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Archive for April 2010

Greek Elites whack Greeks over Crisis

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From The Daily Bell
Originally posted Friday, April 30, 2010

Greek minister says pension reform part of a package of austerity measures to clinch a three-year, multi- billion-euro aid deal, a Greek minister told the FT on Thursday. Andreas Loverdos, social affairs minister told the Financial Times the measures included dropping the seasonal bonus for pensioners in a bid to slash Greece’s bloated budget deficit. “The timetable for the pension measures is still being debated, but there isn’t much room for manoeuvre – this is about saving the country from collapse,” Loverdos told the FT. Union officials told Reuters on Thursday the International Monetary Fund had asked Athens to raise sales taxes, scrap bonuses amounting to two extra months of pay in the public sector, and accept a three-year pay freeze. Other measures in the 24 billion euro package include raising the retirement age from an average of 53 to 67, the FT said in its Friday edition. – Financial Times

WE PROMISED OURSELVES NOT TO WRITE ABOUT THE EURO/GREEK CRISIS AGAIN for a couple of days, but we can’t help but return to it when we see articles like the one excerpted above. In our view, the Greek crisis seems designed to provide real-life examples of what we’ve been writing about these past few years.

All kidding aside (and it is truly a sad situation), we think the way that the European and Greek elites are handling the crisis proves our points not only about power-elite manipulations generally but also about how the free-market simply cannot be ignored. It will always have its way sooner or later – and people will suffer as a result, financially from the thwarting of its will, usually innocent people.

In this case, it is average Greeks that are going to suffer. But we sure do wonder how the elite organizing the Greek fiscal retrenchment believes that those who are going to pay for it are going to submit without a murmur. The Greeks are not in any case a quiet people, culturally speaking. We’ve pointed out on numerous occasions that the Greeks are not necessarily profligate; that they have not “had their fun” (and now must pay for it) as an anonymous German recently put it in an article reporting on the mess.

No … what happened was something else entirely. Investors, especially, who are trying to figure out what the heck is going on in Greece, and in the larger European Union, will need to be aware of what is taking place in the important subterranean cultural conversation that is not being reported in the mainstream media. They will need to understand what is being written on the Internet’s blogosphere and what is being muttered over ouzo on the porches of people’s houses where they gather to discuss the reality of what is being demanded.

The perceptive readers of the Bell (and other alternative publications) know that the entrance of the Greeks into the EU, and the largess that flowed as a result, did not reach the pockets of the average Greek. In fact, the EU exercise was likely one of legalized bribery. Money that was given to the EU to supposedly close budget gaps went to furnish numerous unnecessary private projects. The money was wasted, in a sense, as the projects weren’t completed and wouldn’t have helped generate a profit if they had been. The EU leaders providing the money knew this. But they didn’t care so long as Greece joined the union.

Thus it was that the money cynically provided by EU’s socialist leaders went into the pockets of the Greek elite that was in charge of the EU transition. And now this same elite, doubtless, is negotiating the Greek posture as regards the financial streamlining that must take place. If we can figure out what actually occurred, we don’t think that it is hard for the average Greek to do so. When one reads about what is being negotiated, and puts it into the context of what went before, we think the average Greek may start to become fairly upset, if he or she is not already so.

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How much is needed to bail out Greece? $159 Billion? $794 Billion? Estimates vary wildly as Greece turns Viral

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by Mike Shedlock
Originally published April 28, 2010


PRESSURE IS ON GERMAN CHANCELLOR ANGELA MERKEL TO DO SOMETHING. European Central Bank President Jean-Claude Trichet is in Berlin along with the IMF to arm-twist Merkel. Meanwhile, German citizens want no part of a Greece bail. European Central Bank President Jean-Claude Trichet is on a diplomatic mission to Berlin as Germany’s reluctance to bail out Greece helps fan a fiscal crisis now burning around the euro region’s periphery.

