Relevant and even prescient commentary on news, politics and the economy.

Impending disaster in Greece

Paul Krugman analyzes the debacle in Greece. Although Greeks voted barely a week ago to reject the bailout terms offered by the EU, which called for uninterrupted austerity, Prime Minister Alexis Tsipras proposed to the EU to accept almost all of the terms if there was some true financial relief. Instead, what the European Union, spurred by Germany, proposed today demanded all of the pain, and none of the gain that Tsipras sought. Indeed, Germany has essentially demanded regime change in Greece, even though Tsipras only came to office in January. As Krugman says, “It is, presumably, meant to be an offer Greece can’t accept.”

The Germans, it would appear, have decided to push Greece from the eurozone. But demanding an end to Greek sovereignty and austerity as far as the eye can see is simply evil. Moreover, it negates the long-successful stand of European Central Bank (ECB) president Mario Draghi that the ECB would do “whatever it takes” to keep the eurozone intact. The ECB’s reputation would be damaged greatly should crisis recur in Spain, Portugal, Ireland, etc., now that the world knows the ECB will not do “whatever it takes.” This is a recipe for a new recession in Europe spreading from the EU periphery.

The German demands are particularly “grotesque,” as Krugman says, when you consider that Greece has already endured 25+% unemployment for three years (see chart). This is an unemployment rate that the United States never saw even at the height of the Great Depression in 1933, when it peaked at 24.9%.


source: tradingeconomics.com

However, I believe Krugman’s argument actually overlooks an important point. He writes:

But still, let’s be clear: what we’ve learned these past couple of weeks is that being a member of the eurozone means that the creditors can destroy your economy if you step out of line.

His point is that eurozone membership has removed Greece’s ability to exercise monetary policy autonomy and respond to its specific conditions, including via currency devaluation. Indeed, there can be no doubt that monetary union was flawed from the start. But Krugman overestimates the ability of devaluation to fix an economic crisis. At the same time, he underestimates the ability of creditors to destroy a government whose economic policies they disapprove of.

 The mega-example of this, of course, is the Latin American debt crisis of the 1980s. Mexico, Brazil, and all the other victims of this crisis (caused primarily by the U.S. Federal Reserve cranking up interest rates to astronomical levels in the late 1970s and early 1980s, which in turn caused an unprecedented rise in the value of the U.S. dollar and a global recession) were “bailed out” by the International Monetary Fund (IMF) in order to prevent the collapse of creditor banks in the United States, but were subject to strict austerity, with the same results we’ve seen in the EU. Indeed, in virtually every Latin American country income per capita was lower in 1990 than at the start of the crisis in 1982, giving rise to the term “lost decade of development” to describe these events.

Supposedly, the IMF learned its lesson after the Asian financial crisis that austerity packages didn’t work. Krugman has argued this many times (one example here). Indeed, the IMF has seemed to be more of a voice of sanity in the current crisis than in either the Latin American or Asian crises. Yet, in the endgame of the Greek crisis, this seems to have fallen away, with the IMF going along with the EU on Greek austerity. Something is seriously wrong here.

But there is another important example to mention, where the IMF was not involved. This, too, was a result of the Fed-caused global recession, this time in France. After Francois Mitterrand and the Socialist Party swept to power in 1981, among the government’s many policy changes was an attempt at Keynesian stimulus. However, this was met by massive capital flight. The problem was that the French franc was losing so much value that the government had to reverse its policies. For example, the franc was 4.6453 to the dollar in January 1981, but fell to 8.0442 by August 1983, 9.3041 by September 1984, and 10.0933 in February 1985. The takeaway is that even having floating exchange rates does not guarantee that you can maintain your policy independence.

Events are moving very rapidly; perhaps the EU will find a way to prevent this disaster. But at the moment, things look very grim.

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OXI ~ 60%: What now? Greece Open Thread

Greece Interior Ministry Results
all regions voting ‘OXI’ = ‘No’

Huffington Post: Live Updates: Greece Votes In Referendum On Bailout Proposal

More links as afternoon progresses.

