Friday, June 24, 2011



The third topic of thunderous geopolitical import I’ve needed lately to write about after Fukushima, which keeps getting worse, and the regression of American politics, which probably can’t get any worse, is the Eurozone debt crisis which will later, if not sooner, see Greece, as the first of several countries, default on its debts or at minimum force a restructuring of its debt.

The IMF and European Central Bank think they are bending over backwards to help Greece avoid default. In the event, their prescriptions for recovery and the onerous conditions placed on their ‘generosity’, only delay the inevitable. By the time the latest bailout is added to their debt, it’ll equal more than 160% of GDP and debt service an unsustainable 6% plus of GDP. In contrast, US debt is about 100% of GDP and debt service about 1.2%. If the US were paying debt service equivalent to Greece’s that would come to about $1 trillion a year. The total US budget is now about $3.4 trillion.

Part of the problem is the high interest rates – 5.5% - the monetary agencies are charging Greece. The money made available to the ECB and IMF to help countries in distress should be doled out at low interest rates, they are, after all, not commercial banks looking for profits, but public entities financed with public money established for the public good. Why then would the IMF want to make money from a country that is dealing with social unrest, political upheaval and imminent default? Their mindset is so far from humanitarian they don’t even know they’re being assholes and helping to bring the country down instead of saving it.

That is combined with required austerity measures which, ostensibly, are to rein in excess government, but in reality add greatly to unemployment, and thus reduce tax revenue. Since affluent Greeks are adept at avoiding taxes it’s only the commoners that pay and only when they are working. Moreover, with the economy going downhill those who do have jobs aren’t spending in fear they might join the ranks of the unemployed. The finance community is participating in bringing the country down and making it impossible for Greece to ever pay its debt.

When an individual reaches an equivalent level of debt and it’s clear that they’ll never have the ability to pay, they declare bankruptcy. Their remaining assets are divvied up amongst creditors and they start over. Once you’ve gone that route, you’re on your own, you’ve no choice but to live within your means since borrowing is no longer an option.

The head of the ECB said Greek default is unthinkable because that would mean recapitalizing the big banks that have invested in Greek bonds. When the masses face unemployment and poverty, they’re told to buck up and tough it out. When banks and investors stand to lose out because they gambled (that’s what investing is) on the wrong investments, they get money thrown at them. Germans are widely opposed to bailing out Greece, but if they don’t, they’ll be bailing out their banks.

Greek prime minister Georges Papandreou has warned default will be catastrophic. Very true, but sometimes that’s exactly what’s needed to right the ship of state. For the Greek people who’ve been let down by their government and in some ways their culture, whether they go down by way of default or unsustainable debt, it’ll be catastrophe either way. They were let down by their government (the previous conservative administration) because it used Goldman Sachs’ expertise in deceit and underhandedness to hide the amount of debt they were accumulating. Let down by their culture because of a bloated civil service and widespread tax avoidance where doctors are able to claim annual incomes of $25,000 because they’ve bribed the tax authorities to look the other way.

It’s important to note that the Greek government could’ve continued on its merry profligate debtor’s way if the financial crisis of 2008 hadn’t intervened to throw a lightening bolt into the endless growth bubble. That’s why you’re supposed to save for a rainy day, make hay while the sun shines, bury your acorns in fall to get through the tough times of winter. Most people are aware of the half of Keynesian economics which says countries should deficit spend in times of recession to keep their economies going, but few remember the other half where he said they should put money aside during good times to have available during hard times.

The problem of excessive sovereign debt has arisen because dominant bankster economic philosophy over the past few decades requires that taxes on the wealthy and corporations be low which serves to starve government of revenues and simultaneously make it easy for governments to borrow because those with money have a lot of it laying around needing to do something with it. As mentioned previously, it’s a lot easier to use borrowing to make an economy look good than actually raise the necessary money through taxation. The borrowing is justified by assuming that a growing economy will make it easy to service the debt, and to a certain point, it will… until it stops growing, which inevitably must happen since nothing can grow indefinitely.

If world financial institutions actually wanted to help the people of Greece, they’d provide low or no interest loans to consolidate debt and an equivalent amount to finance infrastructure improvements and sustainable energy production to put people to work. They’d also force creditors to restructure their loans by extending their payback dates and lowering interest rates. Instead they are punishing the people with pay cuts, worsening working conditions, very high unemployment and increased taxes, all while the country’s elite continue to shirk their responsibility to help fund government. They are forcing a debt death spiral.

Ironically, default will change Greece in just the manner prescribed by the bankster community. The difference is that a lot of rich people will also share the pain and get hits in their deep pockets. Wouldn’t that be nice. And isn’t it about time. The banking system will be in crisis and lots of investors will get haircuts… well great, there’s too much money at the top, time to cut the elite down to a fairer, more equitable size.

The workers and salarymen and women will get hit hard, but they’ll also be able to start fresh and create a new society. Think about it: If a country is getting 40% of its budget from borrowing and suddenly that money is no longer available (that’s the percentage for America, I don’t know the exact figure for Greece) it will be a formidable challenge to keep the country afloat. The outsized civil service will be pared drastically. All government functions will be sliced to the bare bones. With the public sector starved for cash, the tax collectors will be, or should be, out doing their jobs with a vengeance. At least they won’t be spending a huge portion of their income on debt service.

It’ll be chaos and turmoil in the beginning with mass unemployment and poverty. In two or three years they’ll be back to some semblance of normality. In seven to ten years they’ll be going strong, starting from a much stronger, more equitable base. And it’ll be a warning to other countries to keep their books in order – including the US. And a warning to banksters and investors that they won’t always get bailed out.

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