Learning From Greece

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Dus vandaag komt de EU via IMF toch over de brug met leningen @ 3,75%!
Dit gebeurt nadat de banken (denk aan GS & Co.) de 'normale' rente voor
Griekenland tot 7,5% hadden opgevoerd.

Bovendien is, net op de valreep voor de lening @ 3,75%, de rating van
Fitch voor de kredietwaardigheid van Griekenland teruggebracht tot één
nivo boven junk-nivo. Dit betekent dat een volgende verlaging een
verplichte verkoop van leningen door pensioenfondsen e.d. op gang
brengt, omdat deze dit soort leningen niet in hun portefeuille mogen hebben.

Alles bij elkaar is ook de koers van de Euro aardig omlaag gegaan. Dit
zal Duitsland als grootste exporteur niet heel erg vinden. Dus daar zal
Mw. Merkel wel blij mee zijn.

Groet / Cees

Dé les van het laatste Griekse Drama is dus, dat als je met haaien
zwemt, je moet zorgen dat je scherpe tanden en een stevige kaak hebt.

Groet / Cees

April 9, 2010
Op-Ed Columnist
Learning From Greece
http://www.nytimes.com/2010/04/09/opinion/09krugman.html
By PAUL KRUGMAN

The debt crisis in Greece is approaching the point of no return. As
prospects for a rescue plan seem to be fading, largely thanks to German
obduracy, nervous investors have driven interest rates on Greek
government bonds sky-high, sharply raising the country’s borrowing
costs. This will push Greece even deeper into debt, further undermining
confidence. At this point it’s hard to see how the nation can escape
from this death spiral into default.

It’s a terrible story, and clearly an object lesson for the rest of us.
But an object lesson in what, exactly?

Yes, Greece is paying the price for past fiscal irresponsibility. Yet
that’s by no means the whole story. The Greek tragedy also illustrates
the extreme danger posed by a deflationary monetary policy. And that’s a
lesson one hopes American policy makers will take to heart.

The key thing to understand about Greece’s predicament is that it’s not
just a matter of excessive debt. Greece’s public debt, at 113 percent of
G.D.P., is indeed high, but other countries have dealt with similar
levels of debt without crisis. For example, in 1946, the United States,
having just emerged from World War II, had federal debt equal to 122
percent of G.D.P. Yet investors were relaxed, and rightly so: Over the
next decade the ratio of U.S. debt to G.D.P. was cut nearly in half,
easing any concerns people might have had about our ability to pay what
we owed. And debt as a percentage of G.D.P. continued to fall in the
decades that followed, hitting a low of 33 percent in 1981.

So how did the U.S. government manage to pay off its wartime debt?
Actually, it didn’t. At the end of 1946, the federal government owed
$271 billion; by the end of 1956 that figure had risen slightly, to $274
billion. The ratio of debt to G.D.P. fell not because debt went down,
but because G.D.P. went up, roughly doubling in dollar terms over the
course of a decade. The rise in G.D.P. in dollar terms was almost
equally the result of economic growth and inflation, with both real
G.D.P. and the overall level of prices rising about 40 percent from 1946
to 1956.

Unfortunately, Greece can’t expect a similar performance. Why? Because
of the euro.

Until recently, being a member of the euro zone seemed like a good thing
for Greece, bringing with it cheap loans and large inflows of capital.
But those capital inflows also led to inflation — and when the music
stopped, Greece found itself with costs and prices way out of line with
Europe’s big economies. Over time, Greek prices will have to come back
down. And that means that unlike postwar America, which inflated away
part of its debt, Greece will see its debt burden worsened by deflation.

That’s not all. Deflation is a painful process, which invariably takes a
toll on growth and employment. So Greece won’t grow its way out of debt.
On the contrary, it will have to deal with its debt in the face of an
economy that’s stagnant at best.

So the only way Greece could tame its debt problem would be with savage
spending cuts and tax increases, measures that would themselves worsen
the unemployment rate. No wonder, then, that bond markets are losing
confidence, and pushing the situation to the brink.

What can be done? The hope was that other European countries would
strike a deal, guaranteeing Greek debt in return for a commitment to
harsh fiscal austerity. That might have worked. But without German
support, such a deal won’t happen.

Greece could alleviate some of its problems by leaving the euro, and
devaluing. But it’s hard to see how Greece could do that without
triggering a catastrophic run on its banking system. Indeed, worried
depositors have already begun pulling cash out of Greek banks. There are
no good answers here — actually, no nonterrible answers.

But what are the lessons for America? Of course, we should be fiscally
responsible. What that means, however, is taking on the big long-term
issues, above all health costs — not grandstanding and penny-pinching
over short-term spending to help a distressed economy.

Equally important, however, we need to steer clear of deflation, or even
excessively low inflation. Unlike Greece, we’re not stuck with someone
else’s currency. But as Japan has demonstrated, even countries with
their own currencies can get stuck in a deflationary trap.