This article by Steve Randy Waldman at Interfluidity has been getting a lot of play around the Intertoobz since yesterday (I also linked to it in Comments on the previous Grexit post). It’s title is simple but it has a lot of depth and insight, I thoroughly recommend it. Greece

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Greek Tale(s)

by Joseph Joyce

Greek Tale(s)

No matter what new twist the Greek debt crisis takes, there can be no question that it has been a catastrophe for that country and for the entire Eurozone. The Greek economy contracted by over a quarter during the period of 2007 to 2013, the largest decline of any advanced economy since 1950. The Greek unemployment rate last year was 26.5%, and its youth unemployment rate of 52.4% was matched only by Spain’s. But who is responsible for these conditions depends very much on which perspective you take.

From a macroeconomic viewpoint, the Greek saga is one of austere budget polices imposed on the Greek government by the “troika” of the International Monetary Fund, the European Commission and the European Central Bank in an attempt to collect payment on the government’s debt. The first program, enacted in 2010 in response to Greece’s escalating budget deficits, called for fiscal consolidation to be achieved through cuts in government spending and higher taxes. The improvement in the primary budget position (which excludes interest payments) between 2010-11 was 8% of GDP, above its target. But real GDP, which was expected to drop between 2009 and 2012 by 5.5%, actually declined by 17%. The debt/GDP level, which was supposed to fall to about 155% by 2013, actually rose to 170% because of the severity of the contraction in output. The IMF subsequently published a report criticizing its participation in the 2010 program, including overly optimistic macroeconomic assumptions.

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Will the Republicans’ The-Debt-Ceiling-Is-About-Appropriating-NEW-Spending-Measures Disinformation Campaign Succeed? (Well, only if Obama lets it.)

In the wake of the fiscal deal raising taxes only on income over $450,000, Republicans are declaring that the debate over taxes is finished. The next fiscal deal will contain nothing in new revenues. Yesterday, Mitch McConnell said:

“The tax issue is finished. Over. Completed. That’s behind us. Now the question is what are we going to do about the biggest problem confronting our country and that’s our spending addiction. We didn’t have this problem because we weren’t taxing enough.”

As Jonathan Cohn notes this morning, this talking point may have some potency: Hey, we just raised taxes on the rich, so the next bite at the apple should be focused on spending cuts, right? So it’s worth putting the GOP demand in clearer perspective. What Republicans are saying here is that they intend to use the debt ceiling as hostage to ensure that all of the deficit reduction in the coming “grand bargain” is paid for by spending cuts — such as cuts to entitlements and other social programs — with not a penny coming from new revenues via the closing of loopholes and deductions enjoyed by the rich.

A hallmark of the Romney campaign was its pathological tendency to make bald misrepresentations of fact and to reiterate and reiterate the misrepresentation even after almost everyone knew it was false.  Sometimes everyone knew the statement was false as soon as the statement was made; it contradicted what everyone already knew.  Other times–or at least one other time–everyone knew the statement was false after, say, the CEO of the auto company that Romney said was closing a major plant in Ohio and moving the jobs to China said in a highly-publicized statement what everyone in or near the locality of the plant already knew: that the story was false and that the plant had recently expanded and was about to increase its workforce there.  And still other times, everyone learned that the statement was false because the Obama PAC corrected the misrepresentation with TV commercials, or the news media pointed out often enough that the statement was false.

But those misstatements of fact didn’t concern technical matters of law or economic fact that almost no one actually knows.  Which is why the debt ceiling matter is so susceptible of misrepresentation that “raising the debt ceiling” means increasing budget appropriations, when actually it means making available enough money to pay bills already accrued from earlier budget appropriations.  This is a technical issue made in Tea Party heaven, albeit many decades before the Tea Party was born.

