After months of denial, the European policy elite finally begins to understand that something is seriously wrong in the eurozone.
But the prevailing definition of the problem is still too narrow -- the consensus in France and, even more, in Germany is that "this is a Greek problem". Even the most negative still think that Portugal and Spain can easily escape serious damage.
This is a major misconception, as we pointed out last week -- and as we have been emphasizing, to anyone who would listen, for more than a year.
If you want to call for a "rescheduling" of Greece's debts -- a position that is becoming increasingly popular among leading north European intellectuals -- that is fine. But you also need to recognize that the policy elite (central banks and ministries of finance) are completely unprepared to handle the consequences, which would be immediate and devastating for other weaker eurozone countries.
You simply cannot do a low-cost or small unilateral restructuring of government debt in this kind of situation; the market will at once take that as a signal that Portugal, Spain, Italy and perhaps even Ireland will face difficulties (in fact, this is exactly what spreads in the 2-year European government bond market are saying today). The French may smile upon such outcomes with a feeling of superiority, but they might also consider not throwing bricks in glass houses.
It is fine -- even appropriate - to emphasize that big European banks have aided and abetted the irresponsible behavior of eurozone authorities. The profound stupidity of these banks-as-organizations is beyond belief, and it is deeply puzzling quite why leading figures in the US Senate would see them as a model for anything other than what we need to euthanize as soon as possible in the global financial system.
But do not fall into the trap of thinking just because "megabanks are bad" (undoubtedly true) that you can whack them with losses and not face the consequences - these people are powerful for a reason; they hold a knife to our throats. For all his hubris, missteps, and over-reliance on Goldman group think, Hank Paulson had a point in September 2008: If the choice is chaotic global collapse or unsavory financial rescue, which are you going to choose?
The Europeans will do nothing this week or for the foreseeable future. They have not planned for these events, they never gamed this scenario, and their decision-making structures are incapable of updating quickly enough. The incompetence at the level of top European institutions is profound and complete; do not let anyone fool you otherwise.
What we need is a new approach, at the G20 level; this can definitely include debt restructuring, but it has to be done in a systematic fashion (and even then there will be a considerable degree of total mess). Such a change in framework for dealing with these issues will not get broad support until after further chaos in Europe, but it now needs to be put into place.
The Europeans will not lift a constructive finger. The leading emerging markets are too busy battening down the hatches (and accumulating ever more massive chests of reserves). And the White House still seems determined to sleep through this crisis. Expect nothing.
Cross-posted from the Baseline Scenario
a fall of 2.8 - 3.6% should be considered normal for today - worldwide.
I'd attribute the incompetence and intellectual sluggishness of Mrs. Merkel and ECB around 40%, the Greek riots some 25%, the fear of Portugal's, Spain's and Britain's hidden deficits 20% and the Chinese fleeing the Euro and Pound 10-15% ...
Speculation of course had center stage
Have a good evening in a very ugly day
1. Trillions in infrastructure
2. National Health Insurance
3. Educational upgrades (more teachers, better schools - see #1)
Unless you think we have too much infrastructure, too many people getting healthcare, and too many bright children, investing NEW money in these things will not be inflationary.
We also need state banks to keep money out of the Money Leveraging Institutions (MLIs)
We also need to incentivize the workforce, decrease unemployment and end the ridiculous wealth disparity by untaxing true production and taxing - HEAVILY - monopolization of Natural Resources and their use and abuse (all of which are used to amass great fortunes without working). Untax labor, capital and sales. Tax air/water/land pollution, vacant/unused land etc.
It's not hard if you stop listening to the corrupt powers that are.
-Scott Baker, President of Geoist organization, Common Ground-NYC
First of all, there is only one system. That being, a debt-based monetary system. It creates money out of thin air based upon deposits of accumulated debt. No one gives a rat's behind about the US dollar anymore because the US is no longer capable of turning that "money out of thin air" into durable, value added goods. That's been shipped overseas. The cream rose to the top, and went sour.
But it's all still pretty good for the rich.
We MUST STOP JPM AND G0LDMAN!
http://beforeitsnews.com/news/40223/Greece_Will_Default_Gold_Will_Vault.html
Too bad the MSM isn't going to tell you THAT. But by God, it's the truth. So get your MREs ready and head for the bunker.
First, lets face up to the fact that the conservative party in Greece ran the place for the previous 10 years leading up this mess.
Greece's issues are a result of several things, many of which don't apply to America.
Greece's unemployment and entitlement programs are far more generous than those in the U.S.
People in Greece can retire at age 53 with full pay. Not true in the U.S.
25% of Greeks are employed by the government. In the U.S. that number is about 10-12%.
There is a culture of corruption in Greece that far exceeds the corruption in the U.S. Tax evasion has been an accepted activity in Greece for decades. Virtually nobody in Greece pays what they are supposed to pay in taxes. Tax evasion in the U.S. is not nearly as widespread.
The U.S. debt issue can be resolved rather easily at this point.
1. Roll back Bush's tax cuts. And that includes the tax cuts for the middle class.
2. Get out of Iraq and Afghanistan and roll back much of the U.S. military presence around the globe.
3. Reduce military spending by 15-20%.
4. Raise the retirment age.
5. Crack down hard on Medicaid and Medicaire abuse.
6. Introduce a VAT.
Unlike Greece, 70% of US debt is held by Americans, almost all of them rich.
At least $1.5T are the direct result of Bush tax cuts for the rich.
About $300B a year; they used that money to buy T Bills.
Now they hold our debt. The solution is simple: print money and pay it back.
Note that inflation deflates assets, but also debt.
Since most Americans have no assets but lots of debt, they will benefit.
The rich will get poorer.
US debt is almost 100% of GDP; at the end of WWII it was 125%.
The top income tax rate was raised to 71%, until lowered to 50% by JFK.
Vets (the working class) got free/cheap houses and college education.
It was called "The GI Bill", though you might call it socialism.
Result: greatest economy in the world, and a middle class.
We will do it again. If it really bothers you, build a bunker.
The lesson we find hard to learn is not to let things get too big to fail. We get seduced by the siren call of easy money and big growth that bubbles and financial innovation promise, and get sucked into weakening our regulations and putting ourselves up as collateral for whatever get-rich-quick scheme the elites sell to our lawmakers.