Euros, Dollars and Morals
The Greek people overwhelmingly rejected the austerity demanded by the European Elites on Sunday, and the media filled up with opinions about what should happen, and predictions for what will happen, none of which is worth a bucket of spit. What we do know is that whatever happens next will mean more misery for the people of Greece. There are two lines of thinking that seem sensible to me.
First, there is the historical line. Steve Randy Waldman at Interfluidity writes about the history of and rationale for European Unification, including currency unification. In the wake of the last war, the leaders of Europe wanted to avoid more wars. Unification was a long-term project. All such projects face tremendous hurdles and should expect huge problems. The projects succeed or fail based on the skill with which the problems are managed.
Everyone has always known that Greece has weak governmental institutions, but once the Euro was rolling, private lenders poured money into the country. That was stupid. These lenders would be punished if they were operating in a capitalist economy. They would have taken huge haircuts, their managements would have been fired, their shareholders would have lost money. But in neoliberal land, the debtor is required to pay. If the nation has to sell its assets, its ports, water supplies, gas companies, whatever, so be it. If the people are condemned to misery for years, with unemployment among the young at 50%, so be it. If the government has to be replaced with one acceptable to the lenders, so be it. Democracy and the individual lives must be sacrificed to the demands of the creditors.
If the debtor still cannot pay, then the money has to come from taxpayers in other countries, or so the neoliberals tell them. There are no circumstances in which the creditors can lose money in a neoliberal society.
The leader of this tribe is Germany, with strong assistance from Finland and the Netherlands. None of these countries are explicitly neoliberal. Foucault calls the German system of governance Ordoliberalism in The Birth of Biopolitics. Ordoliberalism is a market system where the government has a powerful role in assuring functioning competitive markets through regulation, and through steps to insure that the interests of workers are considered in the operation of businesses, among other things. This system can work in a state with strong institutions, a strong central bank, and a general acceptance by the citizenry. That’s the opposite of Greece as Waldman describes it.
If things had worked according to plan, the failure of Greece would just be one of the obstacles in the progression to a unified state of some kind. Lenders to Greece would take their losses and would be recapitalized or bailed out, and life would go on. That would impose losses on the rich. As Waldman puts it:
And explicit bank bailouts are humiliations of elites, moments when the mask comes off and the usually tacit means by which states preserve and enhance the comfort of the comfortable must give way to very visible, very unpopular, direct cash flows.
The choice Europe’s leaders faced was to preserve the union or preserve the wealth, prestige, and status of the community of people who were their acquaintances and friends and selves but who are entirely unrepresentative of the European public. They chose themselves. The formal institutions of the EU endure, but European community is now failing fast.
In a similar historical vein, we find Thomas Piketty, in an interview with Die Zeit. There was a nice translation up, but apparently it ran afoul of German copyright law and was taken down. Here’s a link to the article in German, and google translate is your friend. Piketty is famous for his long-term historical approach to economic matters. The interviewer is blunt; his questions come from the overt position that German intransigence with Greece is just. Piketty is his usual calm self, secure in his knowledge of history. Here’s the money quote, with some of my feeble German in the last sentence:
Piketty: When I hear the Germans now say that they maintain a very moral dealing with debt and firmly believe that debts must be repaid, then I think: That’s a big joke! Germany is the country that has never paid his debts. It has no lessons to teach other countries.
He is referring to the reparations demanded of Germany after the two world wars. Germany did not pay either time. In both cases, the reparations were substantially reduced and forgiven because they were deemed to be unpayable and unreasonable. In the second case, the elites thought that the reparations in the Treaty of Versailles contributed to the rise of Hitler and to WWII, and they didn’t want that.
Piketty compares that to the British Government’s payment of bonds incurred to fight the Napoleonic Wars. As he explains it in Capital in the Twenty-First Century, Britain ran a primary budget surplus to pay those bonds which were all held by the rich. In other words, the British could have taxed the rich to pay for those wars, which, after all, were fought solely for their benefit. Instead, they borrowed from their richest citizens, and repaid those bonds with enormous interest, mainly with taxes on the poor. The French and the British incurred enormous war debts themselves in both world wars, and paid those with a judicious combination of inflation, taxes on wealth and something unrecognizable, maybe haircuts.