So, isn’t it paramount the president explain to the public what the debt ceiling issue actually is, rather than allowing the Republicans to keep misinforming the public that it’s an increase in budget allocations rather than a payment for budget allocations already made?  This quirk in the law–the requirement that Congress authorize payment of costs already budgeted, already promised (e.g., in bond interest, Medicare payments, Social Security payments, veterans benefits)–is something that almost no member of the general public knows.

Obama keeps saying, in a single sentence, that he won’t allow default on money already appropriated and owing.  That’s nice.  But does he really not understand that this goes right over most people’s heads, because the Repubs keep telling them the opposite, and because the debt ceiling law is a technicality that most people simply don’t know about, and because that technicality has no counterpart in, say, normal living experience?

This is beginning to seem to me like the 2009-2010 ACA debate, redux–with the rightwing misinforming the public, and Obama thinking that the public knows specifics that the public flatly does not know.

So here’s a suggestion: Obama’s shown a fondness for adopting the Republicans’ messaging by analogizing the federal government to a family’s finances, even though this analogy, when it involves economic stimulus and other fiscal-appropriations issues, actually amounts to a misrepresentation of fact.  But on the debt ceiling matter, the government-is-similar-to-families analogy is exactly apt.  If someone already runs up large credit card bills, he owes the money even if he decides to rip up his credit cards and stop running up personal debt.  If he doesn’t pay the credit card bills he’s accrued, he’s DEFAULTING on those debts, and his credit rating will plunge.  And if someone owes monthly mortgage payments, he can’t simply stop paying them, and expect to keep his home.  He’ll lose the home in a foreclosure proceeding.

See? Not hard to explain.  But if Obama can’t or won’t explain this, some other Democrat who can garner the public’s attention should.  My suggestion: Bill Clinton.  And if Clinton won’t, then maybe Joe Biden can.

And after this success, maybe they can begin to torpedo the Republicans’ “Greece” canard by actually providing the public with facts.  Such as that Greece has a much smaller, less comprehensive social safety-net system than the U.S., than Germany, than Holland, than Canada, than Australia, than ….  It also has a deeply embedded culture of low rates of taxes, tax payments and tax collections.  Unlike Germany, Holland, Canada, Australia ….  

Which might suggest that McConnell didn’t know what he’s talking about when he said we didn’t have this problem because we weren’t taxing enough.  Especially since we didn’t have this problem when, say, during the Clinton years, we were.

That spending addiction of ours, of course, goes by the some familiar names.  Those names include Medicare, Social Security, Medicaid (including nursing home payments for incapacitated elderly who’ve exhausted their savings), and unemployment insurance.  They also include the Defense Department, Veterans Affairs, Homeland Security, the Food and Drug Administration, the Consumer Product Safety Commission, air traffic controllers, the National Transportation Safety Board, the Centers for Disease Control, medical research grants, supplemental aid to states for education, the Federal Emergency Management Administration, the Agriculture Department (food safety), and farm price supports.  Not to mention “tax expenditures” to, say, ExxonMobil.

All of which the president should mention in his two big speeches this month: the inaugural speech and the State of the Union address.  Maybe then the Republicans will suggest what parts of our spending addiction they want us to confront, and how–exactly–they think we should confront them.  

Since, unlike Greece, we didn’t have this problem because we weren’t taxing enough.

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Making the United States More Like Greece

Simon Johnson at Baseline Scenario writes in Making the United States More Like Greece:

One of the big problems in Greece over the past decade or so is that the government was not honest with its data. Various people assisted in the matter – including Goldman Sachs with respect to some debt issues – but ultimately this was a political decision at the highest level. The people running the country decided to conceal the true nature of their budget and their debt. This deception ended up costing the country dearly – completely undermining its credibility under pressure and making it much harder to turn the fiscal and economic situation around.

