Economists! Comments and Opinion on Greek Debt Article

[Admiral Valdemar]

We can't throw the Greeks to the wolves, even if they deserve it, because that would automatically spread the contagion to the rest of the EU and cause mass panic. It would be mass anarchy one way or another, just this way, it's mostly Greek anarchy, for now. Spain and Portugal are in the distance. Their time will come.

Course, some people just want to watch the world burn.

[Colonel Olrik]

My ass hurts double, seeing as I pay a considerable amount of tax money in Germany, which will now help the Greeks, but also that my home country is giving away more than 2 billion Euro to the Greeks as well.

We can't throw the Greeks to the wolves, even if they deserve it, because that would automatically spread the contagion to the rest of the EU and cause mass panic. It would be mass anarchy one way or another, just this way, it's mostly Greek anarchy, for now. Spain and Portugal are in the distance. Their time will come.
.

I grow tired of these comparisons. You know what, if the situation in Portugal reaches anywhere the levels of violence we're seeing in Greece, I'll eat my hat. Portuguese do not riot, don't destroy property and we've shown how to do fucking revolutions without killing or otherwise majorly inconvenience anybody in the process. Our society is much more serious than the Greek our Italian, and so is the Spanish by the way. Except that Portugal is one unified block and people don't hate each other, like in Spain.

The economic situation is also completely different. Nobody lied about data, to start with, and our governmental institutions have always been respected in Europe. Our economy is according to the EU commission data released today set to increase 0.5% this year. Very modest, true, but Greece's running backwards. And the amount of debt? Portugal would have to build 10 major international airports (and promptly scrap them) in 2010 in order to be relatively as much indebted as Greece. It's one order of magnitude difference.

Almost every comparison between Portugal (or Spain) and Greece I read is ignorant and that pisses me off.

[cosmicalstorm]

They showed people who had been burned alive in Athens on the news just now, shit those people are fucking crazy.

[J]

Portugal is on review for a credit downgrade, if it goes through then it's probably going to get interesting.

CBC link
Excerpt:

A major credit rating agency warned Wednesday it may downgrade its rating for Portugal.

Moody's Investor Services said it will hold Portugal's Aa2 bond rating on review for possible downgrade over the next three months as a result of the recent deterioration in the country's public finances as well as its long-term growth prospects.

The country's rating could fall by one, or at most two notches, Moody's said. But coming on the heels of a similar downgrade by rival Standard and Poor's last week and ongoing debt woes in nearby Greece, the announcement rattled investors still jittery over widening debt worries across Europe.

And their banks are up for review as well.
http://www.marketwatch.com/story/story/ ... 465F155BD5

Moody's reviews all rated Portuguese banks
SAN FRANCISCO (MarketWatch) -- Moody's Investors Service on Wednesday placed all rated Portuguese banks on review for possible downgrade after it placed Portugal's sovereign rating on review. "The review of the banks' debt ratings will assess to what extent a potentially lower-rated government will be able and willing to support its banking system in case of need, especially when bearing in mind the current market headwinds and higher funding costs faced by the Portuguese Government," said Olga Cerqueira, Moody's lead analyst for Portuguese banks. The banks affected are Banco Internacional do Funchal, Banco Comercial Portugues, Banco Espirito Santo, Banco BPI, Banco Portugues de Negocios, Banco Santander Totta, Caixa Geral de Depositos, Espirito Santo Financial Group, Banco Itau Europa, and Caixa Economica Montepio Geral

I don't know how big these banks are nor how important they are to Portugal's economy so I can't determine the impact of the downgrades if they take place. Nonetheless, it's not promising news. Downgrades result in higher borrowing costs along with a need to hold more collateral & reserves against various investment products, this sucks money out of the economy and the results can be very unpredictable.

[[R_H]]

They showed people who had been burned alive in Athens on the news just now, shit those people are fucking crazy.

Yeah, the Molotov cocktail through the bank window, right? I'm surprised they were still working. Whenever there are protests here, the banks are closed and huge steel shutters are lowered in front of the windows.

I also saw footage of a policeman who's leg was set on fire.

[Grif]

I may not be well-versed in economics, but won't the riots and what-not hurt the Greek economy further? Which in turns causes more misery and possibly more riots. Sounds like a vicious cycle.

[Crown]

And how does that change anything?

It doesn't change anything, and I never even suggest it did.

My only response in that tangent was to ask someone who's family nearly-almost-but-not-quite died due to the Nazis if she felt she could really play the moral card on an entire nation that endured an occupation without coming off like a complete dick *scrolls up to read Broomstick's reply* huh, guess not, she couldn't.

Yes, you can understand SOME of the average Greek's outrage - but not all.

