i looked up kotlikoff’s purple plan, and i talked to him at some length. i don’t think it would be fair for me to quote from emails he may have regarded as private. but i will say that he failed to convince me that he even understands his own math.
speaking of which, if anyone knows how he gets his 211 Trillion Dollar Deficit, I wish they’d point me to a good explanation.
Anna Lee pointed out that Kotlikoff has been selling his idea that seniors’ SS heaps crushing taxes on young workers” for a long time. As I finished making another deposit for school expenses into my son’s checking account yesterday, it occurred to me that Kotlikoff must not have any kids. That would account for the notion that SS will bankrupt our children (and theirs too, presumably.) Those of us who are parents will probably agree that the situation is the reverse.
There are fortunate kids out there who come into the world trailing clouds of glory and a nice trust fund from Grandma. Then, there are the children of the middle classes who cost a fortune from infancy to adulthood and then, boomerang home when their employers downsize their workforces.
Want a nice retirement portfolio? Don’t have kids at all or at least not during your second marriage when you have to work until they’re 18 just to break even. Forget retirement. And, then the labor market isn’t what it was. If they can’t find a job, they can go back to school with loans you cosign until they’re at least 25 and maybe later if they screw up their credit. So, I’ll bet a big part of the $Trillion in debt attributable to student loans is as much the parents’ debt as the kids’.
Kotlikoff is free to compute his unfunded liabilities and public debt anyway he wants to. But, it seems more likely that SS benefits paid to parents may be a benefit to kids rather than the reverse. The traditional pattern is for children to care for their aged parents when they’re too old to work. To the degree that SS and Medicare reduce that burden, SS is a benefit to the children of the middle and working classes, not the reverse. Otherwise, here’s a taste of what’s to come, kiddlets. http://www.youtube.com/watch?v=ZZQlbtlErLo To quote Hank Williams pere, “Move over little dog ’cause the big dog’s moving in.” 🙂 NancyO
i dont know about kotlikoff’s deficits, but most of those hundred trillion dollar deficits i’ve seen take the govts unfunded liabilties out to infinity…
Shooting war against terrists on the AMEX card, tax cuts, bail outs, encouraging huge financial instruments of mass destruction, allowing trade plundering to bring Red China up by their boot heels……………………………..
And a platinum plated for profit war machine equal to the rest of the world.
And K cannot see how to pay back, a sixt of the federal debt, the excess receipts from SS income over outflows…………..
I have been following the economic debt crisis in Europe as currently represented by the planned “austerity” legislation upheaval in Greece. I am missing something. I have read through the latest news report from today’s NY Times. The only think that is clear to me is that Greece, not the individual citizens or any specific entity like a bank or corporation, owes out lots of money. It also seems clear that Greece needs to borrow lots of money to service that debt. So I have some questions for those of you who know this sort of detail.
First off I will admit that I suspect that the message is being distorted. Those reporting on the facts of the issues either don’t want to report the details accurately or some external force doesn’t want those details reported accurately. Obfuscation, the news media is sometimes thy name. For a start look at this one comment from the Times article here: . http://www.nytimes.com/2011/10/21/world/europe/protesters-gather-in-athens-on-second-day-of-strike.html?pagewanted=2&_r=1&ref=business It sets up the reader for a misunderstanding of the issue.
“The controversial bill before Parliament includes cuts in wages and pensions as well as thousands of layoffs in the public sector — once a political third rail in Greece’s welfare state.”
If the cuts are to wages and pensions and the public sector is laying of workers how does the term “welfare state” apply? Moving right along we come to this statement, and keep in mind that this is a new report of an incident and an issue behind that incident:
“It also changes collective-bargaining rules to make it easier to hire and fire workers, an action that economists say is crucial to liberalizing Greece’s economy to spur growth, but which has little popular support.” I wonder what economists that may be that would use the term liberalizing to describe any reduction or elimination of employment protection rules for workers? And how is it now a fact to be reported in the press that such “liberalizing” changes to the Greek economy would “spur growth”? I guess that lower wages, which is the clear implication of the effort, would spur the growth of profitability, but that would skew the benefits of any so called economic growth.
So here are my questions, or should I say that here is what I can’t find in the reports of this economic crisis in Greece. Greece apparently needs to borrow a great deal of money. It is not crystal clear what that new borrowing is needed for. The Times article says, “Without its passage, Greece’s foreign lenders have said they will not release the funds, which the debt-ridden country will need to meet expenses.” What are those expenses? Does Greece have to borrow heavily in order to pay current debt or to pay new expenses? If the new loans are needed to pay old debt who are the debt holders? If the new debt is earmarked to pay expenses why does Greece not pay expenses through a process of taxation? It is perplexing to me that the news articles say little regarding tax revenues in Greece. One thing that is clear is a concern over default by the Greek government. The Finance Minister is quoted as saying, “..if the new austerity measures, including changes to collective-bargaining agreements and the firing of public workers, were not approved, “the country will be exposed to the risk of a nonrational development” — an apparent reference […]
Yea, I am still waiting for that infinite horizon estimation of each budget in the federal government. They can just adapt the same assumptions as in the trust fund reports.
