Markets don’t like national suicide: Spengler

In purely financial terms, a Greek national bankruptcy is of minor importance. Private investors own just 17% of the country’s debt, and most of those are hedge funds who can eat the losses. 62% is owned by Euro-area governments, and 10% by the IMF. Greece accounts for just 2% of the Eurozone economy. In political terms, the shutdown of the Greek financial system today is probably a positive: Greece will serve as a horrible example to countries that are tempted to elect populist demogogues who refuse to come to grips with reality. The Greek people will suffer for the sin of supporting Syriza, a troupe of left-wing clowns that recalls the old 1968 graffito: “I’m a Marxist (Groucho faction).”

That’s not what worries the markets.

Nations can and do commit suicide. They do so all the time. If Greece can choose national suicide, so can others. There are any number of much larger economies that labor under the shadow of enormous debt burdens, for example Brazil and Turkey, not to mention the rest of southern Europe. The Greeks chose to go to the brink assuming that once again, German taxpayers would pick up the bill for their profligacy and fecklessness. This time they went over the brink.

At some point, all the European countries will run out of money with which to fund their pension systems, because b y 2050 half their population will be elderly dependents, according to the UN World Population Prospects database.

europeaged

 

This day can be pushed off into the future by raising the retirement age (quite reasonable, since aging populations are healthier than in the past) and through immigration (although the sources of skilled immigrants to Europe–Eastern Europe, Turkey, Iran, Latin America–also are drying up).

The Greek economy, to be sure, is a joke. It exports little besides food products and cotton, and cannot scale up tourism. Tax evasion is a national pastime; there are fewer actual taxpayers than revenue officials attempting to collect taxes. Greece lied about the size of its GDP to get into Eurozone in the first place. The Greek people voted themselves rich, using Eurozone status to borrow exorbitantly and raise real wages in the first half of the 2000’s.

realwages

 

Nor is this the first time that a Greek welfare state has killed itself. The 5th-century B.C.E. historian Thuycicides and the great comic playwright Aristophanes derided the Athenian democracy of during the Pelopponesian war as a rapacious welfare state in which the elite pursued imperial schemes to bribe the mob. I wrote in my 2011 book How Civilizations Die:

In place of smallholding farmers, the fifth-century Athenians and the first-century Romans became soldiers and slave-masters. Half of Periclean Athens’ food supply was imported and paid for with tribute from subject cities. And as soon as the constraints of traditional society fell away, they stopped raising children.

A character in [Aristophanes’] comedy The Wasps warns [that the democratic leaders of Athens] “are the men who extort fifty talents at a time by threat and intimidation from the allies.” Pay tribute to me,” they say, “or I shall loose the lightning on your town and destroy it.” And you, you are content to gnaw the crumbs of your own might. What do the allies do? They see that the Athenian mob lives on the tribunal in niggard and miserable fashion…”

Thucydides, the chronicler of the Peloponnesian War, tells the same story as Aristophanes. He blamed the catastrophic Athenian campaign in Sicily during 413-415 B.C.E and his city’s ultimate humiliation by Sparta on the Athenians’ desire for imperial booty. Athenian democracy voted to attack a fellow democracy, the Sicilian city of Syracuse, “on a slight pretext, which looked reasonable, [but] was in fact aiming at conquering the whole of Sicily … The general masses and the average soldier himself saw the prospect of getting pay for the time being and of adding to the empire so as to secure permanent paid employment in the future.”

We tell children stories about good democratic Athens and wicked oligarchical Sparta, conveniently forgetting that the Athenian mob drove the reckless and ultimately disastrous expansion of empire. As De Toqueville warned 2,300 years later, the risk to democracy is that the people will vote themselves rich.

participation

 

It isn’t only the Greeks who have stopped working. Less than 70% of American adult men are working, vs. 87% in 1950. What do they live off? As Nicholas Eberstadt reports, “In 2010, over 34 percent of American households received means-tested benefits—households which included nearly half of America’s children.”

In the near term, the Greek example probably will discourage populism. In the longer term, the rancor of the spongers threatens the political fabric of the United States as well as Western Europe. The failure of debt-fueled populism in the Third World raises the risks of similar crises elsewhere.

