Debt crisis

[Gfted1]

Greece should just tax the rich more. As we know, that solves all ills.

[Nepenthe]

Greece should just tax the rich more. As we know, that solves all ills.

Badum-tshink.

[Walsingham]

As awkward as it is financially, I have to applaud the decision by Greece to have a referendum. This way the people who want it both ways will have to make a ****ing choice, and the government can get on with going one way or another. Plus there's this thing I heard about called 'democracy'. Apparently the Greeks invented it, but the EU doesn't want them using it.

[Nepenthe]

As awkward as it is financially, I have to applaud the decision by Greece to have a referendum. This way the people who want it both ways will have to make a ****ing choice,

Will they? I have a nagging suspicion that they'll choose the "oxi" option, expecting that they'll still get bailed out, just without the forced austerity measures. And they might not be wrong.

[Walsingham]

What puzzles me, as a novice to Euro politics, is how Merkel is driving this whole Deutschland Unter Alles approach. The Russians and Chinese have (so I'm told) taken the view that they can simply let Greece and Italy go to wall then buy all the bits at knockdown rates. Lower risk on the final product.

 

I also find it interest how the polemic swirls around the issue like smoke round a burning house. I overheard some people in the pub revealing that Greek state railway employees were on an AVERAGE salary of 60k. This sort of thing ha the inevitable consequence of making me regard the whole sorry lot as a bad job, and a crash as the ineluctible consequence.

[Nepenthe]

I also find it interest how the polemic swirls around the issue like smoke round a burning house. I overheard some people in the pub revealing that Greek state railway employees were on an AVERAGE salary of 60k. This sort of thing ha the inevitable consequence of making me regard the whole sorry lot as a bad job, and a crash as the ineluctible consequence.

No, I agree with you. A crash would be the (only) logical solution to the situation. The problem is that Greece reached a point where it wasn't enough to bribe the people with their money, they had to loan extra money from other European banks. This whole brouhaha is about not letting banks go under, partly from fear of getting a major loaning freeze that would dwarf the one from a couple of years ago, partly from the banking sector having a really good lobby and ties to everybody who makes the decisions. So we're stuck in the situation of pumping money into a dead carcass so they can meet their payments to the German and French banks. Or have been stuck, as the debt slashing was the first step in admitting that things've gone Pete Tong, and now it looks like the Greeks aren't going to play ball, anyway.

 

The railway employees thing is just one example. I've lived in Greece for years and maintain steady contacts there. The whole system is just full of fail already by design, rampant corruption and tax evasion at all levels of the society just makes it worse.

[Walsingham]

Ugh. Everything is so interconnected, I wonder if failure cascades aren't inevitable. Trouble is I don't see how you'd stop it from happening.

[Enoch]

This sort of thing ha the inevitable consequence of making me regard the whole sorry lot as a bad job, and a crash as the ineluctible consequence.

That's a pretty apt description.

 

Greece has been, essentially, a 3rd world economy for decades. It has no real competitive advantages other than having nice beaches and ruins that people like to come visit, and there's a pretty long history of regular defaults on government debt to boot. They were offered admission into the currency union because the elites of northern Europe wanted more markets for their goods that wouldn't be subject to currency adjustment when trade got lopsided. Normally, if trade between nations is imbalanced, their exchange rate adjusts such that the net Exporter's goods get very expensive and the net Importer's goods get rather cheap. But put both countries on the same currency, and give control of that currency, in effect, to the finance ministers of the big exporters, and you have a recipe for 21st century mercantilism-- you just have to bait the hook with the availability of extraordinarily cheap lending via the ECB. So Northern Europe lends money to Greek banks and the Greek government at rates so low that they'd be crazy to say no, the Greek government and banks pass this money on the Greek citizenry via high wages, generous pensions, and easy credit, and the people spend money on imports from Germany and France. The Banks make money; the Exporters make money, and the Greeks get to enjoy a 1st-world standard of living... But only for so long as nobody pays attention to the size of the debt that the Greek government is building up. An across-the-board total lack of appreciation for the quite clear long-term consequences of actions.