The German interviewer agrees that the debts of Germany were slashed in 1953, saying it was the desire of the creditors to forgive the Germans for their sins. Piketty says it’s nonsense to talk of morals. It was a practical decision. It’s not right to punish the children of Germany for the sins of their parents, and it’s not right to punish the children of Greece for their parent’s (lesser) sins. The interviewer claims that the German people think the Greeks are bad and just want to continue high government spending. Piketty points out that it would have been easy for Europe to make a similar argument against Germany in 1953, and as a side note, a bit of research shows that many historians think Germany could have made the payments at that time.
More importantly, like Waldman, Piketty points out that the German stance threatens the European Union. People must have a future. Piketty suggests a debt conference like the one that ended German reparations, and thinks it should include all of the nations still facing financial problems.
The worst part of this is that this punitive attitude towards debtors is everywhere. The comment sections and the twitter are full of people fulminating about how they pay their debts, so why doesn’t Greece? Here’s one from @JustinWolfers who ought to know better.
Hey @WellsFargo, what gives? This morning my family voted 60-40 to stop making mortgage payments but you still haven’t restructured our debt
This is one of the milder forms of the morality about money that we see in every context of debtors who can’t pay, whether it’s homeowners with underwater mortgages, students with heavy debt, or citizens of Ferguson going to jail because they can’t pay ridiculous traffic fines. The notion that not paying debts is a Sin pervades the public discourse.
I’m used to it: I practiced bankruptcy law for 25 years. When I counseled people, I always told them that their duties, their responsibilities, ran first to themselves, because if you can’t take care of yourself, you can’t take care of anyone else. Then their duties run to their families. Only then should they consider the interests of their creditors, and only to the extent that it would not interfere with their primary duties.
That’s how I understand this situation. First take care of yourself. Then take care of your family. Tsipras and Syriza understand that. They are taking care of themselves by keeping their electoral promises. Then they are working to take care of their Greek families.
The Troika practices the morality of a leg breaker for a loan shark.
I think this is an excellent article; so many good points; thank you. The moneylenders took the risk; let them pay the price for their bad judgment.
i hold the harsh view that germany reaizes that, due to the size of its economy, it can rule europe through finacial/politican means rather than thru warring conquest. the p.r. response to an assertion like this is typically to say “how dare you say that!” or alternatively “how absurd” or “what a bizzare thought.” in reality, mine is a reasonable assertion.
i also hold the belief that the german ruling party’s obsessive focus on greek, greek, greek fiscal misfeasance is a desparate effort to direct attention away from its own failure to provide a more rewarding path for its own citizens out of a very deep recession. germany’s jobs growth, like britain’s, has lagged behind that of the u.s. despite all three having access to the same macroeconomics.
at least some observers have recognized that the repayment of greek national debt by the people of greece is functionally an enormous transfer of wealth from the greek people and nation to bank beneficiaries and other nations.
what puzzles me is the fact that all media covering this long-unfolding event have focused far more on greece, tsipras, and verufakis, rather than on germany, netherlands, belgium, their leaders, and those leaders’ likely political motives.
in all respects, imbalance and unbalance have been the name of this game – one supposedly being played in the name of preserving european unification.
Tim Geithner reveals in the raw how Europe’s leaders tried to commit financial suicide.
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They are still trying to commit financial suicide. It’s a slow process but they are determined.
Interesting take from Business Insider
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“Greece isn’t actually a country full of crazy socialists who don’t understand how the foreign-exchange markets work. In fact, a huge chunk of the country’s tax-collection problems stem from the fact that there are two and a half times more self-employed and small-business people in Greece than there are in the average country. And small businesses are expert at avoiding tax, Greece’s former tax collector told Business Insider’s Mike Bird recently.
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Conservatives who hate paying taxes and urge small businesses to pursue tax-avoidance strategies take note: Your dream just came true in Greece.
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If Greece were more socialist — more like Germany, with its giant corporations that have massive unionized workforces paying taxes off their payrolls — then tax collection would be a lot higher in Greece.
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Greece is now most likely an international pariah on the debt markets. It may have to start printing its own devalued drachma currency. It will have no access to credit. Sure, olive oil, feta, and raki will suddenly become incredibly cheap commodities on the export markets. Tourism in Greece is about to become awesome. But mostly it will be awful. Unemployment will increase as Greece’s economy implodes. But the awfulness will be Greece’s alone. Greece is now on its own path. It is deciding its own fate.