Greece isn’t the real thing. It is a drill. But it is a drill for a really big, nasty thing that may erupt in the not too distant future.

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Categories: AT Top Writers, Spengler

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  • This is a shockingly idiotic article. There’s no plausible story by which you can describe Greece’s current situation as being a result of their having somehow attempted to ‘vote themselves rich’. Greece had a slightly higher than ideal budget debt and deficit at the time of the financial crisis, and that crisis combined with the inherent difficulties of the euro put them in a tough spot back then. Since then their problems have been a result of the austerity policies imposed on them not only preventing an economic recovery, but instead driving them ever further into recession. What else could Greece do now than reject the indefinite continuation of those conditions? They haven’t tried to vote themselves rich, but on the 5th they’ll at least have a chance to vote against being poor for ever.

  • Mr. Bernard Wijeyasingha

    Quoting the article: ” In the longer term, the rancor of the spongers threatens the political fabric of the United States as well as Western Europe.”

    I would like to add that in addition to the “political fabric” is the “economic meltdown” of the US and Europe. In the case of the United States the crash of the dollar currency must be included. When (not if) that happens the ramifications on the world will be disastrous.

  • kaiten

    If Greece was OK, why did they need a bailout in the first place? The article is absolutely spot on. Greece and much of the West is drowning in debt and only the central bank´s wizardry is keeping us aflot. But that cant and wont last forever.

  • jd

    You aren’t a Marxist. Unless Marx was an apologist for TBTF banks.

    And, I’m not a Marxist. My thinking is all American, i.e., Franklin, Hamilton, Washington, Q.Adams, Clay, Lincoln, FDR, Eisenhower, Kennedy…none since then and only these were on the same page before Kennedy. Franklin invented the “Labor Value” theory (…Modest Inquiry into the Nature of…). Lincoln (not Marx), invented the middle class when he put railroads in Russia/Germany and here, making Britain fold. FDR took on the bankers frontally and put his guy running the FED. But, they ran Truman in on him for VP…and the rest is History…

    Anyway, don’t tell people you are a Marxist unless you too think that it makes a good joke.

    By last Saturday, Tsipras looked like the smartest person on Earth. (I had forgotten Greece didn’t make the AIIB 57 list! And, only had just found out he had his guy okay new sanctions!?!?) I assumed that he would (1) issue Yuan denominated bonds while (2) introducing the Drachma (which time might show more value than the soon to be damned Euro, when a Greece, with other PIIG nations, triggered a TBTF bank crash) using the (3) “Debt Truth Committee” evidence to repudiate all of the Greek debt. I assumed he was going to model his economy in some respects on progressive actions of Putin’s Russia & the awakened China. For myself and family, I view Russia as the hope of the World and China-not the US-as the cradle of a reinvigorated, rediscovered, Christianity.

  • James Jerome

    It won’t be disastrous to the world when the bankrupt dollar currency crashes, because the new economic world order and financial infrastructure led by China will fill the Vacumn overnight. The world will have a fully functional alternative that almost all of the developed and rising under-developed world have already bought into by signature, after the AIIB bank signing today, and the BRICS bank by the end of the year. Isn’t it just coincidental that this happens at the same time that the imminent Greek default is taking place. The Puerto Rico imminent default, a US territory also happening now. We are witnessing a paradigm shift in History, which is the downfall of the west, the party’s over. 70% of the US GDP is consumer spending, so 70% of its economy disappears because Americans have no money to spend. Chinese citizens alone have $21 trillion dollars in savings that is roughly $126 trillion Yuan, US consumer spending is dwarfed by this amount and then there is the rest of the developed world spending power to in addition to that. Mr. Bernard you need to keep up with current events and or take a course in Economics 101.

  • Mr. Bernard Wijeyasingha

    China is positioning herself for the possibility of this crash. Greece is only one nation out of many who have this problem. Portugal, Spain and Italy barely made it and they have not solved the problem
    the crash of the US dollar
    the meltdown of the US economy
    the economic disaster of Europe
    the economic impact of falling crude oil prices on OPEC
    combine the above and no nation will be spared from the “Global village”. Unlike in the 30’s great depression the world is highly connected.

