Greece Redefines the Meaning of "Debt Slaves"

[DaveSimmons]

Greeks, as a people, demanded that their government run up a huge credit card bill to supply them with services they hadn't earned and couldn't sustainably afford.

It is a failure of the people for electing weak leaders then demanding a free lunch from them.

Now they're burning down buildings and rioting until the handouts resume.

 

[Anarchist420]

The creditors have no right to be paid back since it wasn't a purely voluntary contract. It's not their fault, but I wouldn't pay them back unless the Greeks have a lot of national resources to sell.

 

[momeNt]

The creditors have no right to be paid back since it wasn't a purely voluntary contract. It's not their fault, but I wouldn't pay them back unless the Greeks have a lot of national resources to sell.

It looks like even if they don't default they won't have access to debt markets until 2020 anyways.

http://www.zerohedge.com/news/scand...ond-bailout-it-funds-insolvent-european-banks

Their 2nd bailout only actually funds maturity and interest payments anyways, so it really is just a bank bailout to begin with.

 

[werepossum]

The Greeks are getting a damn good deal. They borrowed money and spent money for more than a decade an now only have to pay about 30 cents on the dollar back. Imagine if you could take out a credit card and go on a 10 year shopping spree and only pay 30 cents back but got to keep all the stuff you bought.

This, although I disagree with retroactive pay cuts, just like retroactive tax increases. You don't change the rules for what's already done. Other than that, I totally agree that the Greeks are getting a sweetheart deal.

 

[Anarchist420]

It looks like even if they don't default they won't have access to debt markets until 2020 anyways.

http://www.zerohedge.com/news/scand...ond-bailout-it-funds-insolvent-european-banks

Their 2nd bailout only actually funds maturity and interest payments anyways, so it really is just a bank bailout to begin with.

Thanks for the link🙂 i didn't know the banks were being rewarded that much for failure.

Why is it only the Greeks who are bailing out the banks though?

 

[momeNt]

Thanks for the link🙂 i didn't know the banks were being rewarded that much for failure.

Why is it only the Greeks who are bailing out the banks though?

I think the line of thinking is that if Greece were to default, the banks would need a bailout to cover the losses on the debt they issued. If Greece stays in the Euro and their "bailout" only funds debt servicing, then nobody associates this bailout with banks, thus keeping confidence in bubble banking and ponzinomics.

Apparently default risk is quickly forgotten once you begin issuing sovereign debt, so as opposed to teaching that lesson to the banks, the banks teach it to the Greek citizens.

 

[Thump553]

This, although I disagree with retroactive pay cuts, just like retroactive tax increases. You don't change the rules for what's already done. Other than that, I totally agree that the Greeks are getting a sweetheart deal.

Take a look at what some of the austerity measures are-30-40% immediate salary cuts (for those who aren't laid off-there are a ton of layoffs as well) and roughly the same cuts in their version of Social Security.

BTW I was watching MSNBC's international show yesterday morning and they compared various bond interest rates across Europe. Germany's was a bit over one percent, Greece was somewhere between 33 and 35 percent. Looks to me like the market is still factoring in a future default.

 

[Fern]

They should just default.
-snip-

They WILL default. There is no way around it. The only question is if it's an orderly default or not. They simply cannot fully pay back their creditors at 100%. They are trying to arrange a payout at less than 50%. We'll see if the creditors accept that loss.

Fern

 

[PokerGuy]

They should just default. No way their economy recovers with this austerity. So they are going to go through years of pain from austerity and will still have to go through years of pain from default. Might as well make it quick.

You think they don't have to have "austerity" if they just default? Hahaha, that's funny. When they walk away from their debts, they can stop worrying about paying them back, but it also means nobody will lend them any more money (at least for a few years). That means they have to spend no more than they bring in, which means even more "austerity" than what they are facing now, with even deeper cuts.

I'm not saying that walking away might not have been a better option. I don't know enough about their specific situation, just saying walking away likely would have meant even more severe 'austerity', not less.

I would have just given the middle finger to the EU and went on my own way. This is some nonsense and I thought our debt-servitude was bad.

See the first part of my post above. Just walking away could be a good answer (just like walking away from a mortgage when you're way upside down could be the right financial move), but there would have been severe repercussions to that as well, otherwise they would have done that. Those in government would certainly have taken the easier less painful path if it was available, especially considering how unpopular this is with their constituents.

 

[Fern]

A few more things:

1.Credit Default Swaps. I wouldn't be surprised if they popped back into the picture again. I don't think CDS will pay in the event of an orderly default. Hence I expect to see pressure from those invested in CDS for no agreement. In the event of an orderly default will banks be claimoring for a bailout from their investment in CDS?

2. Austerity Measures. Personally, I think the numbers are unacceptable. I don't think it matters if the Greek leaders agree to greater Europe's demands, I don't believe the people themselves will. I'm already reading that the two large majority parties, who approve of an agreement, are losing ground in the polls to a couple of smaller parties who oppose an agreement.

