Right Thinking From The Left Coast
I find that the harder I work, the more luck I seem to have. - Thomas Jefferson

Beware Gifts Bearing Greeks, Part II
by

With a caveat that the sequel is rarely as good as the original....

I wanted to follow up on Hal’s post from a couple of days ago on the financial turmoil that’s been going on in Greece.  This has been an object of somewhat obsessive attention over at Zerohedge the past few weeks, and the focus has largely been on the similarities between this and what happened when TARP was being debated.  While I can certainly see this as applied to a continental rather than national scale, I think the implications here are far greater.

In my opinion, what is going on in Greece marks it as a bellwether on the survivability of the EU in the short-term, and the welfare state in the long-term. The EU has two choices--1) come up with some sort of bailout plan for a member nation who, economically speaking, is something of a red-headed stepchild due to its lack of economic diversity (most jobs in Greece are in government or tourism); or 2) tell them “Sorry, we can’t throw good money after bad,” and Greece ends up leaving the EU to go back to a vastly devalued Drachma.

If the EU picks the first option, it’s going to open the floodgates.  Italy, Portugal, Spain, and Ireland are all in way over their heads in government debt, with France, the UK, and Germany not too far behind.  It will be impossible for the more stable members of the EU to justify denying bailouts to the the other PIIGS, when they spent all this time agonizing over how to fix the problem and came up with a bailout as the way to fix things.  The “austerity measures” put in by Greece are a joke, because it doesn’t change the fundamental culture of entitlement that’s infected the populace, so they’ll likely end up having to come back to the trough again in a year or so begging for more.

If the second option is chosen, what motivation would Greece or the other PIIGS have to stay in the EU?  The whole idea behind the EU was to create an economic superpower that could compete with the US and Russia for global trade.  If the EU won’t prop up a member of its own economic alliance, why should Italy or Spain or Portugal bother staying in?  Better to just cut loose and try to figure things out on their own without subjecting the country’s citizens to endless agonizing uncertainty on the economic direction of the nation.

Either way, count on what happens with Greece to eventually filter over to the United States at some point.  As Hal pointed out, Greece’s welfare state, like most European nations, is quite robust and the populace has come to depend on entitlement programs--specifically, the national pension system--as their means of survival.  In the same way, Social Security, Medicare, and pension systems here in the US are seen as necessary by most Americans--an entitlement that comes with putting money into a system and expecting financial compensation at a later date.  The problem is that these programs have finally reached the breaking point of sustainability.

Why?  Check out these graphs, the first from Zerohedge and the second from Mish:

image

image

I’m sorry, but there is no way that all the government entitlements, including pensions, that Americans have come to take for granted can be sustained over the long run with such a bleak financial picture.  Coupled with the fact that the federal government’s debt ceiling is 100% of GDP (and even more than that when the toxic crap on Fannie and Freddie’s ledgers that Obama is keeping off the books is factored in), and you have a recipe for some serious pain.  It won’t even matter how much taxes are raised; the US is staring in the face of debt that it cannot possibly meet, short of a global collapse that leaves it as the only major resource provider for the rest of the world.

One thing people have to understand is that the origin of the welfare state was not rooted in any sort of magnanimous national philosophy that all citizens should look out for one another through the machinations of the state.  It was rooted in the need by Bismarck to keep the socialists from baying about Prussia’s military adventures; welfare always has been about the cultural elites maintaining their place of superiority in society by giving the plebians just enough to survive so they don’t try to remove the elites from power.  It was never been about creating equality or a sustainable economic system--the very fact that the welfare state has relied on exponential growth in population and inflation over the last 140 years or so to maintain itself renders the notion of its inherent sustainability a joke, along with the complete failure of the War on Poverty.

The biggest crime being committed by our so-called leaders, and our citizens, rests on the fact that rather than accept responsibility for what needs to be done to fix the problem--that is, clear out the debt by all means necessary--most Americans have resorted the coward’s measure of hoping someone figures out a way to cook the books, so that “extend and pretend” remains the nation’s economic policy until they are safely in their graves.