I know the Greek working class is pissed off. What I am asking is who is it that will benefit from this philosophy of austerity? We can clearly see who is being asked to sacrifice. The question is, who is it that stands to gain from that sacrifice?
This is very similar to the US SSTF situation. The SSTF is owed money from the general fund borrowed and its moral and correct to repay it. Similarly the Greek Government borrowed tons of money from other EU countries, using that to increase the size and scope of its welfare state and increase government employees numbers and pay. Unfortuanately for Greece all this increases in non-productive center did not increase Greek GDP enough. Now the loans are due and the austerity measures are being implemented to pay back the loans. Right now the current actions by the Greece government are trying to get their fiscal situation under enough control so that Germany and France will cough up more loans to cover the current ones and give Greece breathing space to get their fiscal house in order. That’s why the Greek administration is terminating excess government workers and trimming the size and scope of the very bloated Greek government. Same with changes to the private sector rules to try to spur growth and increase business tax revenues. Weather or not it will spur the productive sector into job and business creation is another thing.
Basically Greece lived well beyond its means, by borrowing, and now its time to pay the piper. Very similar to the general fund now having to pay back what it borrowed from the SSTF. A moral issue – ask coberly.
Unfortunately for Greece, they don’t control their currency. Thus the concensus around is that sooner or later (probably sooner) the Greeks are going to default on those debts and get forced out of the currency union. This will allow the Greeks to issue dracmas again and devalue their currency. This has become such a problem is becuase the Greeks are tied fiscally at the hip to the rest of the Euro nations. The rest of the PIIGS are in not much better shape. Greece’s economy is small enough that its can be ‘saved’ by the help of the German and Frence governments. The issue if the French and Germans are pretty sure all they are doing is staving off the inevitable and throwing good money after bad in Greece. BUt then what happens with the rest of the PIIGS?
There is also the issue of the German people who are tired of shoveling money to the Greeks – that’s were the taxes to fund this are coming from. Greece has a long tradition of tax avoidance and my bet its getting worse as the economy sinks. (the pool issue in the rich suberbs of Athens comes to mind). Higher taxes and a strealined government could save the Greeks and keep them in the union. I just don’t think they have it in them politically or culturally to get it done. They want something for nothing.
What is different between “shoveling money” to the Greeks (plus PIIS in general; all of whose gumints backed up German, belgium, French, et al banks’ loans to get into their troubles) and “shoveling money” to the east zone the past 20 odd years?
The Greeks fold then the Irish decide to hang their bankers, then Lehman collapse looks like chicken scratching.
I don’t know anything really about Greece’s debt. Unfortunately you are not a reliable source… no offense, but you tend to believe what you read in sources i would suspect of bias.
If indeed Greece got into debt by overpaying the public sector, and providing over generous retirement plans, then there would be good reason to cut back on those expenses. But in fairness to the people, that should be done gradually.
Personally I suspect it’s something else: Big loans to countries that can never afford to repay, as a lever to gain political control of those countries. This is nothing new, “smart finance” has been doing it to small farmers for over a hundred years.
The Germans and other center euors engaged in typical bankstering, going after higher returns from riskier activities.
Now the governments of the PIIGS have bailed a lot of the euros’ riskier bets, but are running out of credit to bail out their own ante into assuming private risk.
ECB should buy sovereign debt to punish the usurers. But that might be Keynesian instead of Austerian (Austrian). And everyone east of the English Channel and North of the Thames knows Keynes is the devil ‘imself.
Comparing too good benefits for public sector. Special treasuries are held against US federal debt totals in order of size:
SSTF Medicare OPM retirement Military retirement/reitred medical care
By far the most munificent for the beneficiaries are the last 2, I know from experience.
The last two are distinct from the first two because congress appropriated all the balances and never put a cent of cash/money into those special treasureis. And they include about 1200B in special treasuries, with never having received more than 3% in OPM from the employees and future beneficiaries.
Who is more to criticize Greeks or the US congress?
Read Rebecca on this site. She’s provided more than enough to back every statement I made. Kevin Drum has made many a post. If you want to see plenty of hard data (skip the hypeboll) see Mish’s site at the link at the right. Plenty of sites say exactly that. I didn’t say anything that’s basically common knowledge. Heck, Merkle may lose her job over this. Greece took on a ton of debt, way more than they should have, and instead of building up its infastructure to make it more friendly to investors and business people, they expanded the size and scope of the government. With typical results.