Jean-Claude Trichet and International Monetary Fund Managing Director Dominique Strauss-Kahn will brief German parliamentary leaders in Berlin around noon today about the $60 billion aid package for Greece, which has met with opposition in Europe’s biggest economy. The joint European Union-IMF package would require Germany to stump up the biggest individual loan to Greece.

“It’s a sales pitch in front of an audience that needs it,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “The lawmakers probably need it spelled out that this is not about financing luxury pensions in Greece. Not helping Greece will unfortunately have a direct impact on the euro-area economy and German jobs.”

“Why do we have to pay for Greece’s luxury pensions?” Germany’s biggest-selling tabloid newspaper, Bild Zeitung, asked on its front page yesterday. Almost 60 percent of Germans don’t want to help Greece, Die Welt newspaper reported, citing a survey of 1,009 people. German Finance Minister Wolfgang Schaeuble asked Trichet and Strauss-Kahn to speak with lawmakers to “facilitate direct insight into the actions as they stand.”

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Analyzing the Real Greek Failure

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From The Daily Bell
Originally posted Thursday, April 29, 2010

“GREECE HAS LONG LIVED BEYOND ITS MEANS AND SPENT MUCH of the last two centuries defaulting on its debts. Joining the euro was meant to put an end to all that. However, it merely seems to have exacerbated its problems. It was no surprise to any economist that the European Union, at first, refused to allow the country to join the euro when the new currency started in 1999. Quite simply, its debts were too high and inflation was out of control. By 2000, the EU finally allowed it to join, though there were suspicions at the time that Greece was operating a “limbo dance” – squeezing its figures to hit the stringent euro criteria, only for them to flip back to dangerous levels once it had entered.

“Indeed many believe Greece simply lied about its figures to gain entry. At the time its inflation was 4 percent, much higher than the European average, and was suffering from one in ten people out of work – a higher figure than currently in recession-hit Britain. By joining the euro, however, it suddenly enjoyed substantially lower interest rates, because it was able to borrow in euros.” – UK Telegraph

Free-Market Analysis: The Daily Bell covers dominant social themes, and one of the biggest such is the presentation of nation states as people. Of course, we’re guilty of this too because it’s hard to cover world events without ending up writing “The U.S. did this … France did that … the EU did the other thing.” It’s a kind of short-hand. But where it gets you into trouble is when you start to speculate on motives and offer up analyses that feature national behavior.

Of course, this particular power elite dominant social theme demands such nomenclature. Writing that nation-states make decisions, rather than individuals, is a mild form of brainwashing in our opinion. One soon gets the idea that the nation-states represents its people, and that those at the top of the state are entitled to speak – and make decisions – for everyone else. Thus it is that artificial geographical regions somehow become anthropomorphicized.

The article excerpted above falls into this pattern, in the sense that it attempts treat an economic problem as a national one when – from our point of view – the analysis, while cogent, ought to be applied more narrowly. We’re not sure that Greece, anymore than Spain or Portugal, etc., spent beyond its means as a whole. What we are inclined to suggest is that the elites running Greece did so, and had a reason to do so. Here’s some more from the article:

“Whereas during the 1990s, Greece frequently had to pay out 10 percent or more (18 percent in 1994) to borrow money, its rate fell dramatically to 3 percent or 2 percent. Ben May, Greek economist at think tank Capital Economics, said: “Their mistake was to go out, borrow money and use it to fund huge wage growth, rather than pay down its already substantial debts.”

“Greece went on a spending spree, allowing public sector workers’ wages to nearly double over the last decade, while it continued to fund one of the most generous pension systems in the world. Workers when they come to retire usually receive a pension equating to 92 percent of their pre-retirement salary. As Greece has one of the fastest ageing populations in Europe, the bill to fund these pensions kept on mounting. …

“Tax evasion, endemic among Greece’s wealthy middle classes, meant that the Government’s tax revenues were not coming in fast enough to fund its outgoings. Hosting the Olympics in 2004, which cost double the original estimate of €4.5 billion, only made matters worse.”