In the modern United States, cutting taxes leads to lower revenue and larger budget deficits. There are no two ways about this – as Ronald Reagan discovered in the early 1980s. (In our new book, White House Burning, we go through the evidence on this point in detail, including important work by Greg Mankiw, former top economic adviser to George W. Bush and now working with Mitt Romney, which confirms that cutting taxes in the U.S. will lower revenue.)
But many Republicans feel that this is not true – in my conversations with them, for example in congressional hearings over the past year, the conviction seems to be that the research on this topic is bad science, even when done by Republicans. But convincing the CBO to abandon its proven and sensible approach to budget scoring has been difficult.

The solution currently under consideration is simple in its elegance – and downright frightening in its implications.

Simon points us to via this post that was ungated at his request at Tax Notes.

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Default Events, Legal Contracts, Derivatives, and Greece

Barry Ritholtz, who generally knows better, blew a gasket at ISDA for yesterday’s ruling that Greek bonds are not yet in default. Specifically,

“The International Swaps and Derivatives Association said on Thursday that based on current evidence the Greek bailout would not prompt payments on the credit default swaps.”

>

Here is a question for the crowd: Exactly how brain damaged, foolish and stupid must a trader be to ever buy one of these embarrassingly laughable instruments called derivatives?

The claim that Greece has not defaulted — despite refusing to make good on their obligations in full or on time — is utterly laughable.

Let’s sidebar the reality—that there is no true “market” for CDS in general, let alone Sovereign Debt CDS; Donald R. van Deventer of Kamakura Corporation has been all over this, both on his blog and especially on Twitter—and just note that ISDA made the correct decision.

Greece has not, to borrow Barry’s phrase, “refus[ed] to make good on their obligations in full or on time.” ISDA did not declare a Default Event yesterday because there has not yet been a Default Event.

Default Event is a very specific term. The sample in Janet Tavakoli‘s Credit Derivatives and Synthetic Structures (a book to which I have referred before and undoubtedly will again) runs pretty much three full pages (pp. 88-91). But the general concept is straightforward: there is a minimum threshold (say, 10% of an issue), the principal or interest due of which the entity explicitly refuses to pay or fails to pay that then materially impacts the buyer of Credit Protection (CDS).


Greece has not yet refused to pay anything.*

There is a payment due on 20 March—19 days still in the future. The financial markets—heck, everyone who runs a diner in Queens—may well believe that no payment will be made on 20 March, but that hasn’t happened yet. And the Greek government specifically has not said it won’t make the payment; it has said, “Hey, take these bonds instead.”

It is true that, cet. par., the market value of the bonds being offered is about 25% the supposed economic value of the current ones. So anyone taking the deal would have to be assuming that the market value of the current bonds is somewhere around 25, just as the French and German banks have them marked.

The market may also agree that one of the reasons people may well accept the offer is that, otherwise, they expect that the Greeks will default on the current bonds.

But they haven’t yet, and this is not Minority Report (though we can all agree Phil Dick would recognize, if not approve of, the current financial world).

So ISDA correctly ruled—the key phrase is “based on current evidence”—that there is not yet a Default Event. If everyone says “we will tender our securities due 20 March for the exchange offered,” there will not be a default of those bonds.

You, I, and Bill Gross can all agree that the likelihood of this happening is about equal to the chance that Rick Perry will be elected U.S. President this year. But there has not been a Default Event.

Wait two or three weeks.

The thing Barry most overlooks is that yesterday’s ISDA ruling is, if anything, good for CDS buyers.

What will be the economic difference of waiting to holders of the CDSes? I don’t know for certain, but if you’re looking at the standard ISDA CDS contract, there’s a reasonable assumption that (1) the market price of the bond will not change for the better and (2) it is a certainty that the Accrued Interest on the bond will be greater when they declare a Default Event than it is now.

Keep in mind: in a standard CDS, declaration of default terminates the contract. Accruals end, market pricing is to be determined by calling a few dealers, and the only thing left is to go through the pockets and look for loose change.**

Yesterday’s ISDA ruling means the CDS buyers will be owed more Accrued Interest when (in two, or at most three, weeks) a Default Event is declared.

