Financial gurus- explain Greece to me.

[bdgan]

And what percentage of that debt is related to the Bush tax cuts and wars?

Defense spending definitely grew under Bush but it grew even further in the first 3 years under Obama. It has come down in the last 3 years but is still close to what Bush spent in 2008. 80% of the Bush cut taxes went to the low and middle class and those tax cuts are still in place. Obama subsequently increased taxes on the "rich" and they are now paying the most they've paid in several decades.

I assume that Greece would pay it'd debt to the EU. The problem is they would do it with devalued drachma.

 

[Obliviax]

Its not that complex of a plot. It's a nice girl meets a Greaser guy set in the 50's. Olivia Newton John is a knockout in the end. Some good tunes.

Get it?
Got it?
Good.

 

[AC-LION]

The USD (ticker for US $) has been "devaluing"? Are we talking the here-&-now? This is simply not true - not only is it a false claim, but the reality is that on a "trade-weighted basis" the USD has been strengthening against its worldwide trade partners (it is the direct cause of Import Prices falling by 10% on a YoY basis). This is largely what has kept nominal interest rates so low - e.g., the US is exporting "growth" and importing the rest of the world's "disinflation".

Since the Fed began in 1913, our dollar has been devalued by roughly 98% and is now a fiat currency, meaning it isn't backed by anything of actual value I.e. Gold, silver, etc. It doesn't hold any actual value. It's a piece of paper. All of the other currencies used to measure the trade weighted basis use keynesian theory as well. The dollar appears to be doing well because other currencies are being inflated faster than ours. Our saving grace is the fact that we're the worlds reserve currency, but when they create a global currency or change the words reserve currency, which there have been serious talks of both, it will be devastating. The demand for the dollar will immediately drop. You can't endlessly print money without consequences. We are all addicted to cheap money and when that stops, because it has too, we're in trouble.

 

[BBG65]

Remember GW Bush inherited a surplus from Bill Clinton. If you want to look at when the federal budget got off track how about huge tax breaks for millionaires and an unnecessary invasion of Iraq funded on credit.

Yeah the deficit is all Obama's fault

The democrat line was "tax cuts for millionaires" and it was true, but incomplete. All us "thousandaires" also got tax breaks. It was across the board. And yeah, the Iraq war cost a ton of dollars.

 

[Bushwood CC]

Since the Fed began in 1913, our dollar has been devalued by roughly 98% and is now a fiat currency, meaning it isn't backed by anything of actual value I.e. Gold, silver, etc. It doesn't hold any actual value. It's a piece of paper. All of the other currencies used to measure the trade weighted basis use keynesian theory as well. The dollar appears to be doing well because other currencies are being inflated faster than ours. Our saving grace is the fact that we're the worlds reserve currency, but when they create a global currency or change the words reserve currency, which there have been serious talks of both, it will be devastating. The demand for the dollar will immediately drop. You can't endlessly print money without consequences. We are all addicted to cheap money and when that stops, because it has too, we're in trouble.

I'm very well aware of international trade accords and their history. You are over-simplifying things to the extreme. The Fed did not start devaluing the US$ in 1913 - at the time, all countries were on the Gold Standard and international trade accounts were settled in gold between all countries (e.g., there was no such thing as a reserve currency - there was only gold, which BTW is still an accepted "reserve" asset). Bretton Woods established the US$ as the world's reserve currency (e.g., US$ could be used in place of Gold on international trade settlements) - it came into being specifically because the US essentially owned all the world's gold via trade (e.g., net exporter), the US$ was on one side or the other of 90% of international trade and the counterparties to these trades had no gold left to pay, but they could go buy $'s in foreign exchange markets. Essentially, the world was growing faster economically than international "gold stock" - claiming the world should have been straight-jacketed with a home-based hard currency system is silly and would have done nothing but cause a massive world-wide economic implosion via severe deflation resulting from lack of liquidity. The velocity of money (e.g., how quickly the monetary base is turning over via exchange) is every bit as important as the aggregate base - the reason we are not seeing inflation despite the aggregate monetary base being doubled over the last several years is because the velocity of money has halved over the same time frame (and it doesn't matter which aggregate base you wish to use, M1, M2 or M3. The velocity of money using any of them as the base has plunged).