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Collapse of the standard of living in the USA

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by Hiram Lee
Posted at Global Research, April 24, 2010

Studies Reveal Declining Living Standards and Increasing Anger

A SERIES OF RECENT STUDIES CONDUCTED BY THE PEW RESEARCH CENTRE shed new light on the scope of the economic crisis in the US and the level of hostility the majority of the American population holds for the US government.
Released in March, before the passage of the Obama administration’s health care legislation, a survey entitled “Health Care Reform—Can’t Live With It, or Without It” indicates that 92 percent of Americans give the national economy a negative rating. No fewer than 70 percent of the respondents report having suffered job-related and financial problems in the past year, an increase from 59 percent the year before. Fifty-four percent report someone in their home has been without a job and looking for work in the past year, up from 39 percent in 2009.

The poll saw an aggravation of conditions in every area of economic life studied the year before. Increasing numbers of people are reporting difficulty receiving or affording medical care (26 percent) or paying their rent or mortgage payments (24 percent). More Americans faced problems with collections and credit agencies (21 percent), or had mortgages, loans or credit card applications denied (19 percent).

As could be expected, the poorest Americans are suffering the most. Some 44 percent of those making $30,000 per year or less report difficulty obtaining medical care, compared to 11 percent of those making $75,000 per year or more. A similar gap can be found in the category of rents and mortgages, with 37 percent of those making $30,000 or less reporting difficulty making rent or mortgage payments, compared to 11 percent of those making $75,000 or more. However, the percentage of those facing difficulties paying rent has increased dramatically for both groups since 2009.

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United States goes broke?

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From The Daily Bell
Originally posted April 23, 2010

WHILE THE GLOBAL FINANCIAL SYSTEM REMAINS TRANSFIXED BY THE PROBLEMS of Greece and several other European countries risking default over their massive debts, the real threat is whether the credit standing and currency stability of the world’s biggest borrower, the United States, will be jeopardized by its disastrous outlook on deficits and debt.

That’s the fear raised in a devastating Op-Ed on the Financial Times website written by Roger Altman, a former deputy U.S. Treasury secretary under President Clinton who is now chairman of Evercore Partner, a leading global advisory and investment firm. “America’s fiscal picture is even worse than it looks,” Altman writes. “The non-partisan Congressional Budget Office just projected that over 10 years, cumulative deficits will reach $9.7 trillion and federal debt 90 percent of gross domestic product – nearly equal to Italy’s. “Global capital markets are unlikely to accept that credit erosion,” Altman says. “If they revolt, as in 1979, ugly changes in fiscal and monetary policy will be imposed on Washington. More than Afghanistan or unemployment, this is President Barack Obama’s greatest vulnerability.”

The financial outlook for the United States is frightening. The CBO projects the size of the federal debt to increase by nearly 250 percent over 10 years, from $7.5 trillion to a whopping $20 trillion. The only remote comparison to such a debt load occurred during World War II, a global conflict that killed 50 million people, Altman and other analysts have written.NewsMax

How did the world’s biggest republic come to this pass? Twenty-five years ago, it seemed that America was indeed a shining light on a hill, or at least moreso than it had been for some time. The nation’s rhetoric was shaped by its most libertarian president in decades (Ronald Reagan) and its great adversary, the Soviet Union, had just come undone. Surely, an epoch of freedom and free-markets was resurgent?

Unfortunately … no. Today, America is embroiled in two wars, its culture is being gradually reshaped by an influx of Mexican immigrants, and what’s left of its republican heritage is being eroded by its current president, Barack Obama, perhaps the most actively authoritarian president the nation has known since Franklin Delano Roosevelt. Worst of all, the country’s central-bank driven economy is seemingly in full melt-down, presaging ever-larger deficits and eventual price inflation that may end up being catastrophic.

When one looks back at the decline and fall of the Anglo-American axis, one may be struck not by how precipitous it was, though it happened quickly, but by its apparent deliberateness. This article will provide a quick (modest) overview of what has happened to America over the past 25 years, and what might arrest the arc of its descent.