Now its time to pay the piper. Really well past time, but no one wanted to rock the boat and so made the inevitable reckoning worse with each delay. The Greek government willfully misled the EU in Brussels at every turn. Well they can’t to it any more – everyone knows the King has no clothes. Now there are multiple issues at hand and many players. For the Greeks its how best to handle a debt they really have little/no chance of repaying. For the French/German Government its how to minimize the pain to their people and economy. For the Beuracrats in Brussels it how to keep the union together or better yet take more soverienty from the EU nations and concentrate it in Brussels. There is lots of long term vs. short term type trades – some of which mean some real pain now.
The austerity is caused by the need to pay back the IOUs, like the general fund owes the SSTF, that it took out. I doubt they can do it, but the threat of them leaving the EU or taking them all down, may get teh French and Germans to cough up the cash. I doubt Merkle’s government will survive such a move. Heck I’ve even scene ideas of a north /south EU split, leaving the PIIGS to their fate (se Argentina).
Greece can’t make its interest payments on its debts. Without foriegn funds it can’t cover them. This would be a default with all the issues behind it. Either way Greece is going to pay for its over-extending itself and its bloated public (non-wealth creating) sector.
And the idea that the Greece was forced to take the money is hilarious…
You see Buff the lack of reference and citation regarding the explanation you give implies to me that I should be suspect of that explanation. Much the same as is said by coberly. Where did you come by your information? Maybe Greeks have been living on or near the dole all these years, but I find it a bit mysterious that the specific causes of the debt are not given and only vague reference is made to the need to “reform” and/or “liberalize” various aspects of the Greek economy and government. In the Eurpean Commission’s report those two terms are used in various contests that they don’t really fit and the words change and decontrol would be better semantic fits. So something isn’t being addressed in a direct and unambiguous manner. Given that all of that ambiguity is coming from the “reformers” and “liberalizers” I am immediately suspect of its intention. Here’s the link to the Commission report on Greece; http://www.skai.gr/files/1/gpapav14/20oct%20fifth%20review%20compliance%20report-all.pdf Read it and see if there isn’t a great deal of code being used and little specific detail as to where the mooney went.
I’m a great believer in the concept of financial investigation that notes that when you want to know who is at fault in any financial crisis you need only look to where the money went. Greece is deep in debt. As I have tried to ppoint out on many occasions one party’s debt was another party’s income. Why isn’t it clear as to where all the money has been lent to Greece has gone to? Focusing on the proposals to “fix” Greece by an austerity plan doesn’t mean that those who are now expected to bear the burden of the fix were in fact responsible for the dysfunction.
buffpilot: “And the idea that the Greece was forced to take the money is hilarious… “
There’s no need to build a strawman in this discussion. No one is claiming that Greece was forced to borrow though that can sometimes be the case when the IMF is involved. The question is, what was the borrowed money used for? Their working class and public employees in particular are being told to suck it up and bear the brunt of the fiscal storm. If those folks did in fact take the money and are now trying to run the other way then general auserity may be the appropriate response. What is clear to the historic view is that when a great deal of welath has been squandered it isn’t usually the working class that has enjoyed the fruits of the scam.
When tax evasion rates run 40-50 percent year after year, it’s gonna be hard to balance a budget. It isn’t the “bloated” public sector. For one source, here’s a Posner analysis from earlier this year:
“The percentage of public employees in the workforces of these countries ranges from 6.35 percent in Singapore to 33.87 percent in Sweden. Indeed the three lowest countries, and the only ones with fewer than 10 percent public employees, are Japan, Singapore, and Taiwan. The highest countries after Sweden are Denmark (32.3 percent) and Norway (29.25 percent). The remaining Scandinavian country, Finland, is fifth with 26.31 percent. In fourth place, just below Denmark, is Hungary. The other countries with public-employee percentages above 20 percent are Greece (22.3 percent), Canada, and Poland, Greece being the lowest in this group of eight countries, despite all the negative attention its public-employee workforce has received lately.
“The rest of the countries in my list (that is excluding the above-20 percent and below-10 percent countries), are grouped pretty tightly between about 12 and 19 percent. The United States is in approximately the middle, with 16.42 percent. Surprisingly, it is well ahead of Israel, Spain, Italy, Germany, France, and Portugal. The European countries with the lowest percentage of public workers are the Netherlands and Austria, but Portugal is only slightly above the Netherlands.”
. . . The upshot is that there does not appear to be a relation between a country’s prosperity and the number of public employees it has. . . . “
I’ve spent most of the day exploring this question. There is no simple answer is all I’ve been able to learn so far. One point that is repeated is tax evation. I’ll not bother with specific numbers yet, but some data implies that if Greeks and Greek businesses paid their income taxes there would be nearly no deficit or crisis. Its a big, big problem. Some reference to the public sector employment appears, but it is unconvincing and inconsistent. Of all things, the Wiki article on the issue points out that Greeks put in the most work hours per year of any European country and are second in the world only to Korea. There is plenty of reference to the austerity focus, but there is also plenty of reference to its ineffectiveness. Is the implication that austerity is only fueling the debt crisis because it is sustaining the economic crisis there. One interesting observation was the increase in private debt during economic growth spurts, early 2000s, followed by increased public debt in the collapse with the government backing up lots of the previously building private debt.
