With Greece predominantly in the headlines for its fiscal woes, this insightful report by Robert Kaplan explores the historical roots of Greece’s economic problems as well as its unique strategic advantage owed to its geographic location.
It can be a long road from political extremism and nepotism to a moderate political center, and this past weekend’s elections have shown that it is a road which Greece may not continue down, no matter how much prodding it gets from the increasingly desperate EU.
Greece, Inc. is now for sale. Its new management is preparing a list of demands for its current creditors, the Troika. If those demands are not met, Greece, Inc., which enjoys a prime geographical location, will prod its shareholders to accept an offer from the highest bidder, likely to be either Russia and/or China.
From Olympic sized overspending to the aftermath of the recent world wars, Kaplan does a fine job of presenting Greece’s history as a framework for understanding its current situation.
The report can be seen in its entirety via Stratfor:
When we attended graduate school in Spain, we were the first North American student in our course. It was late 2003 and the Eurozone was full of optimism. This optimism lead some of the professors to use a portion of their class time taunt the US model as failed and the European model as the obvious way forward.
As proof of European supremacy, our Finance professor often made a point of mentioning to us that the yields on the Spanish 10yr bond were almost the equivalent to the yields on the US 10yr bond.
What a difference nine years and 500 basis points make.
Circa 2012, Spain dominates the financial headlines as the latest casualty of the European debt crisis. Apparently Spain now is in need of a bailout. The bailout strategy which will be employed by Spain, Inc. is a hybrid of the prior bailouts accepted by their counterparts, Greece, Inc. and Ireland, Inc.
Greece, Inc. required a bailout because its government was broke. Ireland, Inc. was slightly more ingenious in that it made a good faith effort to backstop its banks, only to find that it was now the entity which required a backstop. Spain, Inc, theoretically learning from both experiences, forced its banks to accept the backstop directly so that the Spanish government could save face and be spared the humiliation of the Irish scenario.
Unfortunately, the markets have seen through the charade and are now putting pressure on all bonds, bank or sovereign, which hail from the Iberian Peninsula.
Spain’s strategy has failed before it was even implemented for lack of collateral and credibility, both of which are in desperately short supply amongst the EU leadership.
How did once proud Europe end up in this situation? They decided to force a debt based currency integration by integrating only the currency part of the equation and leaving the debt and fiscal matters to chance.
As if choosing to use a debt based currency weren’t bad enough, choosing only to implement the currency is like handing the nations foolish enough to engage in such a gamble the revolver in a game of Russian roulette where the revolver is fully loaded.
Now, the revolver is being passed and it is Spain’s turn. Once Spain slumps to the floor, it is Italy’s turn, the Belgium, France, etc. until the European Currency Union, doomed from its outset, breathes its last.
At some point in the process, possibly as Spain pulls the trigger, USA, Inc. will be forced to step in with the “ultimate” backstop, the final hope of the failed, insane “debt is money” currency regime. As the US throws its sovereign credit rating in front of the runaway freight train of Europe’s soveriegns, it will quickly find itself in the very situation that it is trying to save the European Sovereigns from.
For in this debt crisis, the unwritten rule of quality holds. When one adds wine to sewage, one gets sewage. When one adds sewage to wine, one gets sewage. The sovereign vats have long since been polluted. It might make sense to check one’s portfolio and remove as much sewage as possible.
Beyond that, we will present two unsolicited yet practical bits of advice. First, US Bonds will ultimately slide as USA, Inc. wades across the pond to aid Europe. The Euro currency will rally as the run on European banks by the citizens and the wholesale dumping of any bond denominated in the currency begins. Quite simply, demand for the Euro will exceed supply in the short term.
We submit to you that the Spain, Inc. debacle is further evidence of one of The Mint’s central themes, that Anarchy is man’s reality, it is an ultimate given, it simply is, and all understanding of the current political and social structures is greatly facilitated by one’s acceptance of this fact.
In fact, one’s ability to act and react to the unfolding changes in the current political and social structures depends upon accepting and embracing Anarchy as the basis for reality and learning to operate in the Truly Capitalistic system which organically emerges as men learn anew that mutual trust and cooperation are in their rightly understood self interests, and that he who is to lead must truly become the servant of all.