  • James Jerome

    I agree there will be plenty of pain to share but, there is a difference between a razor cut versus a Knife in the chest. Guess who gets the self-inflicted knife in the chest.

  • Mr. Bernard Wijeyasingha

    I do not know who gets the knife in the chest. But the implications of such an economic catastrophe on a global level makes that metaphor applicable to many economies.

  • James Jerome

    If you don’t have much of an economy to begin with there is obviously very little pain, but when you are a developed economy with a gigantic debt bubble, and a bankrupt currency, you will be the one with the knife in the chest.

  • timebr

    What a jerk duo bankster agents why should Greece submit itself to slavery and serfdom to the northern European tyrants? The financial tyrants will net rest until Greece has become a nation of slaves with poverty becoming a norm. The northerners will probably invest in casinos and posh hotels and resorts hiring the Greeks for penny’s to the dollar erasing all those pensions and any social safety nets just survive on a meager income or die.

  • Mr. Bernard Wijeyasingha

    and in a “Global village” where all nations are holding hands, no one wants to see the big guy get a knife plunged into his chest for when he falls he drags all those who are holding his hands and all those who are holding their hands.

  • George Silversurfer

    when you make a deal with the devil…don’t be surprised when he comes collecting.

  • ghormax

    They needed it basically because the super-rich control the country and refuse to pay their share of the taxes. Corruption is rampant and cheating used to be the preferred method to deal with the country’s needs.

  • Daniel Berg

    But I want to see,,,,,,,,,

  • Skalla

    A very superficial article full of untruths. The Greeks did not go about deceiving and stealing from their neighbours. They were just sold a wrong package which was not adapted to their needs and the state of their economy. And for the past five years, they had no say in what was decided for them. Now, they want to take their fate into their own hands and biased commentators like the author of this article accuse them of doing something illicit and unethical ….

  • Skalla

    Even developed countries need a bailout from time to time : Germany in 1953, the UK in 1937 and again at the end of the seventies … In fact, the UK was officially bankrupt 4 times in the last two centuries : 1822, 1834, 1888–89, 1932.

  • only the lonely

    Dumb article. Only 10% of Greek bailout money ever went to the people the rest of it to bailing out the banks, it is the socialisation of private debt, hence austerity, the people get to suffer so that the rich piggies can keep eating up the world. Nice to know who’s side you are on spengler. That of the economic fascist. The people are coming, and they’re coming for the capitalists and your markets, theyre prepared to die in order to bring you all down. we’re all in it together right?

    Less than 10% of the bailout money was left to be used by the
    government for reforming its economy and safeguarding weaker members of
    society. Greek government debt is still about €320bn, 78% of it owed to the troika. As the Jubilee Debt Campaignsays: “The bailouts have been for the European financial sector, while
    passing the debt from being owed to the private sector to the public
    sector.”

    http://www.theguardian.com/world/2015/jun/29/where-did-the-greek-bailout-money-go

  • mijikai

    It’s a great time to be old, childfree and familiar with euthanasia methods. All of us except the very wealthy are doomed to a future of losing to the peoples who follow Goldman’s admonition to breed like bugs.

    People are crazy but they’re not stupid; everybody knows the middle classes are terminal so why not act like Greeks?

  • Mr. Bernard Wijeyasingha

    Daniel
    You are. Just the problems of Greece alone is shaking the world. Just yesterday news of that echoed across world stock markets, it made the headlines from the US to India.

  • timebr

    Right, I guess that makes the Greek government(s) complicit for walking with Saint Lucifer.

  • George Silversurfer

    Creditors are usually viewed as devilish.. True or not is irrelevant.. Perception is everything.

  • Sandro Valentini

    Pathetic Article.