What worries me most about the U.S. situation right now is the rising
clamor from inflation hawks, who want the Fed to raise rates (and the
federal government to pull back from stimulus) even though employment
has barely started to recover. If they get their way, they’ll perpetuate
mass unemployment. But that’s not all. America’s public debt will be
manageable if we eventually return to vigorous growth and moderate
inflation. But if the tight-money people prevail, that won’t happen —
and all bets will be off.

2.
David
SF
April 8th, 2010
11:46 pm
There are many lessons to be learned from the current plight of Greece.
The most important one is the need to bring Goldman Sachs and its ilk
under control. Just as GS, doing God’s work, sold worthless mortgage
backed securities as AAA rated and simultaneously bet against them, it
also helped Greece hide its debt and is now betting against Greece with
shorts and credit default swaps. The tentacles of these giant financial
vampire squids need to be severed, and all their zero-sum-games brought
under strict regulation. Failing this, the massive concentration of
wealth into the hands of a few will continue impoverishing the rest, and
that will certainly lead the US to join the ranks of the third world
nations.
  Recommend  Recommended by 533 Readers
1.
akhilleus
Bowling Green, KY
April 8th, 2010
11:46 pm
Mr. Krugman rightly points out that patience and sound monetary policies
and fiscal sobriety offer the best chances of steering out of the
current morass into which we were plunged by eight years of
drunken-sailor spending, tax cuts for the wealthy, and unconscionable
laissez-faire ineptness on the part of GWB and his henchmen and
billionaire cronies. We can expect more of the same from the current
crop of right-wing Wall Street sycophants.

The primary difficulties facing the Democrats and the Obama
administration (discount any semblance of assistance or adult
contributions from the right) are the lack of patience on the part of,
well, just about everyone. Two days after the recovery act was passed,
Republicans and their media lap dogs at Fox began screaming that it was
a failure. Corporate moguls and avaricious bankers have no patience or
inclination for planning for anything further away than the next
quarterly report.

As a country we are used to instant gratification. The right talks a
great game about economic responsibility but in practice the present
Republican party has overseen recession after recession and finally
economic armageddon, since the days of Reagan's Voodoo Economics. Money
never trickled down, as Reagan promised. He made sure it trickled up. To
his buddies on Wall Street. Both Bushes carried on with that plan and
left the rest of us to foot the bill.

A good plan is essential. The will to see it through requires the kind
of stern stuff that Republicans (and sadly too many Democrats) do not have.
  Recommend  Recommended by 447 Readers
3.
Marie Burns
Fort Myers, Florida
April 8th, 2010
11:46 pm
The trouble is the tightwads (a) are not very smart, (b) are not
interested in learning even the facts they're capable of grasping & (c)
think regurgitating party talking points trumps EVERYTHING.

As an example, Ezra Klein noted yesterday that in a 13-word sentence --
"One of the things in the health bill is 16,000 additional IRS agents."
-- Newt Gingrich was able to pack in four falsehoods. Pretty impressive.
Republican fiscal genius Paul Ryan picked up Newt's talking point & made
it worse, suggesting federal agents would come knocking at your door
soon. In another example, Jonathan Chait caught healthcare "expert"
Jeffrey Anderson just deleting the part of a sentence that disproved his
point -- a false point Ryan went on to parrot.

You can't reason with people like that. Yet they are the people who make
consequential, irresponsible decisions & block responsible ones, all the
while shouting out gibberish to frighten their own base into sharpening
their pitchforks.

In this country, we call that democracy!

The Constant Weader at www.RealityChex.com
  Recommend  Recommended by 338 Readers
15.
UM
California
April 9th, 2010
1:33 am
The difference between 2010 Greece and 1946 America is this: the US
emerged out of WW2 with an undamaged infrastructure, and was the factory
to the entire world, especially war-devastated Europe. That massive
productive growth is what drove up GDP. Unfortunately Greece (and the
rest of Club MED) cannot compete with the productive Germans, Chinese
and Japanese. The US needs to learn that lesson before it is too late.
Financial wizardry is no substitute for good old fashioned manufacturing.
  Recommend  Recommended by 236 Readers
10.
Jon Jost
Seoul, Korea
April 9th, 2010
1:33 am
Apples and oranges. #4 is correct, the USA and Greece are not any way
comparable.
Mr Krugman's analysis glides over the real major factor which is
wrecking the American economy: the military-industrial complex. It
gobbles up half the Federal budget (actually more, Enron-style
bookkeeping keeps lots of its costs off the balance sheet); it gobbles
up half the oil imported by the US. It's influence bends the politics of
local govt around the nation (bases, plants, etc.)
The US is 5% of the world's population; it spends half the world's
investment in war-making commodities.
It is the elephant in out public living room. And yes, it profoundly
effects the economy, as well as the national psyche and political discourse.

www.jonjost.wordpress.com
www.cinemaelectronica.wordpress.com

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