The World Financial System: TITANIC!

Greece1If  a bullet kills you after a trigger is pulled, who has killed you? The trigger, the gun or he who held it? The ongoing and irreversible Greek financial collapse we are watching is a trigger; the E.U. is the gun and the European voters are those who hold it. But the world financial system, not only the E.U. is coming down. Voters nearly everywhere have bought the self-same scam.

International banks and the politicians who regulate (and profit from) them have knit the financial world so intimately together with such complexity that it cannot be disentangled; what happens to one part, affects all. That fact is irresponsible, but never mind. It remains a fact effected by our choice of politicians and their bureaucrats.

Greek politicians lacked the money to provide what they had promised their voters so they borrowed it. Now, they wish it to become a gift so that they need not repay it. German and ECB creditors are refusing such a loss; they insist upon repayment. Greek voters, encouraged by their politicians, say no. Simple!

But if simple, not easy. French troublemaking economist Thomas Picketty points out that Germany hasn’t repaid its debt. True. He fails to note that the Germans stopped deficit spending two years back. Nor are they asking to for a gift.And nobody wants to mention that, should the Greeks be forgiven debt, nearly all the other E.U. countries will demand the same treatment. The resulting losses would sink the European Union. And may do so.

Nobel Laureate economist Robert Samuelson notices that world-wide debt, not only the E.U, has reached the proportions of a trap.He might have made a larger fuss back when the debt was being incurred …Now, it’s too late. And where were the watch dogs when all these clearly bad credit risks were advanced such stupendous loans? Aren’t bankers and credit agencies supposed to protect us from such gross incompetence? Yeah …

The United States taxpayers cannot repay the debt their government has incurred, either. The linked  Chart illustrates the reckless growth of U.S. debt. And the U.S. has its very own Greece at the moment, in Puerto Rico, which cannot repay the amounts it has borrowed any better than Greece. (Several U.S. states are no better off.)

Argentina is in default and Brazil is only a little better. China, equally unadvertised, faces the unsustainable collision that brought down the Soviets: the economic impossibility of having an open, competitive and productive market in the presence of imposed government planning. Politicians always sell freedom and provide control, an inherently incompatible mix.

The ECB said it will advance no more cash to Greece after the Greeks voted to refuse the E.U. terms yesterday. We have believed that there would be a last minute — no, last second — accommodation, buying more time or as the politicians put it these days, kicking the can down the road. Nervously, we stick to that belief, mainly because the “weapons of financial mass destruction,” the derivatives, have so intertwined debt that even a relatively small Greek collapse can bring down the whole with it.

Greek banks are for now, closed til Thursday, with 60 Euros per day limits on ATM withdrawals. Capital is tied up tight. And it is generally supposed that the government will grab a piece of all deposit accounts, as Cyprus did. We will see.

If no accommodation is reached, the Greeks will be thrown upon their own, bankrupt resources indefinitely; the government will likely fall and no replacement will do better for a long time. The E.U. will be left with a string of larger members in no better shape. We suppose that seems worse than figuring out a Greek financial fig leaf in hopes of more time. Hopefully, time enough for the politicians to be replaced by opponents …

But timing is guesswork at best and we’re not placing bets on it anymore.

About Jack Curtis

Suspicious of government, doubtful of economics, fond of figure skating (but the off-ice part, not so much) Couple of degrees in government, a few medals in figure skating; just reading and suspicion for economics ...
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