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There is something admirable about that.
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Read more: http://www.businessinsider.com/greece-referendum-result-and-the-meaning-of-debt-2015-7#ixzz3fCRJSADd
Thanks for the link and for that info. Of course, the USA M$M has portrayed Greek workers as mainly LAZY shiftless slobs who faked being employed by the govt; somehow got paid big salaries for doing nothing; and then somehow also never paid taxes. I’ve stuff like this often.
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I am ignorant of the make-up of the Greek economy and most esp how/where Greek citizens are employed, but the Business Insider info about a large percentage of the Greek populace being either self-employed or working for small businesses seems to ring true. And yes, isn’t it *ironic* that such businesses would seek the means to avoid paying taxes… as our USA counterparts most certainly do (I know many small business owners in the USA. Most BRAG about how they fiddle around to avoid paying taxes. It seems like a badge of honor or something).
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The irony is that most public sector workers here in the USA – and possibly also in Greece (I don’t know for sure) – all pay their taxes bc it’s hard to avoid them. Yes, public sector workers make their salaries FROM taxes, but then at least some of that is paid back into the system.
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The USA is all gung-ho Libertarian-y these days with US citizens being adjured to “stand on our own two feet” and how we shouldn’t have to pay any taxes ever under any circumstances because it’s just so “unfair.” And yes: here’s the end result of that tax avoidance – Greece. But these same Libertarian-y types in the USA are all up in arms tsk-taking the lousy, shiftless, lazy Greeks for ruining everything for everyone else.
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Most US citizens are ignorant and have lost the ability to think critically, much less do a little homework about what’s going on, connect dots and make rational decisions.
Indeed
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I do taxes and about 400 insurance audits per annum.
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80% of the businesses show losses on a year-to-year basis and pay zippo in federal income taxes. You are right — they avoid/evade taxes — and then complain… very bad, very bad
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If the Republicans win the Presidency we will be in quite the mess. A bad Democrat is better than a very good Republican…..
yeah. once the rrepublican president and congress get rid of the irs entirely, your services (and that of one of my daughters-in-law’s) won’t be needed. then we will be greece writ large :) *
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* wait though, we will still have our foreign trade accounts to dicker with.
Thanks for that input about small business owners in the USA doing funny business to avoid paying fed income taxes. I also know small bus owners in CA who brag about avoiding paying some/all CA bus taxes, as well.
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Funny bc I do recall in the 2012 general election how Mitt RMoney got busted for whining about how the 47% – by which he meant the horrid dreadful deadbeat poor people – never ever ever paid Fed taxes…. which makes them VERY BAD. All those high rolling 10%ers in the room with Mitt were yowling at the sheer utter perfidy of teh poorz for not paying their “fair share.”
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Yet really the biggest scofflaws are small business owners… some of whom probably proudly *defended* RMoney’s speech.
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The layers and levels of hypocrisy in this nation knows no bounds.
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Of course, the same small bus owners would also defend to the death the right of the avaricious and rapacious .0001%ers – like the Koch and the Walton spawns – to never ever pay any taxes because it’s just so “unfair.”
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Speaking as one who doesn’t mind paying taxes, except when I realize that the fabulously wealthy pay much less than I do (proportionately), plus what I do pay ends up funding Murder, Inc., I wish these rich people & small bus owners would belly up and pay what they owe. We’d all be a lot better off.
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blah de blah… most annoying but typical hypocrisy USA style.
A couple points:
1. This was always a case of loan-to-own by the Euros against the Greeks and the other, lazy, no-account southern Europeans.
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2. The issue about German reparations for the World Wars isn’t quite correct. At least as far as the British were concerned, the Brits took their reparations in kind, as credits for what NATO countries called “maneuver damage”. In other words, while NATO troops were stationed in Germany during the Cold War getting ready for the next war with the Soviets, they did their training in the countryside where the battles were expected to be fought. In the course of 19 year-olds driving tanks and armored vehicles and trucks and such, things got in the way and were broken. Hiding a tank in a barn is a valid tactical thing to do, but sometimes there’s a basement that swallows the tank. Vineyards make good places to hide, but running over someone’s vines is ex-f’g-pensive. Americans paid in cash for the damage they caused. The Brits took it as a credit against what the Germans owed for trashing their cities, finally balancing the books sometime in the late 80s.