[Wrath of Dagon]

I say anyone unwilling to pay their debts should just be allowed to collapse, and once again we'll have to bail out our idiot banks by going even deeper into debt. I want heads to roll though if that happens again. Btw, I always thought EU as a common market was a good idea, but as a political and monetary union it was sheer stupidity, although it was hard to remember that as the Euro was soaring past the dollar.

[Cantousent]

I am, as I prefer to say, a tad bit disoriented right now, but I would like to point out a couple of things. First of all, I agree with yoiu, Wrath, but don't misunderstand. Even if the so called 'contagion' of banks doesn't reach the United States, the depression that would undoubtedly ensue in Europe would still stick it to the US in a bad way. It is not writ in stone that there would be a domino effect as the banks most invested in Greek debt fail and therefore make it impossible for some of the other at risk countries to secure the credit extensions they need to meet their obligations. Sure, it might not spiral, but it probably will. We probably would be looking at the sort of Armageddon that the more colorful commentators cite when talking about the Greek default.

 

I think Enoch does a commendable job of explainging things, as he always does, but it's too easy to say that Greece is a third world economy stuck with a first world currency and therefore without any recourse to dealing with debt. Yeah, there's really nothing they can do. ...But Ireland was, even moreso, the supposed poster child for the EU and it's not but a step or two in front of Greece. Ireland was the example of how entering the union and adhering to the principles of the larger economic block would bring a country into the next century in a mutally beneficial cycle of growth and prosperity. That cycle is not supportable without some sort of exportable industry, eitehr in manufacturing or service. The countries that have done best in the EU have been the smaller countries that have some sort of niche export markets that benefit from the Eurozone structure. Some of the countries would probably have developed some sort of decent exportable industry to keep them afloat for a while, but the EU has seen it's share of the global economy shrink for years, which is inevitable considering their fiscal and monetary policy.

 

I don't doubt that Enoch and I would disagree on a variety of points, but I'm perfectly happy to yield the floor to him for the purposes of explanation.

 

For my part, partly because of fatigue and partly because of my 'disoriented' status, I want to limit myself to comment to folks who believe as I do that we should let the chips fall. Let the real estate market in the US fall, let the banks fail (the ship has sailed on that one unfortunately), and let the car companies go under if they cannot turn a profit (ditto). The point is, don't think it's all roses and sweet perfume. If we go down that road, there will be a reckonning. We. will. suffer. Now, I know a thing or two about suffering, folks, and it's not what a lot of peoplle think it is. It's long nights of pain and hunger, and that's what we're looking at if we take a crash course in a real free market solution to this problem. I think the alternative, such as using monetary and fiscal policy for short term stimulous and the like, is a loser in the long run, but at least it won't be ruinous in the short term. We can probably count on the next decade or longer being absolutely unbearable for a great chunk of folks if we reset and some countries, such as Greece, will be screwed not matter what. Austerity in terms of both spending and tax increases in Greece will be disasterous. The best thing they could do right now is cut themselves loose from the euro. The euro has hurt the Eurozone far more than anything else over the past several years. ...Anf if the Greeks try to stick it out and it devalues the euro, everyone will be screwed, from the Europeans to the US to the damned Chinese, who won't be able to devalue the won sufficiently to keep up exports to a number of devastated markets.

 

of course, this is all a bunch of lubricated rambling, I will admit, but just saying, all you who want an easy sultion of 'just let them fail...' I agree with you. Let them fail. But get ready for long sleepless nights of sweat dripping off your face from the pain and suffering we're all going to feel.

[Walsingham]

I'd be very careful about agreeing with WoD. He'd cheerfully let a man get hit by lightning, even if he lived in the same tree.

 

It's fascinating to me but so far as I can establish he simply refuses to accept the existence of second order effects. I've given up worrying about him.

