Greece Is Once Again a Victim of Democracy

Guest Post by Bill Bonner


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Source: flickr

Dear Diary,

And then democracy comes into being after the poor have conquered their opponents, slaughtering some and banishing some, while to the remainder they give an equal share of freedom and power.

– Socrates, Plato’s The Republic

A snowstorm battered the East Coast of the US today. Politics rocked southern Europe.

Sitting here on the edge of the beach, overlooking the Pacific Ocean, a gentle breeze stirring the trees… birds singing… surfers carrying their boards across the sand…

…it’s hard to imagine the tempest in North America, let alone the swirling clouds over the Parthenon. The radical left-wing Syriza coalition party won in Greece.

Once again, Greece is a victim of democracy.

Austerity? What Austerity?

What this means, exactly, is anybody’s guess. The Wall Street Journal struggled:

Within minutes of the close of the polls, Germany’s powerful central-bank chief, Jens Weidmann, pushed back.

“It is clear that Greece will remain dependent on support and it’s also clear that this aid will be provided only when it is in an aid program,” he said in an interview with television broadcaster ARD.

A message on British Prime Minister David Cameron’s usual Twitter account, meanwhile, warned that the Greek result will “increase economic uncertainty across Europe.”

Increased uncertainty is a good bet.

Meanwhile, the papers reported that Europe’s apparatchiks were working overtime to accommodate the new government so as to keep the system functioning. Also reported was that Greek voters were fed up with “austerity.”

As to the first bit of news we have no doubt. All the powers-that-be don’t want to become the powers-that-used-to-be. They’ll do whatever it takes to hold on to their authority.

It’s the second bit of news that makes us say, “Huh?”

Not that we haven’t heard it before. The Greeks… the Spaniards… the Italians… the Portuguese… the French – they’re all supposed to be tired of “austerity.”

But what austerity?

According to our sources, the Greek government currently spends 59% of GDP – a figure even higher than in France.

Like France, Greece has plenty of civil servants enjoying a cushy life at taxpayer expense. And in the private sector, too, the cronies get their favors, privileges and tax breaks… while as much as half of tax revenue goes uncollected.

Which is probably a good thing. Were it not for the black market, and tax evasion, the Greek economy would probably fall apart.

Elsewhere it is reported that 45% of GDP is collected by the Greek government. The difference between collecting 45% and spending 59% is apparently the source of the problem.

But we’re not sure. All of the numbers we see are a little fishy.

Clever Legerdemain

It was thanks to fishy numbers that Greece was admitted to the EU in the first place.

The European Union insists on a certain standard of financial integrity, or it won’t let you in. (Fearing that it might have to bail you out later.)

Greece managed to get in thanks to the clever legerdemain of Goldman Sachs, which disguised some of the nation’s debts.

Then, with no more fear of getting paid back in Greece’s dodgy drachma, lenders were happy to open their wallets to Greek borrowers.

Government debt increased from 100% of GDP as recently as 2006 to 177% this year.

Spend, spend, spend. Pensions. Health care. Education. And why not guns, too?

Greece is even one of the biggest military spenders (as a percentage of GDP) in NATO.

This is austerity?

Real austerity is what you get when you spend no more than you make… minus what you need to pay to service yesteryear’s excess spending.

Real austerity is what you get when lenders wise up, realize you’ll never pay them back, and don’t lend you anymore money.

Real austerity is what you have when the Germans say nein to any more financial support.

Real austerity is not what the Greeks have. And not what Greek voters voted against.

It’s what they need.

Austerity is what we all need.

Regards,

Bill

P.S. Chris is on his way to join Bill and the rest of the Bonner & Partners Family Office team in Nicaragua ahead of their upcoming meeting there. So there’ll be no regular Market Insight from him today.

Further Reading: US debt now stands at $18,095,113,461,471.46, and worse yet, we’re adding $2 billion to it every day. What does that mean for you, the investor? Bill and co-author Addison Wiggin expose the real story in their bestseller, The New Empire of Debt. Get the whole story and discover how you can protect yourself when you take advantage of our special offerThe New Empire of Debt for just the cost of shipping.

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Mark
Mark

Almost right.

I think real austerity will be huge reductions in government spending and regulations with decit spending paid by direct devaluation of currency instead of issuing debt.

When over 50 % of the people in Greece are employed by the government that’s not going to happen in a Democracy.

