What is Going On in Greece?

[guido911]

It looks like it is really going to hit the fan soon.

http://www.athensnews.gr/portal/9/43673

[Teatownclown]

It looks like it is really going to hit the fan soon.

http://www.athensnews.gr/portal/9/43673

Meh. You must be having focus trouble. They're just going to exchange old debt for new debt. It's kinda like taking bankruptcy and telling the creditors "look, maybe we'll dig our way out of this mess and you'll get something rather than nothing further down the road."

read up: http://online.wsj.com/article/BT-CO-20110628-706804.html

[we vs us]

IMO the reason that Greece is such a hot button for the world economy is that it's only an entrypoint into general chaos in the Eurozone.  Spain and Portugal and Italy and Ireland, etc are all ripe for similar strikes and disruptions (and upheaval?), since they've all had to deal with similar -- though not as strict -- austerity regimes. 

If you're looking for a major contributing factor to why American businesses aren't hiring, look no further. 

[nathanm]

Austerity doesn't really work in general. Problem is that with the Euro it's just about the only option for getting Greece back in line relative to the rest of the Euro area. With their own currency, inflation would take care of the problem without as much pain to the populace unless it took off into hyperinflation, which is unlikely in an economy with some there there. (as opposed to Zimbabwe, for example, which has only a very small economy in the local currency)

Germany and everybody else are just too different. We deal with it better in the US because we have national policy that operates upon all 50 states. In the Eurozone, not so much. But the fact that preventing German pain is the only thing preventing inflation of the Euro, which would solve most of the periphery's problems, is a large part of why Greece and others have their hands out expecting more German bailouts. Combine that with the fact that the reason bailouts are even truly necessary is bad loans made by German banks, you can see why the Greeks are rightly pissed off.

They know that some cuts are necessary, but they don't see why they should have to be in worse shape just to keep Germans happy when Germany appears to be one of the sources of their present difficulty.

Edited to add: IMO, Greece will be far better off if they dump the Euro. Problem is the chaos that will be unleashed if the CDS contracts get triggered. This will likely either bring down several large European banks or require vast new bailouts. I don't see how it can be avoided, though, so it seems to me like it would just be better to go ahead and get it over with.

[Conan71]

Try reading someone other than Krugman, Nathan.  You are starting to sound an awful lot like him.

"The point is that Greece & Co. are in trouble because of excessive borrowing. Between 1999 and 2010 the structural deficit of the Greek government rose from 2 percent of gross domestic product to nearly 18 percent. Ireland went from surplus to minus 11 percent. Portugal was little better. The result was a debt explosion. The net government debt of Greece, the worst offender, soared from 76 percent of GDP to 142 percent last year.

As it became clear that there was no automatic mechanism to transfer funds from the relatively frugal European core to the profligate periphery, bond investors started to fear defaults. They dumped the debt, driving up the yield on Greek 10-year bonds—and hence the interest rate on new borrowing—to 17 percent. That simply made matters worse, necessitating ever more desperate spending cuts and tax hikes to avoid national bankruptcy.

The British story is different. Starting in a very similar fiscal hole—the structural deficit was 8 percent of GDP in 2009 and the debt–GDP ratio had doubled in seven years—the new Tory-led government acted preemptively, announcing deep budget cuts before the financial markets freaked out. As a result, Britain's borrowing costs have actually come down.
Members of the Deficits Forever club are intellectually lazy when they assert that the U.K. economy is growing slowly because austerity doesn't work, implying that things would be better had the spending binge continued. Maybe. But maybe not. A responsible politician wouldn't take the gamble because the costs of being wrong are too high. Just ask the Greeks."

http://www.newsweek.com/2011/05/29/austerity-works.html

[nathanm]

Yes, Greece borrowed too much money. I'm not saying they didn't. What I am saying is that it wouldn't require such drastic measures if they could inflate the currency somewhat to help out. Clearly they can't completely inflate away the debt, but it would at least be more tolerable to the people that way. The Greeks are basically being asked to endure significant deflation, which will make paying off their debt even harder.