We will use as our touchstone, various American presidents, much as one might summarize the progress of empire by focusing on rulers. In fact, all countries are made up of people involved in their own “human action” and to summarize epochs by focusing on rulers is only a convenient way of presenting a particular set of observations which may or may not be true. However, it does provide us with a convenient sociopolitical shorthand.

Thus we begin our quick summary with President Ronald Reagan who came to power in 1980 facing numerous challenges including the Iran “hostage crisis” and a very deep recession. The most startling aspect of Reagan’s presidency was not its achievements but the rhetoric that Reagan himself employed as chief executive. Unlike American presidents who came later, Reagan actually seems to have been a sincere believer in free-markets and the American experience as enunciate by the great agrarian republican Thomas Jefferson. He preached the message of lower taxes, smaller government and supported the private sector as the font of innovation and entrepreneurship.

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Maastricht madhouse fuels EMU-wide contagion from Greece

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by Ambrose Evans-Pritchard
Originally published 25 Apr 2010

IF THE CHIEF PURPOSE BEHIND THE EU-IMF bail-out for Greece – or for banks exposed to Greece – is to prevent a “full-blown and contagious sovereign debt crisis”, the market verdict must be a sobering surprise. The relief rally fizzled shortly after Greece folded its bad poker hand and invoked aid. Bond risk as measured by Markit’s 5-year credit default swaps jumped to fresh records of 280 for Portugal and 177 for Spain. Irish CDS contracts rose 13 points to 185.

This was an entirely logical response to the twisted events that are unfolding. The rescue obliges countries in trouble to go deeper into trouble. Portugal must come up with €774m as its share of the EU’s initial €30bn package. Ireland must find €491m, Spain €3.7bn. Yields on 10-year Portuguese bonds hit 4.94pc, a whisker shy of the 5pc rate that Lisbon must relend to Greece. Meanwhile, safe-haven Germany can borrow at just over 3pc. The bail-out cost falls hardest on those that can least afford it. It deepens the North-South divide that lies at the root of Europe’s crisis.

In a rational world, Brussels would tap the EU’s AAA rating to issue cheap “Barroso Bunds” to cover rescue costs. But we are not in a such a world. We are in the Maastricht madhouse, a currency union without a treasury, ruled by the “no bail-out” clause of Article 125 of the EU Treaties. Europe is at last paying the price for fudging the true implications of EMU 19 years ago in that Medieval city on the Maas, gambling that it would one day be able to lead Germany by the nose into a debt union. Chancellor Angela Merkel continues to equivocate, demanding “very strict conditions”. Dissent is growing louder in her coalition ranks. Both Free Democrats and Bavarian Social Christians have said it is time to break the taboo and ask whether Greece should “step outside” EMU. Werner Langen, the leader of Christian Democrat MEPs, said the bail-out appears to breach Germany’s constitution.

If so, we will find out soon. Four professors will launch a legal challenge in early May at the Verfassungsgericht (high court). Should they secure an injunction, EMU may fly apart. The Court ruled in 1993 that Maastricht was constitutional only as long as EMU remains an area of monetary order. “A ‘transfer union’ is a bottomless pit and is bound to threaten currency stability. That is what we are going file,” said Tübingen Professor Joachim Starbatty.

When accused of consigning Greece to ruin, he told the Frankfurter Allgemeine that EMU exit and default is Greece’s only salvation. “The truth has to come out into the open. Greece is in no position to pay it debts,” he said. The EU-IMF “therapy” of deflation for Greece repeats the catastrophic errors of Chancellor Heinrich Bruning in the early 1930s and must lead to a depression, he said.