So its a mixed picture, but I can find no valid data, yet, suggesting that Greek public workers, or any other Greek workers, had it too good and didn’t work for their benefits. One thinkg that seems real is that Greeks that make lots of money don’t pay their taxes and those who make less money follow that example. Something about their history of foreign domination, the Ottomans for example, and not wanting to pay to be subjugated. It seems to have become a heritable characteristic or the Greek economy.
you don’t have to “force” people to borrow. you can put them in a situation where they “have to” borrow, or make them an offer that seems too good to pass up. and the unsophisticated are always at the mercy of the sophisticated. i suspect you think “life is harder if you are stupid” covers that adequately. most people… when they are free… know that sharp trading is immoral, even as they start listening to the next man with a plan.
it seems to me that the borrowers here were not the poor people of Greece, and if the lenders did not know better, they should have. but of course they knew what they were doing.
Let me add a fact on the Cain plan. The business tax is as has been noted a vat or gross reciepts less some items tax. Note that interest is not exempted, which would change business finanace completly. Under the plan equity would be cheaper than borrowed funds. Of course this would kill off the investment banks (as currently structured) since they make their money on fixed income, much more than equities where commissions have gone essentially to zero. (If you look around a bit to pick a broker). It would be a complete change from today where debt is preferred to equity to change to the other way.
Jack to answer your question about who owns the Greek debt, a lot of the money is owed to banks outside of Greece. If you have a money market account, Greece currently may owe you some money via investments in European banks.
For me the more important question is where did the borrowed funds go? The most persistent suggestions are that the Greek government “rescued” private Greek banks with the initial borrowed money(pre-2008) and far less suggestion that the Greek workers were receiving the funds. Now that the Greek government is fully out of cash the newest loans seem needed to pay debt and on going services and pensions. I’ll try to get back with links to some of the more informative sources that I found, but the specifics of where the money went to begin with is obscure. At least on current web sites.
let this pinko commie liberal social engineering social ist say that i don’t think the government ought to be in the business of favoring one way of making money over another… within the limits of public safety… a straight income tax, progressive, but applied to all sources of income, would be the easiest to collect, and the economy would adjust itself around that. the magic of the free market and all. government taxes are just another cost of doing business.
all of the “flat tax” schemes i have seen are just ways for the rich to avoid the progressive income tax, and they are not good policy.
Good for you in looking into this more deeply. Greeks do have a long-standing cultural problem with tax evasion. BUt that’s part of the Greek culture (as you pointed out) – not something your going to turn around quickly.
I also have no idea what the Greek government did with the funds. Every indication is they used it to expand the government payroll, increase government worker pay, and cover the delta between those expendatures and what the tax reciepts were bringing in. BUt I would be interested in where it went also.
But that doesn’t change the fact that the Greek government lied to the EU over the years on its fiscal situation. Now that’s out of the bag and Greece can’t cover the interest on the loans (let alone repay them). And if they can’t the Greek government is going to default.
That’s the real bottom line. Greece can’t make its payments – austerity is paying the piper…
Of course the code is set up to favor debt today over equity. I just wonder what the economy would look like 20 years after equity becomes favored, except that the banks will bleed as commerical loan volume dries up.
I have no idea how the money people see this. but a local bank is bragging about offering a 1% interest rate on deposits. And the last CD i was offered was down in the tenths of a percent. Can’t see much incentive here to “invest” in “savings.” Might be some incentive to invest in real projects, if there were any. All the rest is casino gambling. Don’t see any good coming from that.
We might, or might not, be entering a new paradigm. Can’t see how the money people can make money if the people are too poor to buy anything or save anything or invest anything. On the other I would love to see a culture emerge where people learned the joys of living on less… if they could find a way to make that less “secure” and not degrading.
Dale You’re quite right. Interest on anything fixed is little better than a fix against your postion. Take a look at established electrical power corps. Around 5% and I believe those are qualified dividends. The principle seems pretty stable over the long run, five years or so. If you can’t beat ’em, join ’em.
Or as in my telephone coop dividends are just a reduction in cost of service provided (since they are less than the charge for the service in essence just a delayed discount) Anyway I do not get 1099s for them.
fwiw
i looked up kotlikoff’s purple plan, and i talked to him at some length. i don’t think it would be fair for me to quote from emails he may have regarded as private. but i will say that he failed to convince me that he even understands his own math.
speaking of which, if anyone knows how he gets his 211 Trillion Dollar Deficit, I wish they’d point me to a good explanation.