It goes beyond Greece, though. Other Eurozone periphery economies haven't dug themselves such a deep hole of debt (Spain, for example, was running a surplus before the meltdown) are being asked to do the same thing just to save the Germans some inflation.

I do read more than Krugman, by the way. Unfortunately, most economists are stuck on stupid right now. They keep looking at things as if we were in a normal situation. That's why we get the Fed doing QE and QEII even though it's clearly not going to do any good when liquidity is not the issue. That's why we get the Germans being overly concerned with interest rates, even though interest rates are and have remained completely depressed despite the dire predictions of a year or a year and a half ago.

The world economy is still severely broken right now, and anyone who is pretending it's not is making useless predictions that have repeatedly turned out to be untrue. Right now, I place a lot of trust in Krugman because he's been consistently correct. He's been saying that we're on track to repeat Japan's lost decade, thus viewing events through that lens, and thus far it's clearly been the correct way to look at things. The ironic thing is that Bernanke was apparently a student of Japan's issues, yet he continues to make the same mistakes. Whether that's because he can't get the rest of the Board of Governors to go along or what, I can't say, but so far his efforts have been a complete failure.

[Conan71]

I think it's because Bernanke keeps approaching everything from a theoretical standpoint instead of listening to what business says it needs to be able to hire more people and expand.  We definitely don't need more cash out there as there's plenty waiting to be spent. 

Something else I'm reading lately is you can't even look back ten years for lessons to apply to what's happening today.  In other words, I'm taking it that some economists are seeing the economy as being far more dynamic these days than it was 30 years ago and most certainly more dynamic than it was in the 1930's and that's why the old Keynesian tricks simply do not appear to be working.  In the 1930's business was far more centralized.  These days you have millions of small businesses compared to a lot fewer corporate giants.  The herd of smaller players has gotten a whole lot bigger, and management is far more direct and perhaps more prone to emotional direction rather than theoretical or even rational direction.

I completely agree with borrowing for expansion, it's a wise business proposition if you are certain expansion will be financially rewarding.  I even agree with borrowing to pay the electric bill or payroll during an off month.

The problem is, we've been paying the gas, electric, water, payroll, and mortgage with borrowed funds for more or less the last three decades, but more so the last 10 years. 

[nathanm]

I agree with you that we have been doing the wrong thing for a long while with regard to our borrowing, in the general sense. I think there are unique circumstances that make this less of a problem than it would otherwise be, however. Despite the magnitude of our debt, it's not yet to a level that is terribly problematic.

We clearly have been on the wrong track with regard to deficit spending during good economic times. If you accept that deficit spending through lean years is the right thing to do, why should we not do that now? Having done things the wrong way round before doesn't seem like a great reason to do the wrong thing now.

[Breadburner]

Greece I believe has no way of tracking income tax on the people there.....So they end up not paying or paying very little.....

[Teatownclown]

I think it's because Bernanke keeps approaching everything from a theoretical standpoint instead of listening to what business says it needs to be able to hire more people and expand.  We definitely don't need more cash out there as there's plenty waiting to be spent.  

Something else I'm reading lately is you can't even look back ten years for lessons to apply to what's happening today.  In other words, I'm taking it that some economists are seeing the economy as being far more dynamic these days than it was 30 years ago and most certainly more dynamic than it was in the 1930's and that's why the old Keynesian tricks simply do not appear to be working.  In the 1930's business was far more centralized.  These days you have millions of small businesses compared to a lot fewer corporate giants.  The herd of smaller players has gotten a whole lot bigger, and management is far more direct and perhaps more prone to emotional direction rather than theoretical or even rational direction.

I completely agree with borrowing for expansion, it's a wise business proposition if you are certain expansion will be financially rewarding.  I even agree with borrowing to pay the electric bill or payroll during an off month.

The problem is, we've been paying the gas, electric, water, payroll, and mortgage with borrowed funds for more or less the last three decades, but more so the last 10 years.  