What about the principal repayment due? Recall again that the payment due is generally the net of the current market price subtracted from the initial principal amount (assumed to be par—100—but in any event greater than the current market value).

I’m inclined to argue there is optimism in the current market that will not be there in two weeks: it’s not that liquid a market, there is a floor on the price of the economic equivalent of the new offer, and there is time value in the option to convert.***

If ISDA had declared default yesterday—that is, assumed that Greece wasn’t just “mostly dead”****—they would have taken the current market price [P0]. Even before the delays and roundelays, that was likely to be greater than the market price of those bonds in a week or two[P1, when default is declared.

That is, P0 is greater than P1. And since the payment due is based on [100*****-Pt], the principal amount due to CDS holders when default is declared will also be greater.

ISDA followed the letter of the contract: the Greeks have not yet defaulted on an obligation, nor have they stated that they intend to do so. When they do—there are few, if any, in the market who would treat the clause as a possible “If”—a Default Event will be declared and the CDS contracts will be expected to pay as they are due. And that payment will, in all likelihood, be higher than the payment that would have been due if ISDA had ruled differently yesterday.

And if they don’t, then I’ll be agreeing with Barry that the whole thing was a scam from the start—though I would still argue that JPMorganChaseBear stealing more than $1,000,000,000 in customer funds from MF Global clients is a bigger one, which is something like saying that coprophagia is even worse in liquid form.

When the CDS contracts actually have to be paid, then the fun will begin. If potential for insolvency is your idea of fun. But that’s another story.

*They have seen S&P downgrade their credit rating, but that’s a separate issue.

**Obligatory reference. It will pay off.

***The Worst Case scenario is that you assume the new bonds are the only value in the transaction, and discount their value back over the cost of basically two-week money. The best case scenario is some combination of the price of the new bonds and expectations of either getting a better deal later and/or post-litigation gains. The lattice may be ugly, but it yields an expected value higher than the Worst Case, and therefore higher than the market price of the bonds as the time to exercise approaches.

****See ** above.

*****Or the other initial contract price; in any case, a fixed value greater than Pt.

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by Mike Kimel

I haven’t written anything about Greece, largely because I’ve never been there, haven’t looked at Greek data, and otherwise until now have had no reason to think I have something useful to say about it. But reading this Tyler Cowen post, I realized that perhaps I have an insight to share because Greece seems to bear a curious resemblance to Argentina and Brazil, two countries with which I do have a fair amount of familiarity. Tyler’s post quotes Megan Greene who shares this anecdote:

A friend and I met up at a new bookstore and café in the centre of town, which has only been open for a month. The establishment is in the center of an area filled with bars, and the owner decided the neighborhood could use a place for people to convene and talk without having to drink alcohol and listen to loud music. After we sat down, we asked the waitress for a coffee. She thanked us for our order and immediately turned and walked out the front door. My friend explained that the owner of the bookstore/café couldn’t get a license to provide coffee. She had tried to just buy a coffee machine and give the coffee away for free, thinking that lingering patrons would boost book sales. However, giving away coffee was illegal as well. Instead, the owner had to strike a deal with a bar across the street, whereby they make the coffee and the waitress spends all day shuttling between the bar and the bookstore/café. My friend also explained to me that books could not be purchased at the bookstore, as it was after 18h and it is illegal to sell books in Greece beyond that hour. I was in a bookstore/café that could neither sell books nor make coffee.

Ms. Greene starts her post with this line:

I travel to Athens about once every six months and speak with as many contacts as I can, including top policymakers, bankers, journalists, economists and academics.

