Post Emailed to Recaps -- Post From Memphis
OK, just admit it.....
...simply reading today's topic has already got your mind rolling thru the lyrics of this famous song recorded by the Eagles......"Welcome to the Hotel California....!!".
Not only is this a great song but also it's application to today's discussion is a strong one for this was a place where you could check-in but were never allowed to check out.
The people of Greece had no idea what awaited them the day that their gov't agreed to "check-in" to the Eurozone alliance and most certainly did not envision that the day would come when they would want out and be denied all the basic rights of any democracy.
Many people misunderstand Greece's situation because they have not gotten all the facts. Let's roll up our sleeves and set things right a bit. Along the way you'll likely pick up some hidden realities that await other nations (Greece is simply among the first).
ALL western nations will have their turn (to varying degrees of course) and so I see that a great NEED exists to "understand" Greece.
For brevity I will illuminate a small list of important factors here and then we will close with an important and insightful interview with the former Greek Minister of Finance, Yanis Varoufakis, who resigned the day after the Greek people voted overwhelmingly in a referendum to reject the mandates of Brussels (the Eurozone leaders).
In service to his nation, he left his job at the University of Texas earlier this year to accept the important (and nearly impossible task) of leading them out of the mess and into a brighter future.
Yes I am aware that he is an atheist, and yes, I am aware that their new gov't is leftist leaning in the strongest sense of the term BUT based on my knowledge of the man, he is also a brilliant economist who understands the situation as well as anyone and by extension he also understands the "solution".
His responses in the attached interview will give readers a GREAT glimpse behind the curtain. I hope that all will study it and find the "big picture" insights that it holds.
Now to set the stage, let's talk about Greece. How they got here and what fix (if any) is there to this mess.
IS IT REALLY ALL GREECE'S FAULT?
So what went wrong? Greece has an unsustainable national debt and as investor confidence in their ability to repay all this debt has dropped? The cost of continued borrowing has of course risen sharply.
How did Greece get so indebted? Well as we all know from news outlets it's because they are mostly lazy and want to retire early with an amazing pension right? Oh and another one widely circulated is that most Greek's are tax dodgers, but let's not be so quick to judge here...
When these European nations all adopted a common currency known as the Euro they each had a distinct exchange value to the old currency. ‘
In the case of Greece the Drachma had a low relative exchange but this grew greatly until the Euro was at 2:1 to the old and now the cost to repay their debts had effectively doubled without any deficit spending being added!
If your reading this and thinking that the Greeks (and other nations) were basically screwed from day #1? You would be correct. Britain was fortunate to have a PM at the time who say the pitfalls and refused the Euro.
Add to this new debt level years of growth in the size of gov't and in spending more than they collected in revenue (deficit spending), the probability of financial collapse was certain.
Adding insult to injury, Greece entered the Euro under false pretenses! There were adjustments made in their balance sheet (the books were cooked) to give the appearance that their financial standing was firm when it was not.
This service was provided by Goldman Sachs Investment Bank who then profited greatly off the wealth of the Greek's in the years that followed.
A recent press release showing possible litigation to help the Greek's recover these funds:
AUSTERITY - WHAT IT IS AND WHY IT IS NOT A SOLUTION
While no one can argue that socialism is a failed system that is dying a slow death before our eyes we must remain elevated in our perspective in order to arrive at the truth, our search for the way out of the mess.
While Greece certainly needs many reforms in how it funds itself and the promises made to workers we must appreciate history and see that financial repression against the people (austerity) and raising taxes will not produce economic growth and prosperity. It never has and it never will.
Youth unemployment exceeds 60% in Greece! There is simply no hope in their eyes. No future.
As a result many of the best and brightest have already moved elsewhere seeking opportunity and we should not be surprised that civil unrest is on the rise.
These people JUST voted for a true break from the repression of Brussels and their PM seems to have abandoned them?
All western gov'ts know that civil unrest lies ahead and they have prepared for it. Why have they prepared? Well, they have studied history and they don't want to lose control cause that means they lose their jobs. I wish I could impart just a portion of the news that I see daily in this regard.
This is not speculation and it is not meant to scare! The entire power structure of the world is shifting as chess pieces are being rearranged and the needs of the people are not even a secondary consideration.