 

[zwick99]

Remember GW Bush inherited a surplus from Bill Clinton. If you want to look at when the federal budget got off track how about huge tax breaks for millionaires and an unnecessary invasion of Iraq funded on credit.

Yeah the deficit is all Obama's fault

Bush also inherited sub prime lending mess from CLinton. You can thank Clinton.

 

[zwick99]

hunh, has anyone mentioned Goldman Sachs?

Hillary's son in law, MArk Mezvinski works there. Is his dad ed mezvinski out of jail yet?

 

[jj410]

Bush also inherited sub prime lending mess from CLinton. You can thank Clinton.

Since we are blaming predecessors for the inaction and mistakes of the incumbents, I think it's all George Washington's fault.

 

[kgilbert78]

The point is that is doesn't matter *whose* fault it is. We still have the problem to solve.

 

[indynittany]

Remember that Clinton benefitted from the "peace dividend" as a result of Reagan's policies leading to the economic collapse of the Soviet Union. That is the only reason why a surplus was possible.

That, and some actual fiscally responsible policies put forth by the republican held congress (Contract for America). Too bad that was thirty years ago!

To the OP, Germany can absorb a Greek default. It remains uncertain what it would do to Italy, France and Spain.

 

[indynittany]

Keynesian Economics doesn't work. Endlessly printing money doesn't stimulate the economy. All it does is create bubbles like we've seen over and over again.

It's put our country in a position where if they stop printing so much money, the interest rate will rise, which will be financially devastating for millions of Americans. Conversely, if they continuously print money our dollars is continuously devalued, which is just a hidden tax and discourages savings. Our dollar is losing value and its already being talked about as being replaced as the world reserve currency, which will have bad ramifications as well. We'll have a ton of money that no one wants. We are truly caught between a rock and a hard place because of Keynesianism.

Financially devastating for which "millions of Americans"? The top 1%. Wall Street would get crushed (and should), but Main Street would be better off once the dust settles.

I don't think many people realize that the American people and its government are now at cross purposes.

And yes, Keynesian economics is a fraud. It's like pushing on a string. Those in power rely on it to justify the expansion of government interference in our lives. The reality is that the entire developed world is on the brink of economic collapse due to overwhelming debt.

 

[AC-LION]

Financially devastating for which "millions of Americans"? The top 1%. Wall Street would get crushed (and should), but Main Street would be better off once the dust settles.

I don't think many people realize that the American people and its government are now at cross purposes.

And yes, Keynesian economics is a fraud. It's like pushing on a string. Those in power rely on it to justify the expansion of government interference in our lives. The reality is that the entire developed world is on the brink of economic collapse due to overwhelming debt.

The top 1% are so wealthy that a slight increase in interest rates wouldn't really affect them too much on an individual scale. They could afford the increased prices. If they were raised too high, yes it would create problems for them, but they won't let that happen. On the other hand, for people who are living paycheck to paycheck, a slight interest rate increase is magnified and it would make many of them insolvent. However, the real problem lies in the fact that if interest rates were to rise, our country couldn’t afford the interest on the 17 trillion dollars we owe, which is why they can't stop printing money. Like you said, we are crippled with debt, and wall street/bankers are the ones benefiting from it because these crooks have rigged the game in their favor.

The first way that our financial system is rigged is through the Federal Reserve system. The Fed needs to appear as if they are competent and to create the illusion that the economy is “recovering.” In reality, they know we are in deep trouble if they taper, so they continue printing money and suppressing interest rates. Yes, raising interest rates would also hurt wall street which is why they aren’t going to stop what they’re doing anytime soon. Wall Street is addicted to this cheap money, and there's a ton of connections between wall street and the fed, which is the real root of the problem. They won’t let any monetary policy changes happen because they know that they’ve built a financial house of cards and they can’t let it come crashing down.