Now, with all due respect to Ms. Greene, who I don’t from Adam, I suspect she may be making an error similar to one that I used to see Americans and Europeans who flew into Buenos Aires or Sao Paulo. That error is to confuse laws on the books and complaints by the locals with reality. This is the view that a foreign consultant based in New York or London or Paris gets:

A number of contacts described their experiences trying to open a business or buy property, which involved high fees, several trips to different tax offices and months of navigating bureaucracy. This gets at the very heart of how Greece landed up in its current condition and why rapid change is unlikely. Entire professions such as notaries, lawyers, tax men, architects and inspectors have for years had automatic income in that they have formed the layers of bureaucracy involved in doing business in Greece. At least half of the MPs in Greek parliament hail from these industries, and consequently are incentivized to perpetuate the bureaucracy that impedes opening up, running or finding investment for businesses.

Now, you could change the word Greece for Argentina or Brazil and you could have been telling this same story at any time since, I would imagine, the 1920s. You could tell the story about Brazil right now, despite the fact that its one of the hot economies these days. (If you don’t believe that, find yourself a Brazilian and ask them to explain the concept of a “despachante” to you, assuming they are able.) Which is to say that, yes, you do need to jump through a fair number of hoops at various stages of running a business. But that is far the whole story. Before I get to the mistake, let me provide one more bit of information, something that these days we all know about Greece even if a lot of people were surprised to learn it about a year ago, namely, this:

According to a remarkable presentation that a member of Greece’s central bank gave last fall, the gap between what Greek taxpayers owed last year and what they paid was about a third of total tax revenue, roughly the size of the country’s budget deficit. The “shadow economy”—business that’s legal but off the books—is larger in Greece than in almost any other European country, accounting for an estimated 27.5 per cent of its G.D.P. (In the United States, by contrast, that number is closer to nine per cent.)

I can tell you this, again from my experience in South America: if the Greek central bank is admitting to foreigners that the shadow economy is 27.5% of its GDP, the real number is actually quite a bit higher. Now, think about it. If the Greek government can’t even collect taxes, an act high on the priority list of just about every government that was ever created, exactly how is it stopping a bookstore owner from selling books and/or coffee? But if you think that’s overly simplistic, let’s consider Ms. Greene’s anecdote again. Boiled down to the basics, it comes to this:

While the bookstore can’t sell its own coffee, nor is it allowed to sell books after 6 PM, the bookstore (and its coffee shop) is open for business in the evenings.

Now, from that one can only conclude that either the owner of the bookstore is an imbecile or there is a way that the bookstore can make money despite the laws on the books. (It is, of course, possible for both things to be true.) Now, here’s how things would work in Argentina or Brazil. There are indeed a bunch of hoops to be jumped through to start and run a business, legally at least. Many of them are ignored by everyone, the authorities included. Which of those rules a new business owner safely ignores depends on a number of factors, including the extent to which they have to deal with banks, whether they need to import or export anything, and the amount of real estate they need to operate. So yeah, it takes a lot longer to legally set up shop in Argentina than Singapore or Denmark, say, and the laws in Argentina, as written at least, are more draconian. But even so, it is often easier to get into and stay in business in Argentina than in Singapore or Denmark. After all, if you don’t have your paperwork in order in Singapore, if you don’t follow all the rules and regulations, someone will be there to shut you down. In Argentina, on the other hand, its hard to name the branch of law enforcement that is funded well enough to care. My guess is the same thing is true in Greece. I wouldn’t be surprised if the bookstore owner in Ms. Greene’s anecdote drives a new BMW and hasn’t paid taxes in years.

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A oh, Some in Europe can’t take the pressure

Seems the austerity thingy is starting to hurt where it really counts. Just read via the AP:
… and amid growing concern in Europe that austerity aimed at cutting ballooning deficits may also be choking growth.
A dozen European Union leaders, including British Prime Minister David Cameron and Italian Premier Mario Monti, called Monday for an open-markets strategy to stimulate growth and jolt the region out of its economic doldrums.
“We meet in Brussels at a perilous moment for economies across Europe,” the leaders said. “Growth has stalled. Unemployment is rising. Citizens and businesses are facing their toughest conditions for years. ”
Of course their solution is “Free the Kraken!*“: 
The letter urges European nations to deregulate their service, research and energy sectors, forge trade ties with growing markets including China, Russia and South America — and even contemplate a free trade agreement with the United States.
How scared are they? They are this frightened: 
“Implicit guarantees to always rescue banks, which distort the single market, should be reduced,” the letter said. “Banks, not taxpayers, should be responsible for bearing the costs of the risks they take.”
Be still my beating heart, be still.