3. The austerity measure will so choke demand, and by extension their economy, I believe an agreement is unsustainable. I.e., the downward cycle is going to pick up more speed.

Fern

 

[Mxylplyx]

Greece used its Euro membership to get itself in a lot of trouble. That being said, the ability to print their own currency would have helped them keep interest rates on their debt down. It would have certainly helped, but that's why the Euro is acting as a good object lesson to the world on the failure of the gold standard.

Spot on.

 

[Ns1]

The Greeks are getting a damn good deal. They borrowed money and spent money for more than a decade an now only have to pay about 30 cents on the dollar back. Imagine if you could take out a credit card and go on a 10 year shopping spree and only pay 30 cents back but got to keep all the stuff you bought.

this

 

[Linflas]

The true Debt Slaves are the German workers whose average retirement age is 67 at 46% of their highest pay, not the Greeks retiring at 57 at 94% of their highest wage. They are the ones that will bear the brunt of the profligate spending of the PIIGS.

 

[ichy]

The true Debt Slaves are the German workers whose average retirement age is 67 at 46% of their highest pay, not the Greeks retiring at 57 at 94% of their highest wage. They are the ones that will bear the brunt of the profligate spending of the PIIGS.

This. I wish that the lazy Greeks had just been kicked out of the Euro instead.

 

[davmat787]

I find it curious as to how the term 'austerity' is being used in this thread. Some see austerity, as it applies to Greece, as a result of the situation, while others are seeing it as more of a choice. If your country is in as bad of financial shape as Greece, isn't austerity, by both definition and default, going to happen regardless?

To put it another way and for those who see austerity as a choice for Greece: How would Greece get out of this situation without some level of austerity?

disclaimer: I don't follow international economics at all, just found this interesting. Enlighten me please. 😛

 

[momeNt]

Spot on.

That was as spot on as using Weimar or Zimbabwe as a lesson on why fiat currencies fail...

 

[Fern]

I find it curious as to how the term 'austerity' is being used in this thread. Some see austerity, as it applies to Greece, as a result of the situation, while others are seeing it as more of a choice. If your country is in as bad of financial shape as Greece, isn't austerity, by both definition and default, going to happen regardless?

To put it another way and for those who see austerity as a choice for Greece: How would Greece get out of this situation without some level of austerity?

disclaimer: I don't follow international economics at all, just found this interesting. Enlighten me please. 😛

IMO, it's the inevitable result of their situation. There's no way around it. So, yes, one way or another it's going to happen.

However, the 'choice' aspect is how they manage their way into austerity. Is it orderly or chaotic? I would guess that broadly the differences are: (1) How fast they hit bottom, (2) how far down the bottom goes, (3) who gets affected (or affected the worst), and (4) the impact on their ability to get 'back up' sooner rather than later.

Their economy is in the dumper (falling revenue for govt programs etc.) and their borrowing capacity, limited as it is, is eroding. IMO, they are so deeply wedged in between the 'rock' and hard place' there is no escape.

I've never seen it mentioned but I'm curious to see if their young people leave Greece, at least for the time being to get jobs. I suppose the older retirees could too, particularly to avoid unrest. No need to speculate about unrest/rioting because it's already happening. But I'm just curious to see how they as a nation and people react to this difficult situation.

Fern

 

[BoberFett]

That was as spot on as using Weimar or Zimbabwe as a lesson on why fiat currencies fail...

Precisely. It's funny that people think that somehow being able to print money means you can carelessly throw debt around, as if creditors don't take that into account.

"Bu bu bu but the gold standard doesn't work!"

Well neither do fiat currencies when the economies they're supporting are broken.

No monetary system works when the fundamentals aren't there, gold, fiat or otherwise.

 

[werepossum]

Take a look at what some of the austerity measures are-30-40% immediate salary cuts (for those who aren't laid off-there are a ton of layoffs as well) and roughly the same cuts in their version of Social Security.

BTW I was watching MSNBC's international show yesterday morning and they compared various bond interest rates across Europe. Germany's was a bit over one percent, Greece was somewhere between 33 and 35 percent. Looks to me like the market is still factoring in a future default.

Still a sweetheart deal because of the below.

The true Debt Slaves are the German workers whose average retirement age is 67 at 46% of their highest pay, not the Greeks retiring at 57 at 94% of their highest wage. They are the ones that will bear the brunt of the profligate spending of the PIIGS.