The Federal reserve isn't even federal. It's a privately owned banking cartel that was created in secrecy by bankers, and passed into law in 1913 in addition to the federal income tax, which is no coincidence. Congress reneged it's duty of coining new money to the Fed. Every dollar that the Fed creates is a debt note that our government has agreed to pay them back with interest. So for every dollar printed, we the American People, owe them a dollar and some change, which is what our income tax is used for. The scheme is that there is never enough physical money in circulation to pay back that debt! All Money = Debt. Our government has been hijacked by special interests and we are slaves to it’s perpetual debt scheme.

Unfortunately, we don't know who truly owns the Fed since they claim they can't reveal that information or else the economy will crash (which is a threat). It could even be foreign banks/companies who are influencing our monetary policy, the truth is we don’t know who is making these decisions! There are 12 regional banks that comprise the Fed. Each regional bank is privately owned, and we are not allowed to know by whom. Every regional bank president is hand picked by this shadow group of owners, and each of these 12 regional presidents compromise the board of the Fed, who then set our national monetary policy. Just by viewing who those regional presidents are, it doesn’t take long to see that there are direct conflicts of interest here. These board members are people who are directly tied to the companies/banks that receive the money that the Fed creates i.e. JP Morgan, Citi, among many others. The 2008 bailout is one example of them giving money directly to the people responsible for the financial crisis to begin with. This is no coincidence, it has been designed that way so that their fraud can continue. They create the financial crisis, are then deemed “too big to fail” by the Fed, then they give themselves huge amounts of bailout money so business can continue as usual.

Also, the Fed can manipulate markets based on it’s monetary policy decisions. Every time they announce that they are going to taper, the market immediately drops in response. Conversely, when they announce that “Quantitative Easing,” i.e. printing of money will continue, it miraculously shoots back up. An easy way for these crooks to make a killing in their phony propped up stock market.

The second way is the “fractional reserve” banking system that was installed by the Fed. This is a system where every individual bank can literally create money out of thin air. Banks are only required to keep about 1/10 of the total money deposited into it and the rest can be loaned out. So, for the sake of simplicity, lets say that Bank X has 10 dollars of cash deposited into it. By law, Bank X must keep at least 1 dollar in the bank, but the rest ($9.00) can be loaned out. So, when that $9.00 is loaned out, it gets deposited into a bank electronically, not with physical cash. That $10 still exists in bank X, but an additional $9 is created from nowhere. That bank must keep at least 1/10th of that ($0.90) in reserve, but can still loan out another $8.10 from the $9.00 deposit, and so on, and so forth. So from a $10 deposit, $90 additional dollars can be created from thin air. Now imagine this system on a scale of billions of dollars. This is a mechanism for expanding the money supply used by the Fed. The majority of money in our country is nothing but an electronic figure. About 3% of the money in circulation is physical money, and the other 97% exists electronically. There’s not enough physical money to back the real amount of debt owed. Sounds absurd, right? Welcome to the reality of our banking system.

In essence, a small group of people using a worthless fiat currency have soaked up the real wealth of the country (property, resources, etc.) so that when the crash they've been engineering does eventually happen, they are still rich and we're left with nothing. This type of banking system is being used as a giant mechanism of controlling governments all over the world, which is ultimately what it's about. The super wealthy have enough money. What they desire is POWER. It used to be armies that conquered nations, now it’s done by economics/stealth. This is the reality hidden to people by the deliberate over complication of the economic/governmental system to the point where your average Joe doesn’t understand it, nor are they even interested in understanding it, they just blindly trust the gov't. Of course, anyone who does see it for what it is gets immediately discredited as a “conspiracy theorist.” In reality, this system of banking is why the world is on the brink of financial disaster. I know it sounds insidious, because it is. Evil people still exist in the world, they've just gotten a lot smarter over the years.

 

[tboyer]

As Paul Krugman has pointed out there is just a fundamental problem with 25 different economies and 25 different countries trying to use the same currency.

Any time there is a recession, some places are hit harder than others. In the Great Recession, Florida was hit extremely hard because its economy is so housing dependent. If Florida was a country in the EU, it would have been told to cancel pensions, cut Social Security in half, close down government offices and schools, basically cut all government in half -- which of course would have made the Florida economy worse, which would have reduced tax collections further, which would have necessitated another round of cuts in a vicious cycle. That's basically where Greece is.