Anna Lee pointed out that Kotlikoff has been selling his idea that seniors’ SS heaps crushing taxes on young workers” for a long time. As I finished making another deposit for school expenses into my son’s checking account yesterday, it occurred to me that Kotlikoff must not have any kids. That would account for the notion that SS will bankrupt our children (and theirs too, presumably.) Those of us who are parents will probably agree that the situation is the reverse.
There are fortunate kids out there who come into the world trailing clouds of glory and a nice trust fund from Grandma. Then, there are the children of the middle classes who cost a fortune from infancy to adulthood and then, boomerang home when their employers downsize their workforces.
Want a nice retirement portfolio? Don’t have kids at all or at least not during your second marriage when you have to work until they’re 18 just to break even. Forget retirement. And, then the labor market isn’t what it was. If they can’t find a job, they can go back to school with loans you cosign until they’re at least 25 and maybe later if they screw up their credit. So, I’ll bet a big part of the $Trillion in debt attributable to student loans is as much the parents’ debt as the kids’.
Kotlikoff is free to compute his unfunded liabilities and public debt anyway he wants to. But, it seems more likely that SS benefits paid to parents may be a benefit to kids rather than the reverse. The traditional pattern is for children to care for their aged parents when they’re too old to work. To the degree that SS and Medicare reduce that burden, SS is a benefit to the children of the middle and working classes, not the reverse. Otherwise, here’s a taste of what’s to come, kiddlets. http://www.youtube.com/watch?v=ZZQlbtlErLo
To quote Hank Williams pere, “Move over little dog ’cause the big dog’s moving in.” 🙂 NancyO
i dont know about kotlikoff’s deficits, but most of those hundred trillion dollar deficits i’ve seen take the govts unfunded liabilties out to infinity…
If they could do it in Egypt, Tunisia and Libya…………….
http://www.ritholtz.com/blog/2011/10/how-specific-were-egyptian-protesters-demands/
Sounds pretty familiar.
Shooting war against terrists on the AMEX card, tax cuts, bail outs, encouraging huge financial instruments of mass destruction, allowing trade plundering to bring Red China up by their boot heels……………………………..
And a platinum plated for profit war machine equal to the rest of the world.
And K cannot see how to pay back, a sixt of the federal debt, the excess receipts from SS income over outflows…………..
The US taxpayer underwrites the wall st casino out to infinity.
Got have the 1% flush.
here’s an idea: why dont we just count our future revenues this year & call it a surplus?
I have been following the economic debt crisis in Europe as currently represented by the planned “austerity” legislation upheaval in Greece. I am missing something. I have read through the latest news report from today’s NY Times. The only think that is clear to me is that Greece, not the individual citizens or any specific entity like a bank or corporation, owes out lots of money. It also seems clear that Greece needs to borrow lots of money to service that debt. So I have some questions for those of you who know this sort of detail.
First off I will admit that I suspect that the message is being distorted. Those reporting on the facts of the issues either don’t want to report the details accurately or some external force doesn’t want those details reported accurately. Obfuscation, the news media is sometimes thy name. For a start look at this one comment from the Times article here: . http://www.nytimes.com/2011/10/21/world/europe/protesters-gather-in-athens-on-second-day-of-strike.html?pagewanted=2&_r=1&ref=business It sets up the reader for a misunderstanding of the issue.
“The controversial bill before Parliament includes cuts in wages and pensions as well as thousands of layoffs in the public sector — once a political third rail in Greece’s welfare state.”
If the cuts are to wages and pensions and the public sector is laying of workers how does the term “welfare state” apply? Moving right along we come to this statement, and keep in mind that this is a new report of an incident and an issue behind that incident:
“It also changes collective-bargaining rules to make it easier to hire and fire workers, an action that economists say is crucial to liberalizing Greece’s economy to spur growth, but which has little popular support.”
I wonder what economists that may be that would use the term liberalizing to describe any reduction or elimination of employment protection rules for workers? And how is it now a fact to be reported in the press that such “liberalizing” changes to the Greek economy would “spur growth”? I guess that lower wages, which is the clear implication of the effort, would spur the growth of profitability, but that would skew the benefits of any so called economic growth.
So here are my questions, or should I say that here is what I can’t find in the reports of this economic crisis in Greece. Greece apparently needs to borrow a great deal of money. It is not crystal clear what that new borrowing is needed for. The Times article says, “Without its passage, Greece’s foreign lenders have said they will not release the funds, which the debt-ridden country will need to meet expenses.” What are those expenses? Does Greece have to borrow heavily in order to pay current debt or to pay new expenses? If the new loans are needed to pay old debt who are the debt holders? If the new debt is earmarked to pay expenses why does Greece not pay expenses through a process of taxation? It is perplexing to me that the news articles say little regarding tax revenues in Greece. One thing that is clear is a concern over default by the Greek government. The Finance Minister is quoted as saying, “..if the new austerity measures, including changes to collective-bargaining agreements and the firing of public workers, were not approved, “the country will be exposed to the risk of a nonrational development” — an apparent reference […]
Yea, I am still waiting for that infinite horizon estimation of each budget in the federal government. They can just adapt the same assumptions as in the trust fund reports.