Yet that is what IMF chief Dominique Strauss-Kahn is preparing for Greece, against the better judgment of his own experts. “Greek citizens shouldn’t fear the IMF; we are there to try to help them,” he said over the weekend. Yet a week ago he told Greece that devaluation and default are non-starters. “The only effective remedy that remains is deflation. That will be painful. That means falling wages, and falling prices. There is no other way.” Actually, the IMF pursues other ways often, last year in Jamaica. What Mr Strauss-Kahn means is that the EU will not tolerate any other way. The Greek people must be sacrificed for the Project and to hold the EMU line, like the Spartans of Thermopylae who perished to gain time for the Alliance.

They are to squeeze fiscal policy by 6pc of GDP this year in a slump – a “death spiral”, warns George Soros. They are to do this without the IMF’s devaluation cure. If they do stabilise the debt – to hit 130pc of GDP this year after Eurostat’s revelations – they will be left paying 6pc to 8pc of GDP to foreign creditors for ever. Will Greeks comply meekly, or turn their Spartan blades on Europe?

No country in Western Europe has defaulted since the Second World War. More than €7 trillion has been lent to Club Med states, banks and homeowners in the belief that it cannot happen. EMU shut the warning signals, disguising risk. What investors overlooked is that currency risk mutates into default risk in a monetary union. It makes default more likely, not less. The bond markets have suddenly twigged.

In barely two weeks, the City mood has shifted from ruling out a Greek default as absurd, to accepting that it could happen, to now fearing that restructuring is highly likely. A country such as Portugal with total debt of 300pc of GDP, a current account deficit of 11.2pc, and a budget deficit of 9.4pc should not think it has the luxury to trim spending at a leisurely pace. Portugal has an ugly choice. If it tightens hard to soothe bond markets, it too risks depression. EMU’s Faustian Pact is closing in.

A Still Moment

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by James Howard Kunstler
Originally posted April 25, 2010

GEORGE W. BUSH WAS ONTO SOMETHING IN THE FALL OF 2008 when he remarked apropos of the Lehman collapse: “…this sucker could go down.” It’s my serene conviction, by the way, that this sucker actually is going down, right now, even as I clatter away at the keys – perhaps in slow motion, so that not many other bystanders have noticed yet, and the few who have noticed are mostly too crosseyed with nausea to speak.

It’s perhaps useful to define even what we mean when we say “this sucker.” Everybody knows what a sucker is, of course – say, a Midwestern public employees’ union pension fund snookered into buying a fat slice of equity tranche in a Goldman Sachs-engineered CDO. But “this sucker” is something else: a rather large cargo of commercial relations, entailed obligations, hopes, expectations, habits of daily life – indeed millions of whole lives – loaded onto the rather creaky vessel we call modern civilization. “This sucker” was such an apt term coming from someone whose understanding of civilization was like unto that of a boy who found a PlayStation under the Christmas tree.

It’s also perhaps useful to define what we mean by “going down.” To my mind it means an awful lot of money disappears and nobody can pay for anything and an awful of things that have kept going on promises to pay and to get paid will stop keeping going. I don’t think that the idea of money disappears – that is, paper certificates representing claims on future work – but there will be a lot less of it to go around.  Eventually the idea of money could go, too, at least in its current form as Federal Reserve notes. But mostly for some years it will just be a lot of people, companies, and governments who are broke.

“Going down” will mean a society with no money and an infrastructure for daily life that requires gobs of money to run, and a populace too dazed, confused, and inflamed to do anything useful in the way of organizing new infrastructures for daily life for their new circumstances. In retrospect, the Great Depression of the 1930s will look like “The Philadelphia Story” compared to what we wake up to ten years from now.

President Obama’s speech at Cooper Union last week was a remarkable performance. It managed to appear forceful and serious without containing any really serious or forceful proposals to discipline a banking system that is running a hostage-and-ransom racket on civilization. If this is finally what the Obama Experience is all about than his detractors have been right all along: he is a tool. Finance reform aside, there are still plenty of laws left on the statute books that could be applied to the frauds and rackets that ran absolutely amok on Wall Street the past few years. I would still like to know why buying CDS “insurance” against your own issue of bonds deliberately engineered to default is NOT a form of insider trading, to put it as simply as possible.

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