This is like Californians complaining that their electricity costs tripled when they were paying 25% of the national average, far below production cost. The Greeks have borrowed and spent far beyond their means, and they are being allowed to keep two-thirds of what they spent without paying it back, ever. Meanwhile the Europeans whose taxes pay for yet another bailout of Greece have no such luxury. Virtually everyone knows there will be another bailout or a default, and Greece will continue to offer better social benefits in spite of having a weaker economy and therefore being able to afford fewer social benefits. Only when PIIGS are held truly accountable and/or kicked out of the EU will this change, as most people regardless of nation are fine with other people supporting them.

 

[bfdd]

I think the line of thinking is that if Greece were to default, the banks would need a bailout to cover the losses on the debt they issued. If Greece stays in the Euro and their "bailout" only funds debt servicing, then nobody associates this bailout with banks, thus keeping confidence in bubble banking and ponzinomics.

Apparently default risk is quickly forgotten once you begin issuing sovereign debt, so as opposed to teaching that lesson to the banks, the banks teach it to the Greek citizens.

this! lol @ people being ok with this. the money isn't going to be in Greek hands for long. It's going to service the banks that would have crashed if Greece had defaulted. Same bullshit we passed here to help the mortgage crisis. HURRY BAIL OUT THE BANKS SO THEY CAN CONTINUE TO SEND COLLECTION NOTICES TO PEOPLE!

 

[Fenixgoon]

It's the failure of banking and debt in our current economic system.

Steve Keen has a great blog article on his website, explaining how and why banks are cavalier with credit. When banks are positioned by governments to be the only entity that is allowed to sell more than what they have and operate from insolvency, you have problems. It's why gold standards have failed, it is why fiat currencies have failed.

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

One of the main reasons why I follow the Austrian school is that there is strong support for ending fractional reserve banking and the belief that lending should only come from savings, not artificial money creation. Fractional reserve banking has been around for a long time, and it's evident that no matter the currency being used, the market is not able to respond adequately to an artificial change in the money supply.

as an engineer, the concept of fractional reserve and creation of money never ever made sense to me. you didn't create money by making a loan, you just changed how the total amount of available currency was distributed and you made the (usually valid) assumption that you will never need more than a certain amount of money available to make transactions on any given day.

energy, momentum, etc. are conserved. why isn't money?

 

[CycloWizard]

I'm blaming it on the nature of banking allowing creditors to become so powerful that they've convinced the world that default ends in global catastrophe. So instead they make Greeks pay to work?

I agree that creditors are idiots for lending to them after it became clear that they had no ability to pay their existing debts, but that's a risk they were willing to take. They essentially called the bluff of the EU because they knew the EU as a whole couldn't let one nation fail. Greece knew this as well which is why they keep spending money like they have it. It's just a big game of hot potato. But the lenders aren't the ones making the Greeks pay to work - the EU is. The lenders have no authority to do that. The whole situation is beyond absurd. None of us is as dumb as all of us, and plenty of stupid people put their heads together to produce this fine piece of work.

 

[Fern]

I agree that creditors are idiots for lending to them after it became clear that they had no ability to pay their existing debts, but that's a risk they were willing to take. They essentially called the bluff of the EU because they knew the EU as a whole couldn't let one nation fail. Greece knew this as well which is why they keep spending money like they have it. It's just a big game of hot potato. But the lenders aren't the ones making the Greeks pay to work - the EU is. The lenders have no authority to do that. The whole situation is beyond absurd. None of us is as dumb as all of us, and plenty of stupid people put their heads together to produce this fine piece of work.

I suggest you consider credit default swaps here. These investors may well be hoping that Greece defaults. Seems to me when you inject CDS's into the picture, it become unsure if the investors are taking the risk Greece won't pay, or if its the risk they will pay.

As I said previously, I expect them to factor into this situation as they did in our financial crisis.

Fern

 

[Doppel]

http://www.zerohedge.com/news/its-official-greece-unveils-negative-salary

www.thepressproject.gr/listen.php?id=13457&date=2012-02-22



All hail the mighty creditors.

To those that will come in this thread to and attempt to use this as a reason why central banks actually SHOULD be allowed to print money and have complete control over their currency, I would say that Greece's situation probably would have led to drastic inflation or hyperinflation so the pain to the Greek citizens would be the same. Default is the only reasonable option, but creditors must be satisfied as they hold the world on their backs...

This sounded too harsh even for completely screwed Greece, so I looked it up and I could find no corroborating articles to this effect. Are there any major papers indicating some people will actually have to pay money back?

Greece should probably do what Iceland did, they probably will anyway. They are absolutely on the path to ruinow and the can kicking has gotten hilariously desperate. They will be out of the euro, it is inevitable.

 

[Fern]

This sounded too harsh even for completely screwed Greece, so I looked it up and I could find no corroborating articles to this effect. Are there any major papers indicating some people will actually have to pay money back?
-snip-

Good point. But since it was only "set to be finalized today" (meaning today-Wednesday) it may be premature to expect decent news coverage yet.

Even if it is agreed upon now, I still think any agreement requires other steps before it's 'official'.

Fern