Jack
they are.
I know the Greek working class is pissed off. What I am asking is who is it that will benefit from this philosophy of austerity? We can clearly see who is being asked to sacrifice. The question is, who is it that stands to gain from that sacrifice?
Jack,
This is very similar to the US SSTF situation. The SSTF is owed money from the general fund borrowed and its moral and correct to repay it. Similarly the Greek Government borrowed tons of money from other EU countries, using that to increase the size and scope of its welfare state and increase government employees numbers and pay. Unfortuanately for Greece all this increases in non-productive center did not increase Greek GDP enough. Now the loans are due and the austerity measures are being implemented to pay back the loans. Right now the current actions by the Greece government are trying to get their fiscal situation under enough control so that Germany and France will cough up more loans to cover the current ones and give Greece breathing space to get their fiscal house in order. That’s why the Greek administration is terminating excess government workers and trimming the size and scope of the very bloated Greek government. Same with changes to the private sector rules to try to spur growth and increase business tax revenues. Weather or not it will spur the productive sector into job and business creation is another thing.
Basically Greece lived well beyond its means, by borrowing, and now its time to pay the piper. Very similar to the general fund now having to pay back what it borrowed from the SSTF. A moral issue – ask coberly.
Unfortunately for Greece, they don’t control their currency. Thus the concensus around is that sooner or later (probably sooner) the Greeks are going to default on those debts and get forced out of the currency union. This will allow the Greeks to issue dracmas again and devalue their currency. This has become such a problem is becuase the Greeks are tied fiscally at the hip to the rest of the Euro nations. The rest of the PIIGS are in not much better shape. Greece’s economy is small enough that its can be ‘saved’ by the help of the German and Frence governments. The issue if the French and Germans are pretty sure all they are doing is staving off the inevitable and throwing good money after bad in Greece. BUt then what happens with the rest of the PIIGS?
There is also the issue of the German people who are tired of shoveling money to the Greeks – that’s were the taxes to fund this are coming from. Greece has a long tradition of tax avoidance and my bet its getting worse as the economy sinks. (the pool issue in the rich suberbs of Athens comes to mind). Higher taxes and a strealined government could save the Greeks and keep them in the union. I just don’t think they have it in them politically or culturally to get it done. They want something for nothing.
And they have run out of other people’s money.
Islam will change
buff,
What is different between “shoveling money” to the Greeks (plus PIIS in general; all of whose gumints backed up German, belgium, French, et al banks’ loans to get into their troubles) and “shoveling money” to the east zone the past 20 odd years?
The Greeks fold then the Irish decide to hang their bankers, then Lehman collapse looks like chicken scratching.
wall st will collapse with the OWS kids watching.
If the Libyan can do Qaddafi……………………..
wall st will change
Buff
I don’t know anything really about Greece’s debt. Unfortunately you are not a reliable source… no offense, but you tend to believe what you read in sources i would suspect of bias.
If indeed Greece got into debt by overpaying the public sector, and providing over generous retirement plans, then there would be good reason to cut back on those expenses. But in fairness to the people, that should be done gradually.
Personally I suspect it’s something else: Big loans to countries that can never afford to repay, as a lever to gain political control of those countries. This is nothing new, “smart finance” has been doing it to small farmers for over a hundred years.
coberly,
The Germans and other center euors engaged in typical bankstering, going after higher returns from riskier activities.
Now the governments of the PIIGS have bailed a lot of the euros’ riskier bets, but are running out of credit to bail out their own ante into assuming private risk.
ECB should buy sovereign debt to punish the usurers. But that might be Keynesian instead of Austerian (Austrian). And everyone east of the English Channel and North of the Thames knows Keynes is the devil ‘imself.
Comparing too good benefits for public sector. Special treasuries are held against US federal debt totals in order of size:
SSTF
Medicare
OPM retirement
Military retirement/reitred medical care
By far the most munificent for the beneficiaries are the last 2, I know from experience.
The last two are distinct from the first two because congress appropriated all the balances and never put a cent of cash/money into those special treasureis. And they include about 1200B in special treasuries, with never having received more than 3% in OPM from the employees and future beneficiaries.
Who is more to criticize Greeks or the US congress?
coberly,
Read Rebecca on this site. She’s provided more than enough to back every statement I made. Kevin Drum has made many a post. If you want to see plenty of hard data (skip the hypeboll) see Mish’s site at the link at the right. Plenty of sites say exactly that. I didn’t say anything that’s basically common knowledge. Heck, Merkle may lose her job over this. Greece took on a ton of debt, way more than they should have, and instead of building up its infastructure to make it more friendly to investors and business people, they expanded the size and scope of the government. With typical results.