  • timebr

    Rob a bank, get filthy wealthy then just lend money, set back and watch your wealth snowball. Somehow it doesn’t look like an honorable deed to me

  • Bianca

    It is amazing how people can so comfortably lie, and even lie to themselves. The world that is increasingly dependent on financing its present by mortgaging the future cannot survive. This is today the case of all Western “democracies”. Oligarchies that rule the West have so syphoned off all the productive energy of the society, that not much remains then to borrow some more. Hence, kick the can down the road, pretend that it may work, then repeat the process. It is better to be unintelligent then to apply one’s intelligence the way Spengler spins and rotates the truth to suit his purposes. Europe and US in fact for a very long time have been destroying sustainable economy and digging the hole under one’s own future. Having become clueless as to the real ills of the economy, militarization was and still is the answer. But the unproductive military spending cannot revive the main street, and once proud Midwest is today an exhibit of tattoo covered men, pretending to be adults in children’s clothing, experimenting with sexual freedoms in their spare time — which happens to be full time. We are destroying our society so that the financial cartels can squeeze a bit more blood out of the turnip. So, while Greece could not afford their salaries or pensions, why on earth has it spent twice as much on military hardware then Germany or France? And why has Greece been subsidizing French and German economies by buying that same hardware from — of course — France and Germany.
    And why has EU from the moment Greece entered the Union started to dictate its economic policy? From the day one, Greece was to implement “reforms”, the idiotic ideological nonsense on how to destroy ones own production, shipping, transit and the rest of the economy, and focus on “services”. Then the loans were given in the name of “transition” to more tourist oriented economy, all it childish belief that it will pay off. It did not. EU advisers, bankers that pushed those loans the way dealers push drugs — need to be fired. But no, they are the ones today talking from on high what Greece should do AND how to do it! Enough already. Odious debt — for that is what it is — need to be rejected. Since European Countries under the handy and crafty Goldman water carrier Mario Draghi allowed themselves the luxury of taking over the responsibility for the debt and basically let the irresponsible bankers take the money and get off scot free — citizens of Europe are now responsible for the debt. For once, if this is indeed capitalism, bankers should go bankrupt, and states should clean up the mess by saving depositors, but letting the investors lose all of their ill gotten money and pay for their greed. But instead we are living in a modern feudalism, where the feudal class of money changers forces population to pay for their unearned wealth.
    Greece is a test case. One can assume also that population will run scared, and will accept debt slavery in return for stability. I cannot blame them. But we know that those who choose security over liberty end up having neither. And while liberty may be scary, the truth is, any number of advisors from China can come in and come up with a better plan for economic development based on increased domestic production, truly FREE trade as opposed to the rigged EU market, and investments from the East. Greece can go bankrupt, but that will not stop investors from Qatar, Russia or China to come and invest in a country with tremendous potential. And European citizens will end up holding the bag. They may as well learn how their own ruling elites cheated them by transferring financial powers to the unelected Brussels, and a financial charlatan, Mario Draghi.