But because Florida was part of the U.S., when the recession hit, a tremendous amount of federal money flowed to Florida in the form of unemployment benefits, social security, food stamps, stimulus grants, etc -- all of which helped stabilize the Florida economy so that economy continued to operate. Because we have a federal government, it cushions states from ups in downs in many ways that the EU and the ECB are simply not set up to do.

The other model for Greece is to not be on the Euro which means when there's a recession, the Drachma is automatically devalued by investors, which makes Greek products much cheaper which automatically helps revive the Greek economy. On the Euro you do not benefit from the currency fluctuation. The only way you can make your products cheaper is for prices to collapse -- but that aggravates your recession because then working people have less money to spend -- and the vicious cycle continues.

Krugman (who IMHO understands liquidity trap better than any other commentator out there) suggests that the only way to escape the deflationary trap is for Greece to go back to the Drachma. And really the same thing is true of Spain and Italy -- their economies are NOT Recovering even though the great recession is 8 years old. Unemployment is 25% in Italy, which is just nuts.

Basically the Euro is a great thing when your economy is strong, but it really sucks when, say, Germany's economy is strong but your economy is in the dumper. It effectively prevents recovery.

 

[Cletus11]

As Paul Krugman has pointed out there is just a fundamental problem with 25 different economies and 25 different countries trying to use the same currency.

Any time there is a recession, some places are hit harder than others. In the Great Recession, Florida was hit extremely hard because its economy is so housing dependent. If Florida was a country in the EU, it would have been told to cancel pensions, cut Social Security in half, close down government offices and schools, basically cut all government in half -- which of course would have made the Florida economy worse, which would have reduced tax collections further, which would have necessitated another round of cuts in a vicious cycle. That's basically where Greece is.

But because Florida was part of the U.S., when the recession hit, a tremendous amount of federal money flowed to Florida in the form of unemployment benefits, social security, food stamps, stimulus grants, etc -- all of which helped stabilize the Florida economy so that economy continued to operate. Because we have a federal government, it cushions states from ups in downs in many ways that the EU and the ECB are simply not set up to do.

The other model for Greece is to not be on the Euro which means when there's a recession, the Drachma is automatically devalued by investors, which makes Greek products much cheaper which automatically helps revive the Greek economy. On the Euro you do not benefit from the currency fluctuation. The only way you can make your products cheaper is for prices to collapse -- but that aggravates your recession because then working people have less money to spend -- and the vicious cycle continues.

Krugman (who IMHO understands liquidity trap better than any other commentator out there) suggests that the only way to escape the deflationary trap is for Greece to go back to the Drachma. And really the same thing is true of Spain and Italy -- their economies are NOT Recovering even though the great recession is 8 years old. Unemployment is 25% in Italy, which is just nuts.

Basically the Euro is a great thing when your economy is strong, but it really sucks when, say, Germany's economy is strong but your economy is in the dumper. It effectively prevents recovery.

It is not that simple. Greece had the ability to borrow money to recover but instead they used that money to give to a bunch of retired government workers who retired at 50 and live off pension payments. The saying that Greece wants the Germans to work until they are 70 say they can retire at 50 didn't come out of thin air. I am not saying that the Euro doesn't exacerbate or cause issues, but what you are forgetting is that when the inflation in a country who defaults goes crazy, the people of that country have zero buying power and all become poor in an instance. Argentina tried that and looked where it got them. Years later the country is still in shambles. How is Venezuela doing with devaluing their currency. Greece, Spain, Italy, etc...were socialist governments that gave out lavish benefits in IOU's and now do not have the money to pay those IOU's back to a huge section of their country that is retired and living off of the government.

The US is unfortunately going down that path as well, not as bad as Greece, Spain, Italy, etc....but when the baby boomers start really retiring in mass later this decade, social security is going to start to break. And you already see places like Detriot, Chicago, Harrisburgh, the state of Illinois, etc...either already having declared bankruptcy or are getting ready to. There is going to be a massive restructuring of world debt sometime this century that is akin to hitting the reset button as the debt right now can never literally be paid back. It is giant Ponzi scheme that most governments have played for the better part of the last 30+ years and have racked up huge amounts of debt. Who knows what happens when they cannot pay it back.