognize both Drachmas and Euros (make them both legal tender). Pay bank depositor-withdrawals with new Drachmas, perhaps also partly with IOUs.
  
  
• Hire foreigners (possibly even some of the refugee immigrants) for low-paid jobs that Greeks refuse to take.

Obviously the above won't happen. But, what would go wrong if they did the above? What should be done instead? New bailout? still higher debt and more payments due in 6 months or a year which cannot be paid?

If as first step Greece is going to default or cut down on pensions and wages anyway, which were the only sticking points with the eurozone, what reason would Greece has to turn down the free bailout money? They could always default after they run out.

They have already defaulted on debt payments, I believe.

One economist I read suggested they may issue IOUs to pensioners and others which can act as a crappy quasi-currency and skirt the rules against issuing currency.

The deep discount such IOUs would likely trade at will in effect act as a big reduction in the purchasing power of the pensioners. Probably far more than any accommodation with the ECB would have caused.

According to polls the support for "no" votes on the initiative were very much from the young and the elder demographics were very strong for "yes". I don't think the young mind seeing the pensions they are going to have to pay if other Europeans won't devalued a bit.

 

[Jokodo]

<snip>Recruit volunteers to do some of the public services, to replace some paid workers. Especially for community policing/security patrols to put down riotors.<snip>

Yeah, what could possibly go wrong with recruiting volunteers for security patrols and putting down rioters in a country which is already strongly polarised between political camps, where informal vigilante posses associated with the fascist Golden Dawn party are already smashing up anyone they don't like in the streets.

Nothing really, except maybe a little civil war.

Legitimised by democracy and by the media, Golden Dawn is opening branches in towns all over Greece and regularly coming third in national opinion polls. Its black-shirted vigilantes have been beating up immigrants for more than three years, unmolested by the police; lately they've taken to attacking Greeks they suspect of being gay or on the left. MPs participate proudly in the violence

http://www.theguardian.com/world/2012/oct/26/golden-dawn-greece-far-right