The Eurozone crisis and America

Debt forgiveness means sovereign countries reneging on their promises. They were happy to make those promises in order to offer that voting electorate all kinds of things they couldn't actually afford.

That money is owed to actual entities. Those entities don't want to "forgive" shit. They want what is owed to them. If they don't get it, isn't a matter of forgiveness. It is a matter of reneging on obligations.

That wouldn't be unprecedented. We have a long history of it, for example, kings and queens throughout the middle centuries running up debt and then simply telling their creditors to fuck off.

If we see a string of defaults, it won't be a simple matter of debt forgiveness. It will drag down the global banking system -- 2008 all over again, but worse -- because that is where those debt obligations reside. You think Europe and the U.S. Federal Reserve and even China have been so invested in trying to stave off a Euro collapse and a string of defaults because they care about Greece or Portugal or Ireland or Spain or Italy? It's because they are petrified of the banking collapse widespread defaults will precipitate.

I'm not sure why anything I posted made you say what you did. We're not talking about market whims. We are talking about countries that made poor fiscal decisions, and a continent that made a huge mistake by linking countries with a currency without forcing the same spending discipline on them all. Greece wasn't at the whim of markets when it ran up debt for a decade without any regard for the fact that they could get away with it while the global economy was growing, but the minute that stopped (as it always has due to economic cycles), they would be weighted under a debt huge obligation they couldn't afford to repay without eternal economic growth -- which is an impossibility.

Those aren't market whims. Countries, including the U.S., are now facing situations of their own making.

 

There are no "pro growth" strategies in a global recession. Europe is in a recession that is going to just get worse the longer this drags on. Pro Growth for governments means spending to create false prosperity. They can't afford to borrow anymore to spend. So they can talk that kind of rhetoric, but there are no lenders out there willing to bankroll it anymore.

The only thing they have left is an effort to devalue their currency, to try to inflate away some of the debt, but the ECB is not set up for that the same way that the Federal Reserve is, and they are smart enough to know that will be like spitting into the wind. They are too far along the path to be able to reduce their debt in real terms through general price inflation.

There isn't an easy answer, which is what they have been going for all along. They are now at the point that the attempts at the easy answer have left them on the brink of collapse. It's gonna happen. It's just a matter of how long they will -- or can -- put it off.

 

1. The global recession is assured if there are bank defaults. U.S. growth is precarious at best. It is being predicated on charlatan-like monetary policy and our own "run up the debt" game for as long as we can, which is propping us up to around the zero line.
2. The debt from WW II did not lead to default, but it was an anomaly for a small defined period of time (unlike the global debt that is STILL being added to -- Greece is still deficit spending, for example). Paying down the debt after WII was marked by a generation that paid higher taxes and shrunk government to keep ensuing debt down (as the economy grew making the debt more and more easy to manage). That was the policy for decades, until the 1980s. It was common sense policy, of course, but it is policy that Europe (and the U.S.) rejects, as everyone STILL wants to have their cake and eat it too.
3. No one has made an anti-democracy argument. Fiscal sanity and democracy are not at odds with each other. And if there are many threats TO democracy, one of them would certainly be instability created by fiscal madness. For example, one of the most marked things about the Greek elections was that neo-nazi groups got parliamentary seats for the first time.
4. I'm not sure what you are referring to. Germany is a democracy. Germany hasn't tried to interfere with anyone else's democracy.

 

Yes, Stitch, when you borrow money from someone and promise to pay it back with a future rate of return, you are the one at fault if you don't make good on your promises. It's such a novel idea, I know. If you bought a sofa and arranged for delivery next week, if they didn't deliver it, you would be pissed off -- at the people who ripped you off and any person silly enough to tell you it was your own fault.

Germany hasn't interfered with Greece's democracy. How backward that thought is, too. Greece has put itself into an economic tailspin due to more borrowing than it could afford to pay back, and because they linked their currencies and Germany is afraid of a banking collapse that European defaults are going to cause, Germany has gotten sucked into sitting there with its checkbook open to try to stave off a Euro collapse.

Greece is still sovereign. Greece is still a democracy. Any suggestion otherwise, is nonsense. Greece is not forced to do anything that isn't in Greece's best interests. Default was NOT in Greece's best interests. Which is why Greece went hat in hand.

But you don't get your cake and eat it, too, when you need someone else to be your daddy and bail you out of the debt mess you created. Your expectation should be that they are going to put fiscal restraint conditions on the money.

What is craziest about it all is that the "barbarous austerity" I have read about still has Greece running a massive budget deficit that is 9.1 percent of its GDP. If they had any sense, no one should have to be preaching austerity to them. They'd be telling themselves the jig is up, and they would be slashing and cutting like mad to try to regain control of the country they royally fucked up.