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So, it’s not that there were no crushing burdens of reparations. Rather,there was a recognition everyone’s places were trashed, the payments/obligations were more reasonable in amount, payment spread out over time, and no American President (Coolidge) reminding the Euros that “they hired the money, didn’t they?” when someone needed more time.
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3. The new Greek finance minister is, per German reports yesterday, a Marxist. The commentators on German radio seem to take this with a little bit of giggling at (what they consider) the Greeks’ naivete.
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4. The smartest thing the Greeks can do is leave the Euro-zone. And if Putin pays a state visit to Athens, the Eurocrats have no one but themselves and their ideology to blame.
thanks for these comments. it is helpful to read someone who follows the german press and has a good feel for german society.
You guys would’a loved the Bild Zeitung last night (US time). It’s a brash tabloid in the vein of a Brit tabloid – loud headlines, topless young women, yadda, yadda.
The lead article on the website last night was headed “Now we need an Iron Chancellor!” over a photoshopped image of Merkel (mouth contorted, looking like a lemon-sucking Manning) wearing a Pickelhaube. That’s one of those old German military helmets with the big brass eagle and the spike on top.
:)))
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like this ? https://en.m.wikipedia.org/wiki/File:Bismarck_pickelhaube.jpg
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politically, ridicule kills.
and while the european lords obsess about the immoral conduct of their greek peon, rome burns. i refer to events in china and possible serious trouble in the chinese stock market. now may not be the time, but the current ruling junta in china is being tolerated only because of extended, monied good times. when those monied good times come to an end so will communist rule in china and there will likely be hell to pay for some years as chinese society reorganizes itself around a more modern political system (or systems :) ).
then what for the u.s., european, japanese, and russian economies ? a year-round northwest passage ? an improved vladavostok to rotterdam railroad? who will use them ?
http://www.irishtimes.com/opinion/editorial/fintan-o-toole-eu-has-taken-decisive-turn-from-democracy-1.2275438
A perspective from a small country at the other end of Europe that also recently elected an anti-austerity party and is being told to sod-off by the mass media and its larger neighbor from which it seeks independence.
Link highly recommended:
Yes, not much that’s democratic about neoliberalism.
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That article was from Bella Caledonia, one of a number of alternative media sites that grew up to cover the Scottish Independence movement. Most of the media in the UK is controlled by a very small number of media moguls, Rupert Murdoch being the most prominent. The BBC is notoriously biased towards the southeast and the British establishment. One of the other alternative sites, Wings Over Scotland, focuses on covering the endless lies and propaganda spread by the mainstream media.
I wonder about that statistic in the Business Insider article. Most of the small businesses I know about paid little in taxes in the US. That makes me doubt the impact of tax cheating at the bottom of the income distribution there.
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This is the iconic article on taxing institutions in Greece: http://www.nytimes.com/2010/05/02/world/europe/02evasion.html It discusses the swimming pool tax, which only a tiny number of the more than 16000 pool owners paid. It’s certainly true that the tax collection institutions in Greece are weak, but I suspect that’s the way they were designed. The design should be laid directly at the door of the richest Greeks, who could easily have insisted on better rules and better systems. Of course they didn’t because it benefited them. And once your elites don’t comply with the law, respect disappears, and everyone looks for ways to emulate them.
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But that could never happen here.
The part about a large majority of small businesses showing a loss and therefore paying no taxes has a collateral ownership benefit no one has yet mentioned. When the small-business owner (usually a male) decides it’s time to trade in his spouse for a newer model (the secretary, salesperson, etc., usually female), those jiggered books that showed losses all those years come in mighty handy to try to prove that, no, 50 percent of that business just isn’t worth all the millions the missus is claiming, notwithstanding the style to which she became accustomed during the marriage. No, it’s worth a lot less.
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There are accountants and lawyers who make their entire career representing one side or the other in matrimonial matters involving small businesses with crooked books and trying to straighten it out or avoid straightening it out. And a very remunerative living it is. About 20 years ago, I worked on a matrimonial case where the husband’s deposition opened with:
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He liked to do side deals and the sale had involved an “inaccurate” HUD-1 and a bundle of cash. That was one of the simpler schemes….