Now its time to pay the piper. Really well past time, but no one wanted to rock the boat and so made the inevitable reckoning worse with each delay. The Greek government willfully misled the EU in Brussels at every turn. Well they can’t to it any more – everyone knows the King has no clothes. Now there are multiple issues at hand and many players. For the Greeks its how best to handle a debt they really have little/no chance of repaying. For the French/German Government its how to minimize the pain to their people and economy. For the Beuracrats in Brussels it how to keep the union together or better yet take more soverienty from the EU nations and concentrate it in Brussels. There is lots of long term vs. short term type trades – some of which mean some real pain now.
The austerity is caused by the need to pay back the IOUs, like the general fund owes the SSTF, that it took out. I doubt they can do it, but the threat of them leaving the EU or taking them all down, may get teh French and Germans to cough up the cash. I doubt Merkle’s government will survive such a move. Heck I’ve even scene ideas of a north /south EU split, leaving the PIIGS to their fate (se Argentina).
Greece can’t make its interest payments on its debts. Without foriegn funds it can’t cover them. This would be a default with all the issues behind it. Either way Greece is going to pay for its over-extending itself and its bloated public (non-wealth creating) sector.
And the idea that the Greece was forced to take the money is hilarious…
Islam will change
You see Buff the lack of reference and citation regarding the explanation you give implies to me that I should be suspect of that explanation. Much the same as is said by coberly. Where did you come by your information? Maybe Greeks have been living on or near the dole all these years, but I find it a bit mysterious that the specific causes of the debt are not given and only vague reference is made to the need to “reform” and/or “liberalize” various aspects of the Greek economy and government. In the Eurpean Commission’s report those two terms are used in various contests that they don’t really fit and the words change and decontrol would be better semantic fits. So something isn’t being addressed in a direct and unambiguous manner. Given that all of that ambiguity is coming from the “reformers” and “liberalizers” I am immediately suspect of its intention. Here’s the link to the Commission report on Greece; http://www.skai.gr/files/1/gpapav14/20oct%20fifth%20review%20compliance%20report-all.pdf Read it and see if there isn’t a great deal of code being used and little specific detail as to where the mooney went.
I’m a great believer in the concept of financial investigation that notes that when you want to know who is at fault in any financial crisis you need only look to where the money went. Greece is deep in debt. As I have tried to ppoint out on many occasions one party’s debt was another party’s income. Why isn’t it clear as to where all the money has been lent to Greece has gone to? Focusing on the proposals to “fix” Greece by an austerity plan doesn’t mean that those who are now expected to bear the burden of the fix were in fact responsible for the dysfunction.
buffpilot: “And the idea that the Greece was forced to take the money is hilarious… “
There’s no need to build a strawman in this discussion. No one is claiming that Greece was forced to borrow though that can sometimes be the case when the IMF is involved. The question is, what was the borrowed money used for? Their working class and public employees in particular are being told to suck it up and bear the brunt of the fiscal storm. If those folks did in fact take the money and are now trying to run the other way then general auserity may be the appropriate response. What is clear to the historic view is that when a great deal of welath has been squandered it isn’t usually the working class that has enjoyed the fruits of the scam.
When tax evasion rates run 40-50 percent year after year, it’s gonna be hard to balance a budget. It isn’t the “bloated” public sector. For one source, here’s a Posner analysis from earlier this year:
“The percentage of public employees in the workforces of these countries ranges from 6.35 percent in Singapore to 33.87 percent in Sweden. Indeed the three lowest countries, and the only ones with fewer than 10 percent public employees, are Japan, Singapore, and Taiwan. The highest countries after Sweden are Denmark (32.3 percent) and Norway (29.25 percent). The remaining Scandinavian country, Finland, is fifth with 26.31 percent. In fourth place, just below Denmark, is Hungary. The other countries with public-employee percentages above 20 percent are Greece (22.3 percent), Canada, and Poland, Greece being the lowest in this group of eight countries, despite all the negative attention its public-employee workforce has received lately.
“The rest of the countries in my list (that is excluding the above-20 percent and below-10 percent countries), are grouped pretty tightly between about 12 and 19 percent. The United States is in approximately the middle, with 16.42 percent. Surprisingly, it is well ahead of Israel, Spain, Italy, Germany, France, and Portugal. The European countries with the lowest percentage of public workers are the Netherlands and Austria, but Portugal is only slightly above the Netherlands.”