Why not all? Haven't they been defrauded the most from this whole mess?

People are so seriously missing my post that it is alarming; Greek's have always known that their government was more crooked than a than a lawyer's moral compass, but as long as the EU was signing off on it it could never be imagined that they were ripping of future Greeks as well as the current ones! They've been duped more than most, and now they have to pay for their Government's 'indiscretions' when they'd rather see the people responsible held accountable (ha! fat chance).

No that doesn't mean that demanding Germany pay for it is justified (again I point out that I have never suggested it did), and no it doesn't mean that rioting is the way to go (again I point out that I have never suggested it did), but for people to actually insist that a mob of angry people should 'just get over it' are living in some kind of egalitarian utopia which simply exists only in the figment of their imagination. And it does underline one thing for sure; these people sure as shit don't know the first fucking thing about Greeks and their daily lives.

But hey, like I said; lets ignore all that and react to some off the cuff statement from a mob on the street and some sensationalistic journalism and continue with the tut tutting ....

My one question to you all is; what did you expect? Seriously, answering that question will provide a greater insight into what understanding (if any) you (or anyone else) have/had of the Greek psyche. No joke, and no trick, you can ignore my ENTIRE post and I will happily continue a reasonable discussion if you answer this one question.

[aerius]

Depends on what kind of accounting you want to use. There are actually some "studies" which claim that hurricane Katrina was a net positive for the economy because it created a crapload of construction jobs.

But for those of us who live in the real world, yeah, the riots are going to screw things up even more than they already are. But some thinktank will come up with a study claiming that it's a good thing because the cops get overtime pay and they'll have to pay a bunch of workers to fix all the damage.

[J]

My one question to you all is; what did you expect? Seriously, answering that question will provide a greater insight into what understanding (if any) you (or anyone else) have/had of the Greek psyche. No joke, and no trick, you can ignore my ENTIRE post and I will happily continue a reasonable discussion if you answer this one question.

Pretty much what's happening right now, though I didn't expect the deaths to come this early. When we look at the way the country is and how it came to be that way over the years and now they suddenly want to take away all the toys, well, yeah, of course it's going to get ugly. I think it was only a few months ago when protesters occupied the government printing press so that the government couldn't print up the legislation which would cut their benefits.

[CJvR]

Google vs Greeks!
324 official swimingpools vs 16974 actual on satelite images... honesty level <2%

Cant trust the taxman to stay stupid.

Cherished aspects of Greek life, from widespread tax evasion to the bonuses which transform Easter holidays, are set to be swept away by the flood of financial aid, and the preconditions accompanying it.

"The extent of tax evasion is not exaggerated," said Irini Skouzou, who runs Company Set Up, a consultancy helping businesses with tax and legal affairs in Greece. "And the bureaucracy is so bad that even companies that want to pay tax have found it very difficult. They have been unable to register with local tax authorities."

Many take-home salaries will be effectively halved overnight by severely increased taxes, rising in some cases from less than 10 per cent to 38 per cent, and by the fact that those taxes will now have to be paid. Workers who had looked forward to a comfortable retirement in their mid-50s on up to 80 per cent of their final salaries now face the prospect of working on for more than another decade, for less at the end.

That medicine is proving too strong for many. London estate agents are reporting record business from Greeks, who, like Italians last year, are seeking to pre-empt a tax crackdown by investing in bricks and mortar abroad.

For those assets which can't be shifted, other help is at hand. Vangelis Vasilopoulos is the chief engineer for a company which builds swimming pools in the wealthy northern suburbs of Athens, home to ship-owners and tycoons like Spyros Latsis, one of the richest men in the world, who hosts Prince Charles on his travels to Greece. Industrialist Theodore Angelopoulos and his wife Gianna, who led the organising committee for the Athens Olympic Games (only six years ago, when Greece was heralded a "little nation miracle") are installed there too, as is Mr Papandreou himself.

Mr Vasilopoulos says his company has been "inundated with calls" from residents of such elite residential neighbourhoods as to how to camouflage their swimming pools. At first blush, the requests seem bizarre.

In fact, they stem from the revelation that the Greek finance ministry is using Google Earth software to track down the owners of the pools, which tax inspectors consider an indicator of wealth, and which have often been built illegally.

"There are therefore two reasons to hide one's swimming pool," said a pool-owner who confessed guilt on both counts and, not surprisingly, asked not to be named.

Fortunately for him, however, there is a ingenious solution.

"The formula is simple," said Mr Vasilopoulos. "All you need is a green-coloured cover and then the pool cannot be spotted from above. But if the water is visible, or the netting or cover is blue, then you've had it".