To truly embrace this fact, we must understand the nature of mankind. Man, left to his own devices, is completely devoid of the ability to do the right thing. He doesn’t have it in him. He is lazy, self-serving, and completely evil. He needs God and his fellow man to be able to do anything productive, altruistic, or what may be considered remotely good. A full defense of this statement is a subject for another day (although the evidence is all around us), we mention it here only to underscore the necessity of a framework which presupposes this fact within which mankind can use this weakness to avoid both self and mutual destruction.
The only reliable framework which has emerged out of natural Anarchy which not only addresses the problem of human nature, but also turn man’s weaknesses into strengths is what we call True Capitalism. Ironically, by allowing market forces to work with as little hindrance as possible, mankind can insulate itself from descending into chaos and catastrophe.
In fact, to fight the workings of True Capitalism is, by default, to submit oneself to chaos and misery. Yet every nation on the planet is devoted to some degree in the fight against True capitalism. Why? Because the nation state sells itself as the most perfect expression of man’s good intentions, which we presuppose do not exist. In other words, the dream of the nation state is built on a false pretense that is usually attributed to socialism: That man is inherently good and wants to do good to others.
Given their presuppositions, is it clear that the nation state and a truly capitalistic society are, in fact, the antithesis of one another. Where a nation state regulates by edict, truly capitalistic society regulates by example. Where a nation state is rigid, where truly capitalistic society is pliable. Hence, where truly capitalistic society will bend but not break, the nation state is repeatedly smashed to pieces when faced with change.
For the more a nation state tries to force men to do good, the more mankind’s character flaws will overtake these good intentions until the nation state becomes an expression of mankind’s evil nature.
The truly capitalistic society allows each mans evil nature to be corrected by allowing him to experience the consequences of his inherently poor behavior, paradoxically and naturally improving the behavior and norms of all.
Moving to a less philosophical level, how can we be sure that Anarchy is the basis of man’s current existence? The evidence can be found in that the institutions which supposedly offer the best option to Anarchy, the nation states if the world, are beginning to succumb to the punishments they have built up in their losing fight against natural law.
Greece, Ireland, Portugal, Italy, and now Spain, Inc. are now succumbing to the inevitable. The member of club med which turns from the failure of the Euro currency to go it alone and embrace the much feared “Anarchy,” as it were, paradoxically stands to be richly rewarded by the flocks of tourists who can suddenly afford a European vacation without the Euro.
We conclude with a brief manifesto for your perusal and enjoyment. What does the future hold?
Out of Anarchy, a Truly Capitalistic System will ORGANICALLY emerge, and with it a new dawn for humanity, built on mutual interest and almost endless capital formation which will engender a spontaneous and dynamic social order, a society without borders that would enjoy freedom and prosperity that we cannot even imagine under current conditions.
Patrick Young, an investment advisor, gives a sobering account of the current state of the Greek economy and the future of the EU. In short, Greece will default within 8 weeks and it will be chaotic.
We are not sure what is more shocking, Mr Young’s assessment or the footage of the riots in Athens running in the background. About 5 minutes and well worth a view:
The fruits of Central Planning, via the socialized monetary and credit system which is currently managed by the World’s Central Banks, are beginning to ripen, and the whole world is witnessing the latest social harvest of this doomed philosophy in Greece.
“Tensions between Athens and other European capitals have hit new highs this week. While the European Union is officially still warning of the far-reaching dangers of a disorderly default by Greece, some politicians have in recent weeks downplayed the effects of such an event.
… While the Parliament in Athens faced down violent protests over the weekend to approve a far-reaching new austerity package, the cabinet of ministers remained locked in talks Tuesday evening over how to save an extra euro325 million demanded last week by the eurozone.”
It seems that the Greeks are having trouble accepting the well intended budgetary advice which their credit “counselors” (read overlords) in the north are so generously imposing upon them. Now that the Greeks appear to be balking at their inevitable slide towards a vassal state, the folks in the north are getting restless as their banking syndicates have quite a bit riding on the events unfolding on the shores of the Aegean Sea.