  • Bianca

    And why is that so? Because the poor people are living too well?
    The short answer is — if you allow leverage-based speculation in your society, soon nothing will be worth making, and only money will make fabulous money. While the music is playing. And it will be playing for a while, as the private money making machinery is getting itself positioned to move all that debt over to the public, and stash their ill gotten gains somewhere safe. So when the dust settles, they can start buying
    Things never really turn out the way we want, or the way we imagine the future. But one thing is sure: unless governments become something more then the water carriers for the financial speculators, there cannot be any meaningful change. Any government that would rid itself off of the loans that were given to them knowing full well that they cannot be returned, and will focus on sustainable development and growth, will turn things around. Scaling down will be the rule, not the exception. Scaling down does not mean poverty, but will mean changing priorities for the society. Bloated supra -entities will have to lose their power to control trade and production, and their power to dictate and squeeze the productive capacities of countries and populations. There should be no loans to states, except in the form of concrete delivered products and infrastructure. And the repayment should be based exclusively on the earnings from the product or infrastructure, so that everyone has a stake in the investment. Politicians would not be able to put a bridge, a port or a railroad into their Swiss account. Food need not travel 5,000 miles to reach consumers, which is today often case. Producing close to the consumer of everything that makes sense, need to guide us. Importing only what we cannot reasonably make ourselves. And export whatever we are really good at, and can contribute and enrich global interdependence. Today, countries are ordered to export and import, as this activity makes money to banks and those that profit from skimming the cream off the trade profits. As they mindlessly import, their production capacity languishes, resulting in the young and old not having a place in the society. In EU, smaller and poorer nations are literally forced to buy from the richer, and that adds to their indebtedness over time. At the same time, their productive capacities, innovation, and hard work have no utility. Year after year, many new European countries are desperately poor, with spruced up capitals hiding the reality. In Poland, the new president promised to review their economic policies that makes the country look “good on paper”. Croatia will follow Greece, as the same inane advice to develop tourism resulted in the destruction of the thousands of years worth of tradition of ship building, and some of the most cost effective modern shipyards have been suffocated for funds, even though they had enough orders to stay busy. But no. Financial world seem to have the final say what can be produced, and what needs to be shut down. So in the land where some of the best lamb has been available due to the unique pasture, now imports from Spain take precedence over local producers. Local producers are deliberately disadvantaged every possible way. And those who think that those countries should buy where the products are cheaper — lie and lie deliberately. No import is cheaper, unless the country has no capacity to produce. Then it is really not the question of the price, but necessity. EU is a mess. Today Bulgaria and Romania are pauperized. Bulgaria that once fed Soviet Union, and also a good chunk of Europe, today cannot feed itself. Such poverty has not been seen since Ottoman times, and perhaps not even then.
    If EU does not liberalize itself and allow members to trade freely with whoever they want, and take loans from whoever they want, it will remain a closed market that suffocates its members, discouraging production in the weaker ones, in order to prop up the dying production capacities in the stronger members. Brussels wants to dictate everything from how many olive trees can you plant, to forcing national governments to open up their rail operations to Brussels favored ones. And what about energy, that has been deliberately controlled in such a manner that Balkans cannot get their own independent supplier, but need to depend on the leftovers from European markets. All that in order to “prevent Russia from dominating the gas market”. Bull. Naturally, these games and odious money making can go on — for a while. But when it cracks, it will come to an end. And I am sure, that those that ruined everything will be there to tell us all what to do AND how to do it. Can we ever tell these false benefactors to please go away?

  • Klub Marcus

    Greeks are poor because they party too much and work too little. Borrow more than you can or are willing to pay and you will go broke. It’s as simple as that.

  • Klub Marcus

    If the Greeks can’t keep their own country in order, then outsiders will step in and run the show. The Greeks did not have to borrow so much, they did not have to join the EU, they did not have to vote for socialist moonbats. Greece is doomed because their best and brightest moved to the USA. The only Greeks left behind are welfare cases and retirees.

  • Klub Marcus

    That is correct. Americans keep voting for socialism instead of working for themselves. If China becomes a better alternative, I’ll move there or work for a Chinaman.

  • So how do you square that little nugget of conventional ‘wisdom’ with the fact that over in here in reality, Greeks work the longest hours in Europe?

    Citation: http://www.forbes.com/sites/niallmccarthy/2015/03/13/contrary-to-what-most-people-think-greeks-work-the-longest-hours-in-europe-infographic/

  • Klub Marcus

    Work means you actually made something or accomplished something. Your cited article clearly states that the working hours cited have little to do with efficiency. They Greeks could be working long hours just to “spin their wheels” without going anywhere. I’ve been to Greece several times and they party too much, that’s why it’s a fun vacation destination. When you have debts to pay, you have to work.

  • Hmmm, retreating into the comfortable darkness of anecdotal observation huh?

    Are you trying to say that the fact that 25% of Greeks are unemployed is a result of them being lazy? Any individual might be able to really push and hustle and do well, but when there simply aren’t enough jobs available for the people who want to work, what do you want from people?

    Jobs require demand, and the combination of austerity and the currency union make it impossible for Greece to build up either foreign or domestic demand for what they’re selling. They’re already working hard, outside of your “they’re secretly not” conspiracy theory, but that doesn’t help when there are no jobs.

  • James Jerome

    I already work for them and I’m married to a beautiful successful Chinese woman, so when I go to bed at night China is with me, and when I wake up to get to work China is with me, and I am well paid. I am already living in Paradise. I get to watch the 24/7 purge that’s about to happen in America from afar drinking wine and being fed grapes by my beautiful wife.