[Admiral Valdemar]

Uh oh.

What you're seeing in that chart is an insolvency crisis becoming a liquidity one overnight.

[Iosef Cross]

It sounds to me like France and Germany are willing to fuck Greece in order to save their own banks by imposing draconian conditions that make the payback of loans effectively impossible, thereby imposing debt slavery on Greece indefinitely and to hell with any bad effects on the populace. If this doesn't work, then France and Germay's economies go under. If it does work, the predatory banks will go after Spain and the like for more fun and games. Did I read that right, or not?

You didn't. But that is not your fault: That article had a terrible understanding of the situation as well, the NYtimes is not a decent source for this type of news.

The Greek government simply has lost its credibility in it's ability to pay off its debts among investors. So, France and Germany agreed to loan money to Greece in return for Greece to maintain fiscal austerity, with means that the Greek government will have to cut back spending to produce budget surpluses (or at least to not have very large budget deficts). With was something that they should have done a long time ago.

They had this problem now because of the crisis. Since GDP declined, the tax base decline and the Greek budget became even more fucked up than before. And they didn't cut spending.

The staff of the NYtimes believes in old economic fallacies about the magical powers of state expenditures in helping countries to jump out of recessions. The fact is that this recession is the product of economic realities coming to the fore. And you cannot escape from these realities: If you want a large amount of welfare provided by the state, you need to pay heavy taxes. The Greeks want to have economic welfare from the state and at the same time, they don't want to pay taxes at all!

[Chris OFarrell]

Can't we cut out the middle man?

Kick Greece out of the Euro and have the rest of the EU collectivly come to an agreement with the forerign creditors, paying back so many cents in the dollar to them. Firewall Spain, Italy and Portugal as best you can and let Greece destroy itself. They can get back in the club when they pay back the money all the other nations are having to pay to fix their problems right now.

I mean if they are just going to waste the money anyway because they are not going to use it well, or DO ANYTHING to fix the rampaging corruption, why not just skip to the next step and do even *something* moderatly useful with it? We're talking about ~$400 billion forerign debt right? Thats a huge expense, but if the alternative is default and writing off the debts anyway, getting say 50% back would at least be something right?

I know this is overly simplistic, but the Greeks rather clearly aint going to be doing what they need to do to make long term fixes...

[Iosef Cross]

Mainly by lowering military spending,

You'd have to cut it substantially. Which would, incidentally, destroy the American military-industrial complex, which is effectively a socialist welfare program accounting for some 5% of the US GDP (not including all the money indirectly spent on defense.) Get rid of that, and the people working in that sector would have to get jobs that have already been outsourced to India and China.

The US military industrial complex is a black hole for money, and it represents a burden for the US economy. If you fired that 1.5 million military personnel and paid them 50 grand a year in "retirement", it would cost 75 billion. Today, the US military costs 8 times that.

And no, the ending of the US military industrial complex wouldn't decrease living standards, it would increase them. Since resources that the military consumes will be available to the civilian population, including the labor force used by the military. That is derived from the basic understanding of the concept of scarcity.

raising taxes

You'd have to raise them to some breathtakingly high level to pay off the current debt plus all those future debts the United States is obligated to pay.

US tax rates are lower than in most industrialized countries. They could easily raise them. I would prefer cutting spending, but raising taxes is a better measure than doing nothing.

[Iosef Cross]

Can't we cut out the middle man? Kick Greece out of the Euro and have the rest of the EU collectivly come to an agreement with the forerign creditors, paying back so many cents in the dollar to them. Firewall Spain, Italy and Portugal as best you can and let Greece destroy itself. They can get back in the club when they pay back the money all the other nations are having to pay to fix their problems right now. I mean if they are just going to waste the money anyway because they are not going to use it well, or DO ANYTHING to fix the rampaging corruption, why not just skip to the next step and do even *something* moderatly useful with it? We're talking about ~$400 billion forerign debt right? Thats a huge expense, but if the alternative is default and writing off the debts anyway, getting say 50% back would at least be something right?

Apparently, your proposal is better than what the EU is doing. But they are too soft hearted for that kind of serious adjustment.

[Admiral Valdemar]

A destabilized Greece would not help the region. Wars start that way.

[Chris OFarrell]

A destabilized Greece would not help the region. Wars start that way.

*snort*

If Greece keeps up the anti-German crap as the Germans get ready to pour billions of Euros into them, they just may well find Panzers rolling over the hills some time in the near future...

[UnderAGreySky]

Well, civil wars maybe. Currently the Greeks don't have anyone they can beat and anything they can beat them with. All their war equipment is American and French sources, I think. Any attempts at belligerence are only going to be met with harsher terms and conditions. Like I said, Greece doesn't make ANYTHING that will hurt the rest of the world. Any more stubbornness and other countries are wont to just say "Okay, fuck you."