On the other side of the Atlantic, it appears that the similarly indebted US government will escape the fate of externally imposed austerity which Greece is now suffering. The Federal Reserve has made it clear that it will print money to monetize the deficits of the US Government for as long as necessary, and the Republican budget hawks have had their wings clipped with their latest capitulation on the extension of the Payroll tax holiday.
These two events, taken together, indicate that the US intends to go for broke and fully embrace the Keynesian dream of printing its way to full employment.
The obvious solution, then, would be for the Greeks to reject the Euro in favor of not the Drachma, but the infinitely flexible US Dollar.
Unfortunately for the US, and the Greeks, should they choose to join them, the Keynesian dream is quickly becoming a nightmare as the folly of central economic planning begins to express itself in the form of runaway inflation. The policy tools used in the past have succeeded only in stripping the earth and its people of the ability to make productive economic decisions. What now awaits the world is the inevitable adjustment which is likely to lead to a lower standard of living.
At this prospect, Athns burned on Sunday night, and it appears that the last bastions of austerity in the US capital threw in the towel and, for the moment, Washington is not burning.
The tragedy unfolding in Europe is a painful reminder that the power to mint money was never meant to be given, by edict, to an elect few.
Will the rest of the world learn this valuable lesson before it is too late?
Nigel Farage, again telling it like it is. Below he calls out the members of the EU for systematically destroying Greece by forcing them to stay in the Euro. With a puppet government and ceaseless demands for austerity, Greece’s economy has contracted for 5 straight years and is currently falling off a cliff.
It is refreshing to hear Farage call out the EU, and it is painfully obvious that his pleas fall on deaf ears as his Eurocrat colleagues simply mill about. The EU Commission would be a funny joke if their idiocy didn’t cause such widespread suffering. From zerohedge.com:
We’ve had our first taste of autumn here in the Pacific Northwest. We found ourselves strangely welcoming the overcast sky and constant humidity. It is the type of weather that is pleasant for a month or two. Unfortunately, we get about 8 months of it here which requires some sort of escape to the sun, either Hawaii or California, for it to remain tolerable.
But still, the first taste was sweet and provided a warm feeling that all was well with the world, despite constant reports to the contrary. Fortunately for us, the sun looks as though it will return this week.
On the whitewashed shores of Greece, where the sun seems to perpetually shine, there is now intense pressure from which there seems to be no escape. The Prime Minister was called back from a trip to the US after receiving an emergency call from the Finance Minister as he stopped over in London. The poor chap had to be on a conference call with creditors and the troika and didn’t want to take the lashing alone.
As if to give the world a taste of things to come, the Greek Government passed an emergency property tax which is to be collected via the citizens’ electricity bill to help ensure compliance. Apparently the folks at the electric company are not happy about adding tax collection to their duties and are pushing back on the order.
The Greeks never have been good at collecting taxes, either that or their citizens are especially adept at avoiding paying them. Either way, the combination makes for low tax revenues which makes servicing public debt, well, difficult.
We offer a suggestion to the Greeks, privatize the electric company and then enact an enormous tax on consumption. At least then the riots would be staged at the electric company and not at parliament.
Meanwhile, before departing for New York in perhaps the least understood yet most important peace-keeping mission the US will ever embark upon, President Obama gave yet another clinic on teleprompter reading during his speech on, what else, government finances. His proposal was to save $1.5 Trillion over the next 10 years by in large part by ending the wars in Iraq and Afghanistan.
We do not have any statistics, but we are willing to bet that this is not the first time that ending these wars has been proposed as a deficit reduction measure. What is truly astonishing to almost every thinking person is that these two military adventures have continued for so long and have become such a drain on the public treasury that ending them now would save $1 Trillion.
Less war, more money, what a novel idea! It is as straightforward as it is unlikely to happen.
We sense that both this speech and bath time for Greek creditors will be interrupted by the Palestinian bid for statehood at the UN this week. The Middle East has not seen a moment like this since Israel vied for statehood in 1949. Let us pray that this moment passes in a peaceful manner.