. . . The upshot is that there does not appear to be a relation between a country’s prosperity and the number of public employees it has. . . . “
http://www.becker-posner-blog.com/2011/09/too-many-government-workersposner.html
I’ve spent most of the day exploring this question. There is no simple answer is all I’ve been able to learn so far. One point that is repeated is tax evation. I’ll not bother with specific numbers yet, but some data implies that if Greeks and Greek businesses paid their income taxes there would be nearly no deficit or crisis. Its a big, big problem. Some reference to the public sector employment appears, but it is unconvincing and inconsistent. Of all things, the Wiki article on the issue points out that Greeks put in the most work hours per year of any European country and are second in the world only to Korea. There is plenty of reference to the austerity focus, but there is also plenty of reference to its ineffectiveness. Is the implication that austerity is only fueling the debt crisis because it is sustaining the economic crisis there. One interesting observation was the increase in private debt during economic growth spurts, early 2000s, followed by increased public debt in the collapse with the government backing up lots of the previously building private debt.
So its a mixed picture, but I can find no valid data, yet, suggesting that Greek public workers, or any other Greek workers, had it too good and didn’t work for their benefits. One thinkg that seems real is that Greeks that make lots of money don’t pay their taxes and those who make less money follow that example. Something about their history of foreign domination, the Ottomans for example, and not wanting to pay to be subjugated. It seems to have become a heritable characteristic or the Greek economy.
you don’t have to “force” people to borrow. you can put them in a situation where they “have to” borrow, or make them an offer that seems too good to pass up. and the unsophisticated are always at the mercy of the sophisticated. i suspect you think “life is harder if you are stupid” covers that adequately. most people… when they are free… know that sharp trading is immoral, even as they start listening to the next man with a plan.
it seems to me that the borrowers here were not the poor people of Greece, and if the lenders did not know better, they should have. but of course they knew what they were doing.
Let me add a fact on the Cain plan. The business tax is as has been noted a vat or gross reciepts less some items tax. Note that interest is not exempted, which would change business finanace completly. Under the plan equity would be cheaper than borrowed funds. Of course this would kill off the investment banks (as currently structured) since they make their money on fixed income, much more than equities where commissions have gone essentially to zero. (If you look around a bit to pick a broker). It would be a complete change from today where debt is preferred to equity to change to the other way.
Jack to answer your question about who owns the Greek debt, a lot of the money is owed to banks outside of Greece. If you have a money market account, Greece currently may owe you some money via investments in European banks.
For me the more important question is where did the borrowed funds go? The most persistent suggestions are that the Greek government “rescued” private Greek banks with the initial borrowed money(pre-2008) and far less suggestion that the Greek workers were receiving the funds. Now that the Greek government is fully out of cash the newest loans seem needed to pay debt and on going services and pensions. I’ll try to get back with links to some of the more informative sources that I found, but the specifics of where the money went to begin with is obscure. At least on current web sites.
Lyle
let this pinko commie liberal social engineering social ist say that i don’t think the government ought to be in the business of favoring one way of making money over another… within the limits of public safety… a straight income tax, progressive, but applied to all sources of income, would be the easiest to collect, and the economy would adjust itself around that. the magic of the free market and all. government taxes are just another cost of doing business.
all of the “flat tax” schemes i have seen are just ways for the rich to avoid the progressive income tax, and they are not good policy.
Jack,
Good for you in looking into this more deeply. Greeks do have a long-standing cultural problem with tax evasion. BUt that’s part of the Greek culture (as you pointed out) – not something your going to turn around quickly.
I also have no idea what the Greek government did with the funds. Every indication is they used it to expand the government payroll, increase government worker pay, and cover the delta between those expendatures and what the tax reciepts were bringing in. BUt I would be interested in where it went also.
But that doesn’t change the fact that the Greek government lied to the EU over the years on its fiscal situation. Now that’s out of the bag and Greece can’t cover the interest on the loans (let alone repay them). And if they can’t the Greek government is going to default.
That’s the real bottom line. Greece can’t make its payments – austerity is paying the piper…
Of course the code is set up to favor debt today over equity. I just wonder what the economy would look like 20 years after equity becomes favored, except that the banks will bleed as commerical loan volume dries up.
Lyle
I have no idea how the money people see this. but a local bank is bragging about offering a 1% interest rate on deposits. And the last CD i was offered was down in the tenths of a percent. Can’t see much incentive here to “invest” in “savings.” Might be some incentive to invest in real projects, if there were any. All the rest is casino gambling. Don’t see any good coming from that.
We might, or might not, be entering a new paradigm. Can’t see how the money people can make money if the people are too poor to buy anything or save anything or invest anything. On the other I would love to see a culture emerge where people learned the joys of living on less… if they could find a way to make that less “secure” and not degrading.
Dale
You’re quite right. Interest on anything fixed is little better than a fix against your postion. Take a look at established electrical power corps. Around 5% and I believe those are qualified dividends. The principle seems pretty stable over the long run, five years or so. If you can’t beat ’em, join ’em.
Or as in my telephone coop dividends are just a reduction in cost of service provided (since they are less than the charge for the service in essence just a delayed discount) Anyway I do not get 1099s for them.