 

~~~

 

However, Bel Canto, I accept your point about perhaps seeing our way through a lot of pain as something we could do with open eyes.

 

My objection to this is, as I am musing over my newspapers, is that the choice need not be binary: crash or burn money. A crash over an extended duration is a braking manoeuvre. Maybe we should be looking to let Greece collapse, but in a mediated fashion. Do this slowly enough, and maybe we can all survive.

[Cantousent]

I've had a headache all morning, so I was going to write something snarky. hehe Snarky, I said, not personal. After some thought, I decided I didn't want to get beat up. :Cant's rueful grin icon:

 

You've got it right, Wals. Can we spread out the bad effects over a long enough period while sufficiently dealing with the problem. We're going to have some pain. It's just a matter of how much pain and for how long.

 

...And my previous post, while perhaps a bit on the flambouyant side, won't look excessive if we have a literal world wide depression.

[Walsingham]

To develop my earlier point, all we have to do is to enact a Greek collapse where the individual subsystem failures happen in time steps outside the decision loops of our 'friendly' financial organs. They see it coming and act accordingly.

 

In other words, we still have th avalanche, but it happens slowly enough that we dodge the individual boulders.

[Wrath of Dagon]

I'd be very careful about agreeing with WoD. He'd cheerfully let a man get hit by lightning, even if he lived in the same tree.

 

It's fascinating to me but so far as I can establish he simply refuses to accept the existence of second order effects. I've given up worrying about him.

 

Sometimes I really wonder where you obtain the alien logic you use to reach some of your conclusions.

 

And for the record, I didn't say let everyone fail. I specifically said we'll have to bail out our banks once again if it comes to that. But really, how much can they be in for? Even if it's a couple of trillion $, the Fed prints that much before they break for lunch. But trying to help people who are unwilling to help themselves has always been a fool's errand.

[Walsingham]

It's fascinating to me but so far as I can establish he simply refuses to accept the existence of second order effects. I've given up worrying about him.

 

Sometimes I really wonder where you obtain the alien logic you use to reach some of your conclusions.

 

 

Systems theory. But don't let that worry you. It's only used to run every major technology and manufacturing firm in the world. FFS I thought you were studying for an MBA?

[Nepenthe]

FFS I thought you were studying for an MBA?

God, I hope not. I've been thinking of doing one.

[Enoch]

I've been trying to think a bit about this whole slow economic spiral the developed world finds itself in, from the what-bullet-point-historical-summaries-will-say-100-years-from-now level.

 

It seems to me that the nations of Europe, North America, and Japan are a few decades into struggling with the question of what an ordinary shlub with no particularly marketable skills can do to earn a living and support a family, given that microchips, robots, and cheap offshore workers have greatly reduced the need for unskilled labor.

 

200 years ago, the answer to this was easy-- subsistence farming. But ever-larger (and ever-more-efficient) farming operations have made that an increasingly inefficient use of land resources. 100 years ago, the answer was to do what those cheap offshore workers do today-- repetitive tasks based on manual dexterity or non-roboticized assembly. The industries involved were sufficiently new and innovative that there was enough surplus from these operations to support a pretty solid wage level for its time. And the marginally more educated could do the related calculation and documentation tasks that are handled largely by computer now.

 

Now, there's government work and service industry work, neither of which create much in the way of positive multiplier effects for the economy as a whole (often quite the opposite). There's some construction work, but that's very sensitive to economic cycles. There is, of course, still a good amount agriculture and manufacturing going on, but robots and computers have greatly decreased the number of people required to do the work, and greatly increased the qualifications that employers need these people to have. The floor of a steel mill that used to employ 100+ man shifts can now be run by a dozen or so people, all looking at computer screens.

 

Countries are trying all kinds of different ways of handling this problem. First and most important is simply borrowing money from future generations to support economic activity today. This is most obviously appparent in government debt and central bank activities, but probably moreso a problem in how regulators have allowed the financial industry and the companies they support to take on astounding degrees of leverage under the mistaken assumption that all that risk can be fully understood hedged effectively. As for employment, America has kept its huge service sector afloat by greatly incentivising home ownership and investment in residential construction. Germany has kept its manufacturing going by turning Southern Europe into the equivalent of a 17th-century mercantilist power's colonies-- markets for goods who can't respond to one-sided trade via political action or currency adjustment. Both of those strategies are blowing up at the moment.

 