Posted by on 03/04/10 at 05:42 PM (Discuss this in the forums)

Comments


Posted by Manwhore on 03/04/10 at 07:38 PM from United States

If you’re asking me about Greece, I would say this would be the consequence of 13 sovereign nations, without a constitution to link them together, yet a common dollar.

Talk about cart before the horse. At any rate, Greece is another one of those states that is “too big to fail” with their debt belonging to the Franco-German banks to default on.

As for us...Keep an eye on California. Anything less than a massive downsizing of government-entitlements to a sustainable level will probably be the nation’s outcome as well.

Posted by on 03/05/10 at 06:20 AM from United States

There is one difference between US and the Euro’s that gives me at least some very small messure of hope. While Greeks are rioting in the streets demanding to keep thier entitlements and the portuguese call for strikes over wage freezes, we have tea partiers in the streets demanding an end to deficit spending and paying down the debt. We still have at least some desire amoung US to be self-reliant.

Posted by on 03/05/10 at 10:36 AM from United States

great post, H.L.

Posted by InsipiD on 03/05/10 at 12:07 PM from United States

We still have at least some desire amoung US to be self-reliant.

If only we could shove off California before they pull this one on us.

Posted by AlexinCT on 03/05/10 at 02:33 PM from United States

In my opinion, what is going on in Greece marks it as a bellwether on the survivability of the EU in the short-term, and the welfare state in the long-term.

That’s the great lesson here: collectivism sucks and can not ever work in the long run. Wonder if the elite and the idiots that believe in these ideological teachings are paying attention or simply going to continue to pretend they can make it work. This stuff is the new religious movement icked up by those that were to smart to believe in an all powerful being that controls everything but have no problem believing in an all powerful state that woud do the same.

Posted by InsipiD on 03/05/10 at 04:00 PM from United States

That’s the great lesson here: collectivism sucks and can not ever work in the long run.

It can work in the long run only if they export a lot of value added goods.  You can fund collectivism with a huge influx of cash from outside the system.  Places that export oil can sometimes do it, too.

Posted by Miguelito on 03/05/10 at 04:51 PM from United States

Sorta OT.. sorta not.

You know how fucked CA is?  I heard a commercial on the radio at least twice today (in the very short amount I listened to radio) for buying CA bonds.  They even setup a new website: buycaliforniabonds.com.

The commercial was full is typical crap about how it was a great thing to do, and would help create jobs fixing the infrastructure and such.

Who in their right mind would throw good money for bad on CA these days?  When we finally go bankrupt (and it’s going to have to happen to get us out from under the pension and union crap here) you’re money would go up in smoke.

Posted by CaptCBleu on 03/05/10 at 09:20 PM from United States

It can work in the long run only if they export a lot of value added goods.  You can fund collectivism with a huge influx of cash from outside the system.  Places that export oil can sometimes do it, too.

I think that this is the basis of what we call “capitolism” as long as the capitol goes into job creation and increases production of the value added goods. Collectivism I think doesn’t allow for the return cash that was received for the re-investment to produce more of the value added product, as the state takes all of the cash and gives it to those that haven’t assisted in the production of value added goods.

Posted by InsipiD on 03/05/10 at 10:48 PM from United States

I didn’t say that it was good, only that it was possible.  It’s worth noting our huge trade deficit as well as our budget deficit.

Posted by on 03/05/10 at 11:57 PM from United States

only that it was possible

and then only temporary.

Posted by AlexinCT on 03/06/10 at 12:07 AM from United States

and then only temporary.

That was exactly my point. And when it collapses it is the young, usually completely unprepared and utterly lacking the necessary abilities and instincts to pick up the pieces, that end up taking the brunt of the hit for the abuses and stupidity of those that came before them. Madoff was sent to jail for a similar pyramid scam.

Posted by HARLEY on 03/06/10 at 09:33 AM from United States

Madoff was sent to jail for a similar pyramid scam.

His problem was that he did not have the power of the federal government . you know the power and legal authority to put gun to your head.

<< Back to main