In case you are caught off guard by this news take comfort in that this is nothing new to man. This cycle has repeated all thru our history and the good news is that we can plan for it! We can see ahead by looking back to history.
Mankind always reacts the same way and always creates the same outcomes. We have never learned even once from history to allow a change in the outcome because we cannot defeat our own fallen nature. I have written on this many times and so let's move on here....
The recent actions against Greece by the power brokers in Brussels should not be a surprise to us. The Euro experiment was destined to fail from the onset by virtue of it's design.
With each sovereign nation retaining it's separate debt structure the financial union was never completed and wise economists have been expecting present day events as it has always been a certainty. The current strong arm tactics against Greece do provide a glimpse tho of the timing of things....IMO.
It now appears that we are seeing an acceleration in the demise of the European Union as these men are unwittingly hastening the day when they too will be....unemployed. I plan to be short the Euro.
A WAY FORWARD FOR GREECE
Given the current particulars the debt must be addressed in a meaningful way. Staying in the Euro is not going to fix anything for Greece and every thinking person in control of this situation knows it! There are problems tho in letting the Greek's leave the Euro (cue the Eagles song...).
If they are allowed to default then the question becomes who's next? I assure you that Italy, Spain, and Portugal are watching with great interest. And what if the Greek's were allowed to exercise their democratic right to put this to a vote?!?!
That could never be allowed and if you doubt me you will have your eyes opened as you read their finance ministers glimpse behind the curtain. The power brokers in Brussels will not and cannot allow Greece to simply "check out" and to further complicate matters?
The US does not want them running into the arms of Russia and so the political dimension FURTHER clouds any hope of a solution. Again, if you doubt this read the IMF's recent suggestion for Greece to simply default! WHERE DID THAT COME FROM?? Who appointed Christine Lagarde to her post as head of the IMF? Our own president.
So what is Greece to do then? The answer is (and must be) a drastic one. For their economy to see growth, for businesses to thrive yet again, for investor confidence to rise and money costs to go down, these require a reset of the debt.
We'll cover two scenarios for this in the next paragraph but we must recognize that the Greek's have one REALLY BIG comparative advantage in the world. They have the largest merchant shipping fleet of any nation and they are good at what they do but unless and until the drowning weight of debt is removed there is no way forward for their economy.
WHAT WILL LIKELY BECOME REALITY FOR GREECE
Don't expect the European Leadership (Brussels) to suddenly grow a heart. They seek but one thing, maintaining the status quo. If they keep their jobs, their position, then they have succeeded.
This is simply the nature of man playing out as it has always done thruout history. As this unfolds, the gov't becomes hostile towards the people and the citizens become a thing to simply be taxed and controlled.
You may not like this message but it's the truth guys and it is daily playing out all across the Western Hemisphere for those with eyes to see.
Given this and other certainties we might expect one of two outcomes as things devolve even further.
1) Greece can default on all external debts and basically start over. Release the Drachma internally and wait for the great influx of capital that will surely come from all over the globe once investors see the clean balance sheet.
A less extreme position would be to settle all foreign debts in the new Drachma that is priced at 50% to the Euro a 2:1 ratio.
2) Greece can continue treading water endlessly and look elsewhere for the latest life raft. This would likely be Russia and/or China. Regardless we know that any such benefactor will require their own form of repayment.
Clearly I see option #1 as the best path forward and respecting history we must recall that sovereign defaults have occurred thruout all recorded history. The greatest failure of Central banks is always when they decide to fund governments for governments have a deplorable track record in paying their debts.
Remember this next time you read that the US is going to simply resume printing dollars into infinity.
This has never been the end game in a developed nation (although Japan is currently testing the waters) for they simply default on their obligations beginning with those debts that are internal. The promises that have been made to......us.
I can already tell that I tried to cover too much ground here in one sitting. I hope that the reader can at least take away a greater appreciation for the realities of what's at play here.
Does Greece have issues that need fixing? Yes but we must appreciate that austerity is not a "solution" as it only further destroys the people in support of the bond holders who are raping the wealth of a nation. And that's ....the truth....
note: This conversation [interview] took place before the deal.
Comments may be made at the end of Part 2 Thank You