My ex-brother-in-law (now deceased) paid huge bucks to have attorneys fight my sister tooth and nail to prove that his very lucrative (at that time) small business had no money, etc. Then whined and complained to his kids (who believed him for a while until they figured it out) about how outrageously expensive the divorce was – blaming it all on my sister, as if she was the “cause” of the expensive divorce proceedings. My sister has many faults, but in truth, she just fought for a fair settlement. Sad to say, a lot of money that both she and her ex could have had to spend on other things got totally wasted on divorce lawyers (who laughed all the way to the bank).
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All my sister did was force him to provide accurate figures. But both sides of the family were also well aware that he had double bookkeeping and ran things at a putative loss in order to avoid paying taxes… because taxes were highway robbery, and they “couldn’t afford it.” Of course, during the marriage they lived the high life in a mansion (my opinion), driving very expensive cars, my sister had numerous fur coats, including a Russian sable, plus they went on very expensive vacations several times per year, belonged to one of the most expensive country clubs blah blah blah….. But taxes were “highway robbery” and would’ve driven them into the poor house!
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Same deal with a couple I know now. Constantly vetching about the “highway robbery” of taxes, which they cook their books to avoid paying. Yet when their oldest daughter got married recently they spent upwards of a $100k (not joking) on the wedding & all the trimmings. The bride’s gown + veil, shoes, etc cost $30k!
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For me, such lifestyles of greed and avarice are not appealing, but it’s made doubly disgusting by the unwillingness to really pay their “fair share.”
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Note: my family and the family with the wedding are all rightwing, watch Fox & listen to Rush constantly. I have come to the conclusion that the reason – now – why such people love Fox, etc, is that it *endorses* their greed, avarice and gives them a metaphorical “get out of jail free” pass to be dishonest and to look down on poor people, who they’ve readily agreed are the root of all evil in this nation.
Old saying: “You’ll never go broke [if you’re] paying your taxes.”
Stronger language from Piketty in open letter to Merkel: http://www.thenation.com/article/austerity-has-failed-an-open-letter-from-thomas-piketty-to-angela-merkel/
Media in the US seems to have more sympathy for the Greeks than UK press which are mostly behind Cameron and another round of UK austerity. Joseph Stiglitz (quoted in LA Times): “I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences. … It is startling that the troika has refused to accept responsibility for any of this or to admit how bad its forecasts and models have been.”
the knowledge and understanding exist in economic science to prevent a tragedy from unfolding in greece, e.g., :
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[…Sen published Poverty and Famines: An Essay on Entitlement and Deprivation (1981), a book in which he argued that famine occurs not only from a lack of food, but from inequalities built into mechanisms for distributing food. Sen also argued that the Bengal famine was caused by an urban economic boom that raised food prices, thereby causing millions of rural workers to starve to death when their wages did not keep up.[10]
Sen’s interest in famine stemmed from personal experience. As a nine-year-old boy, he witnessed the Bengal famine of 1943, in which three million people perished. This staggering loss of life was unnecessary, Sen later concluded. He presents data that there was an adequate food supply in Bengal at the time, but particular groups of people including rural landless labourers and urban service providers like haircutters did not have the means to buy food as its price rose rapidly due to factors that include British military acquisition, panic buying, hoarding, and price gouging, all connected to the war in the region. In Poverty and Famines, Sen revealed that in many cases of famine, food supplies were not significantly reduced. In Bengal, for example, food production, while down on the previous year, was higher than in previous non-famine years. Thus, Sen points to a number of social and economic factors, such as declining wages, unemployment, rising food prices, and poor food-distribution, which led to starvation. His capabilities approach focuses on positive freedom, a person’s actual ability to be or do something, rather than on negative freedom approaches, which are common in economics and simply focuses on non-interference. In the Bengal famine, rural laborers’ negative freedom to buy food was not affected. However, they still starved because they were not positively free to do anything, they did not have the functioning of nourishment, nor the capability to escape morbidity…]
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https://en.m.wikipedia.org/wiki/Amartya_Sen
Great quote, thanks:
Reminds me of:
it’s all right here; a remarkable analysis:
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http://www.theguardian.com/commentisfree/2015/jul/06/yanis-varoufakis-angela-merkel-crisis-global-minotaur-capitalism-europe
Bill Black has an article on Greek debt. As I understand it, this all stems from loans made by French and German banks to Greek banks and corporations and municipal governments. He calls them liar loans and a fraud at the outset, since they knew or should have known they could never be paid back. I am not sure how it happened but the Greek government picked up the debt. ( bailed out ?) The ECB then loaned Greece money to pay off the original loan. But Greece could not pay it off. And here we are today.