The tax code needs to be calibrated to allow corporations to hire more people. For example, it's coming in the form of "tax holidays" for multinationals. They'll qualify for credits after exhibiting their application of funds devoted to hiring new employees. But this is not a Fed function.

Conan, I'm really tired of your Keynesian theory doesn't work and theoretical analysis. Your comment "These days you have millions of small businesses compared to a lot fewer corporate giants" is laughable. The fewer corporate giants are so big today they wield all the power. The real problem is that you keep drawing up those household comparable budget situations with our government function and the economies are completely dissimilar.

BTW, those with tons of cash are starting to loosen up and invest. The second half of the year will show improvement. The debt ceiling crisis will pass. Then you can find some other Obama bashing reason to whine over the good things out there in light of just 4 years ago.

[Red Arrow]

The tax code needs to be calibrated to allow corporations to hire more people.

Are you advocating a corporate tax break?

But this is not a Fed function.

Then, given your opening statement, where does it belong?
[/quote]

[Teatownclown]

Are you advocating a corporate tax break?

Then, given your opening statement, where does it belong?

It belongs to congress as worthless as they are. And I will always be in favor of corporate tax relief when there's a direct correlation to employment and giving employees a hand up.

[Red Arrow]

It belongs to congress as worthless as they are.

I agree. It thought you were referring to the Fed(eral government) rather than "the Fed".

[Teatownclown]

Rolling dumpsters, the cobblestones of the new age.

we could use some of that Greece on our MacDonalds....

[Conan71]

The tax code needs to be calibrated to allow corporations to hire more people. For example, it's coming in the form of "tax holidays" for multinationals. They'll qualify for credits after exhibiting their application of funds devoted to hiring new employees. But this is not a Fed function.

Conan, I'm really tired of your Keynesian theory doesn't work and theoretical analysis. Your comment "These days you have millions of small businesses compared to a lot fewer corporate giants" is laughable. The fewer corporate giants are so big today they wield all the power. The real problem is that you keep drawing up those household comparable budget situations with our government function and the economies are completely dissimilar.

BTW, those with tons of cash are starting to loosen up and invest. The second half of the year will show improvement. The debt ceiling crisis will pass. Then you can find some other Obama bashing reason to whine over the good things out there in light of just 4 years ago.

Show me where the stimulus, which was pure Keynes, has had a lasting impact on the economy.  Just this morning on the news there was a piece on jobs which now must be eliminated because they were funded with temporary stimulus funds.  The alternative is to pay with state funds or jobs will be lost.  States are in budget dilemas as well.  Small business in the U.S. employs more people than corporate giants.  That's an immutable fact and entirely relevant when you consider that they wield the hugest chunk of non-government employment opportunities.  That's real power in making economic progress.

Many of those small businesses are privately held and not subject to the whims or demands of shareholders and the banksters on Wall Street.  In other words, they've got far more flexibility when it comes to optimistic investing in the economy right now or hanging on to money and keeping the payroll pretty lean.  Many also are not as well-equipped to deal with the mandates contained in Obamacare.  In order to fully appreciate what's happening economically, you cannot ignore personal behavior which completely defies classic economic theory.

Your comment on corporate tax holidaze sounds like corporate welfare to me which you have always eschewed.  Please expand on what you mean by calibrating the tax code, it still sounds like the government is having to subsidize the jobs in that case, but I'm all ears.

Nathan, what's problematic to me is risking our debt rating and our ever-increasing interest expense.  Think how many disadvantaged Americans could receive a completely paid college education, or how many people could receive a seed grant to start a business which would employ other Americans in lieu of paying interest on our debt to foreign debt holders which only helps bolster their economy.

I'm glad to see most of us are trying to get beyond pointing a finger at who is at fault and actually looking at solutions.  Positive dialogue like that on a national scale might restore some semblance of sanity to our political landscape and we might actually start working on the same goals and learning compromise doesn't mean one side or the other has lost.  Yeah, I know, I'm dreaming again.