Of course, all of this is related to Greece. I found that the British paper, the Daily Telegraph is liveposting daily on the Debt Crisis:
“Live coverage of the international debt crisis and rollercoaster financial markets in the eurozone and US.” From today’s postings:
20.06 Jeremy Warner [financial editor] writes that the US has proved that the brutality of hire and fire really does work:
It is a simple fact of life that business is more prone to hire if it is allowed to fire. The major risk to business investment, which is that of an ongoing workforce liability, is thereby removed.
Vince Cable’s proposed shake-up of employment law is in truth of much more importance to the future of the UK economy than faffing around either with credit easing or squandering £12bn on a temporary tax cut. It’s vitally important that the task is not ducked.
And yet, considering the 12’s concern about austerity to cut debt and banks taking the hit, there was this today: 
22.02 Here we go. Eurozone ministers agree on ways to cut Greek debt to 123/124pc of GDP by 2020, aiming to go close to 120pc. Eurozone in talks with representatives of private sector about finding further debt relief. Issue of ECB forgoing profits on its holdings of Greek bonds remains a sticking point.
Coming soon to a theater near you!  The Son of Austerity.
*Kraken: In modern German, Krake (plural and declined singular: Kraken) means octopus but can also refer to the legendary Kraken.

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Michael Hudson on Greece

Greece and what is happening to it is not getting enough attention.  What is happening there, in my opinion is an example of the human race at it’s worse.  I do not see the implementation of austerity as an experiment.  I see it as just one more step by those in the world controlling banking to mold the world into its self image.

This is a link to an 11 minute interview of Michael Hudson:  Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City… 

In this interview, Prof. Hudson suggests that Greece is the test to see how far the world’s money people can push in preparations for further advancement within the EU.  Interestingly he notes, that in the US, because we privatized our utilities years ago, we are not seeing the same drive of austerity as we are seeing in Europe, including England.  Though we should not be complaisant.

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The 1% are the only beneficiaries of Greek austerity, not ordinary Greeks

by Linda Beale

The 1% are the only beneficiaries of Greek austerity, not ordinary Greeks

An interesting post over on Naked Capitalism on the Greek austerity measures being demanded by the EU leaders (Germany, mostly) and the IMF: Marshal Auerback: Greece and the Rape by the Rentiers (Feb. 10, 2012).

The austerity demands, in order for a sovereign nation to pay back its debt to mostly big banks that lent money recklessly in the leadup to the financial crisis, make no sense at all. If you impose austerity, you clamp down on the economy. If you clamp down on the economy, the poor and near-poor who are already struggling will struggle even more. Unemployment will increase. Desperation will set in and crime or revolution will follow. The 1% at the top do okay at least for a while–after all, they’ve been hogging all the good stuff for a decade at least, and many of them (if the scofflaw wealthy in this country are any guide) will have sequestered funds away in hidden offshore bank accounts to bide them through the rough times or even support them if they expatriate to avoid the mayhem. When austerity measures include privatization of public assets, that same top 1% is able to acquire very valuable assets for a song and then charge “rentier” rewards for the public to use their own assets.


That’s the story that Auerbach tells for Greece, as he wonders why they don’t just get the hell out of the Euro zone and go back to their own currency. They probably will default anyway. But they will have paid a high price for trying to avoid default–the huge cut in wages, increase in unemployment and suffering going on now, and the privatization of even more of their public goods. Greece plans to sell six national companies–energy companies and refineries are included. The banks must be shitting in their pants in excitement.

originally published at ataxingmatter

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