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I mention all this bc the original liar loan losses should have stayed with the lenders. Now we have a loan that cannot be repaid. It should be forgiven and we should move on. Failing that we risk another contagion, which is increasingly what we face in this capitalist heaven. Wall Street, judging from recent moves down, seems to understand this.
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A debt that cannot be repaid, won’t be. Whoever said that is pretty smart.
“Debts that can’t be repaid won’t be” — Michael Hudson
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http://michael-hudson.com/2012/04/debts-that-cant-be-paid-wont-be/
More analysis here on the skirt capitalism of the banks and the Troika. Nice graphs on the Troika’s abysmal Greek GDP predictions.
Oops. Missed that Ed already linked to the Waldman article above. Note that Waldman now has a follow on post.
If you think Greece is drowning in deep water over its debt mountain, the US is heading the same way itself! Check out this graph (and accompanying table):
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https://en.wikipedia.org/wiki/File:USDebt.png
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from the wikipedia article on the US national debt. As the lower graph illustrates, as of 2011 that debt was approaching 100% of GDP and climbing at a rate of knots. Unless the problem is addressed, sooner or later the US will find itself vanishing down the same debt sinkhole that Greece is trapped in.
No it won’t. Please save that tripe for @FixTheDebt.
To Ed and Marcy,
Apologies for the mess but I still can’t access my e-mail (still F* yahoo!) so I’m leaving a realllllllly long comment here and hope it may reach your attention in this unorthodox way. Stuck in moderation is fine if you see it.
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The thing is, doesn’t Germany have a lesson to teach us, perhaps? I listened to some Renegade Economists podcasts from Australia last year, and unfortunately I see now that the podcasts been pulled and I can’t find them in the Wayback Machine either, so I have the .mp3 but can’t link you to it. In lieu, am pasting in transcript here. And the guy who was being interviewed, Adrian Wrigley, is tragically dead now and so we won’t be hearing his voice on Greece. Point is, he tells us in a quite reasonable and familiar way about “the miracle of the Rentenmark,” in a way I don’t find anywhere else. He says that’s what ended the wheelbarrows of ever more worthless cash that was a result of the unpayable German debt. (“And of course, the consequence of unrepayable debt is currency collapse.”) I know people talk about parallel currencies, but the key thing and perhaps difference here is that I think the thing the Germans came up with, the Rentenmark, was a share of a fixed pie, not gold or floating but the land itself of Germany, via the mortgages (I don’t understand this), and that it was part of an early 20th century global movement that banks/capitalists couldn’t tolerate and put a stop to. (Is that why communists were so demonized when I was a kid that we had to duck and cover and couldn’t talk?) The Rentenmark lasted a year basically, 1923, before Charles Dawes, an American banker, put a stop to it in 1924. Wikipedia says, “For his work on the Dawes Plan, a program to enable Germany to restore and stabilize its economy, Dawes shared the Nobel Peace Prize in 1925,” but Wrigley says the Rentenmark was already working. From below (2012): “It was interesting because it was just so rapidly successful. People talk about the current situation and say it will take 10 years for the Greek problem to be solved. It’s taken more than 20 years for the Japanese problem to work through and it’s still not concluded. But the Rentenmark was an immediate success.”
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Here it is, thanks, hopefully you can reconstitute the paragraph breaks. There were two related podcasts that I caught (all gone now), one from Wrigley in August 2012 and one from Deirdre Kent in October 2013 (excerpt here, it’s where I got the bug: http://www.correntewire.com/lost_in_an_australian_podcast_where_currency_decays_cathedrals_are_built_and_london_women_are_an_0 ), which I can do this same kind of comment maneuver to get to you if it’s useful. But this is the one where he told the story of the Rentenmark.
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