Not a good time to be employed in Greece.

[Serafina]

Can't we cut out the middle man?

Kick Greece out of the Euro and have the rest of the EU collectivly come to an agreement with the forerign creditors, paying back so many cents in the dollar to them. Firewall Spain, Italy and Portugal as best you can and let Greece destroy itself. They can get back in the club when they pay back the money all the other nations are having to pay to fix their problems right now.

I mean if they are just going to waste the money anyway because they are not going to use it well, or DO ANYTHING to fix the rampaging corruption, why not just skip to the next step and do even *something* moderatly useful with it? We're talking about ~$400 billion forerign debt right? Thats a huge expense, but if the alternative is default and writing off the debts anyway, getting say 50% back would at least be something right?

I know this is overly simplistic, but the Greeks rather clearly aint going to be doing what they need to do to make long term fixes...

That would be a great step to destabilize the EU as a whole.
To make an analogy, it would be like the US kicking one of their states out when it needs them.

Sure, the EU is not yet a single nation, but such an action would equal whole oilfields on the fires of the anti-EU-propagandists. Which is really not in the interest of any of the countries of the EU.

[Iosef Cross]

I know but even with a great economy if lowering spending almost always lead to negative consequences, shouldn't Clinton had least have seen some kind of negative consequence? It would've been balanced out by the economy but it should have still been seen.

Back in those days we had real actual growth in the economy and a reasonable level of debt, we could slowly take away spending as a percentage of GDP and private demand would take up the slack keep things going. This is no longer true, we have "growth" right now only because the government is spending like a drunken sailor, try to wind down government spending now and there's a good chance you'll have an instant depression.

That graph only shows that the author doesn't have a clue of the meaning of GDP. GDP already has deducted any excess spending in relation to production/supply. In other words, the author of this graph, doesn't have any competence to talk about this subject.

And no, the US economy is not growing because the government is spending like a drunken sailor. Actually, in the long run increased government spending reduces growth, by taking aways resources from their possibility of
being invested (in other words, if the private sector allocates 25% of their resources to investment, and the private sector has 80% of the total resources, investment will be 20% of GDP, increased government spending from 20% to 30% will decrease the pie available to the private sector to 70%, and investment will decrease to 18%). And since the incentive to invest decreases with the increase in resources appropriated by the government, because resources invested pays taxes, the proportion of private income that will be invested decreases.

The rationale behind the idea that increased government expenditures increases GDP is based on the idea that there is a reservoir of unexploited factors of production in the economic system, that becomes employed after the government increases spending. But how the government finances it's increased expenditures? Well, there are 3 ways: They can increase taxes, in this case increased government expenditures will be matched by decreased expenditures of the private sector, and the factors of production allocated to satisfy the private expenditures will be allocated to satisfy government demand. They can borrow money, in this case the money comes out of the financial system, where it would become private investment or consumption expenditure in durable consumer goods (like houses). Or they can print money, in this case government expenditure increases demand for goods, while demand from the other sectors cannot be fulfilled, since goods are scarce, prices will increase and the private sector will have to reduce their real expenditures. There is no such thing as an reservoir of resources that is turned on automatically by increased aggregate demand.

[Admiral Valdemar]

There is talk now about the GDP growth the US gov't posted recently corresponding exactly with their deficit spending. In other words, the US gov't is the ONLY factor producing GDP growth by printing like crazy and playing financial tricks. 3.2% growth in a single quarter? Yeah, right.

[Samuel]

Actually, in the long run increased government spending reduces growth, by taking aways resources from their possibility of being invested

Increased government consumption. If the government invests, it increases growth normally.

There is no such thing as an reservoir of resources that is turned on automatically by increased aggregate demand.

The idea is that you spend money and pay it off during good times so it smoothes out the cycle. Since part of the depression is idled resources it does work... as long as you take care of the spending later or have been saving up money previously.

[Broomstick]

And no, the ending of the US military industrial complex wouldn't decrease living standards, it would increase them. Since resources that the military consumes will be available to the civilian population, including the labor force used by the military. That is derived from the basic understanding of the concept of scarcity.

I guess you are totally and completely unaware that right now the US has a labor SURPLUS. There are no civilian jobs waiting for that ex-military labor force you are proposing.

[D.Turtle]

I just thought it might be important to point out that a majority of Greeks actually support the austerity measures taken by their government.

[Force Lord]

I just thought it might be important to point out that a majority of Greeks actually support the austerity measures taken by their government.

Source?