Long-term, the differences between the First and Third worlds are bound to diminish at a slow and inconsistent pace, absent some change in the ways that goods, services, and companies cross physical distances and political barriers. (At some point, we'll probably see a re-invigoration of trade barriers and a fall of the WTO framework as faltering economies turn to isolationist politicians.) Nations will be divided more by how well governed they are than by the legacy of how wealthy and successful their ancestors were. (And, of course, there will always be some regions-- I wouldn't call them "nations"-- whose governance and rule-of-law is too weak to support anything beyond the most rudimentary of economic development.)

[Nepenthe]

I feel bad posting something this vague after Enoch's well-thought out and expressed post, but IIRC there have been some signs in the air that the pendulum is swinging back a bit from the "manufactured in china" phenomenon. That in some cases, due to the economic development there, its actually again becoming viable to do your manufacturing where your market is.

[Morgoth]

Manufactoring has always been global, or do you think a BMW is still completely produced in Germany?

 

China, for the most part, only manufactors cheap low-level stuff, not the high-tech stuff. Like, always?

Edited November 4, 2011 by Morgoth

[Enoch]

Well, China is an odd case in a great many aspects. It is, as Nep notes, no longer the cheapest labor supplier out there, and it's trying to manage a transition to a more functional internal market economy. Under the frame I set out in my post earlier this morning, I guess that puts them a few decades earlier in the "what do we do with all these people who want work" calculation. But it's exacerbated by the fact that they have so many more people than anybody else.

 

They're starting to get past the simple assembly tasks, which have generally not been producing enough value-added to fund a particularly satisfactory standard of living. And, to a certain extent, they've been playing a similar mercantilist game to that which Germany has been using-- holding the Renmimbi at a relatively set point so that a weaker Dollar doesn't make their goods rise in price in America. That has worked because of their general bilateral dependency with the United States, but it's a ticking time bomb given that the U.S. can control the value of the Dollar and is a pretty huge net debtor relative to the outside world-- eventually, the benefits of Dollar inflation are going to start to outweigh the costs.

 

I really don't have much of a guess as to where, in general, things are going over there. For one thing, it's not exactly a haven of honest financial reporting, so reliable data is quite tough to get, and nobody really knows what the honest figures would really say. They've spent a lot of money on somewhat dubious infrastructure projects (a common indulgence for a government primarily run by engineers) and on contracting for raw materials supply (much of which is in nations that don't exactly have the best history in terms of stability and honoring contracts). I doubt that they're going to get the ROI they expect on those expenditures. But those are pretty short-run thoughts.

Edited November 4, 2011 by Enoch

[Nepenthe]

Manufactoring has always been global, or do you think a BMW is still completely produced in Germany?

 

China, for the most part, only manufactors cheap low-level stuff, not the high-tech stuff. Like, always?

Thanks, I'm aware of the first thing, and you're not correct on the 2nd.

[Walsingham]

I was thinking on most similar lines today. Albeit less articulate ones.

 

The thing is that with modern manufacturing a single factory could probably turn out enough cars (let's say) to equip everyone on the planet in a matter of a couple of years, if al the valves were turned up high. Hell, wasn't it General Motors who first showed what manufacturing could do during WW2? The question then becomes, I guess, one of demand and the economics of shipping, and protectionism.

 

I will refer members to the illustrious pages of the weekly comic 2000AD. In it you have a vast mega city whose residents are almost entirely on 'welfare', and all industry and service jobs are run by robots. I'm talking as far back as the early eighties.

 

~~

 

So... how will this impasse be resolved?

[Enoch]

The thing is that with modern manufacturing a single factory could probably turn out enough cars (let's say) to equip everyone on the planet in a matter of a couple of years, if al the valves were turned up high. Hell, wasn't it General Motors who first showed what manufacturing could do during WW2? The question then becomes, I guess, one of demand and the economics of shipping, and protectionism.

 

I will refer members to the illustrious pages of the weekly comic 2000AD. In it you have a vast mega city whose residents are almost entirely on 'welfare', and all industry and service jobs are run by robots. I'm talking as far back as the early eighties.

How about 1952?

 

So... how will this impasse be resolved?

Nerve stapling.

[Calax]

The hardest part is going to be when the generation currently in power and making up a majority of the work force, are removed from the job pool. This will probably happen when MY (as of yet unmade) children are just coming out on their own to work, but still those positions will seriously lack people to fill them I think.

 

Not only will the average age drop, but also the skill level of those working because they have a distinct lack of experience.

 

All that said, I think one of the few ways we'd see an economic recovery in the US would be to curb the MASSIVE debt, and restructure several government institutions.

[Rosbjerg]

How about 1952?

 

There went 1 hour reading about which book inspired the next, but at least now I have 6 books to read..