The Keynesians have it right but it’s about churning the velocity of money in the private sector that counts. Especially, incentivizing job producers. Oh no, the rich.

Llpoh
Llpoh

I said virtually this same thing to Stuck testerday. Where is the fucking austerity? Spending 60% of gdp on the govt is not austerity. Having a huge, bloated do nothing public service is not austerity. 35% of the population ievading taxes is not austerity, nor is the retirement age of 58. Nor the protected industries. Nor the 15% of gdp budget deficit.

Nothing these ignorant, stupid, corrupt fucks do will get them out of the shit. A country cannot spend 60% of gdp on govt and thrive. Andthen add in all the other corrupt and untenable bullshit, and they are toast. Their only hope is to milk some productive country, like Germany, forever.

Leaving the EU will not help them. I have read some folks say that if they leave the Eu, they will have 6-12 months of pain then it will be all uphill.

Bullshit. These fuckers are totally screwed until they can find a new sugar daddy. Or they cut at least a third from govt spending and collect some fucking taxes. Which they will not do.

Nope, their new plan is to get the Eu to write off the current debt, and loan them some more fucking money, so they can provide gree electricity to the poor Greek people.

Are you fucking shitting me?

It is the bank’s fault my fucking aching ass.

It is the fucking fault of the lazyass fucking Greeks forspending far more than they earn, and for expecting someone else to perpetually foot the bill for their fuckups.

Sure, go ahead and default. Probably for the best.

But until they address their own stupidity they are not going to crawl out of the gutter.

Llpoh
Llpoh

Mark – if they leave the Eu, the govt sector will have to collapse to more reasonable levels. No one will loan them money until they get their shit together, so they will be unable to finance their bu

starfcker
starfcker

Llpoh, you’re right for sure. But the same thing has played out here with municipal budgets. Blow a property bubble, inflate property taxes to the max, reward every dot gov stiff with an executive salary and an ungodly pension promise, and then when the bubble pops, lend that municipality gobs of money to keep those lofty promises. Yeah, I blame the banks

Stucky

The latest news is that Greece’s economy is still shrinking. In fact, the Greek economy just posted its 20th consecutive decline, shrinking 4.6 percent in the three months through June – for a grand total of 20 percent shrinkage since January 2008. The only good news is that economists predicted a shrinkage rate of 5 percent.

For millions of Greeks bearing up under six years of austerity measures, and an economy stuck in recession because of those austerity measures, that the economy shrank slightly less than predicted is nothing to cheer about. The impact of austerity on ordinary Greek citizens is the real tragedy.

Greek unemployment hit a record high of 27.6 percent in May. That’s an increase from an unemployment rate of 23.8 percent in May of last year. The unemployment rate for Greek youth – ages 15 to 24 – is 64.9 percent.

A homelessness crisis has erupted in Greece. Since 2009, the number of Greek homeless has grown from 7,720 to over 20,000.

Nearly a quarter of Greek workers and pensioners are living below the poverty level. The Greek Finance Ministry reported last month that 23 percent of the country’s pensioners and employees lives under the poverty level last year. No doubt a 20 percent cut in minimum wage played a role in that statistic.

Greek families are facing a food crisis, as food banks and soup kitchens strain under austerity. Up to 90% of families in the poorest areas of the country are dependent on charity – food banks and soup kitchens – to keep them this side of hunger. But as the Orthodox church, among other charities, are scale back operations as is their tradition in August, Greek families face the prospect of going hungry.

The Greek health care system now relies on volunteers and donations. Already brought to its knees by $12 billion in austerity-driven cuts to public health spending, Greece’s formerly government-sponsored health insurance – that once provided universal coverage – now depends on volunteer networks of doctors and medical professionals who work for nothing. Not only did austerity cut funding to hospitals and clinics, but austerity measures also demanded that those unemployed for a year or more were ineligible for health benefits. As a result, medical professional who treat patients who would otherwise die or have to pay out of pocket for things like cancer treatment are essentially breaking the law.

Greece’s child labor crisis is getting out of hand. There are about 100,000 children estimated to be working illegally in Greece. The estimate is another sign of the toll taken by Greek austerity measures. Most are children whose parents are unemployed, and often without health insurance. The work they do is undocumented, and more likely to consist of low wages and unsafe conditions. Those numbers are likely fed by the growing number of Greek students dropping out of school – some 70,000 in 2012 – as many likely took to work to help feed their families.

Meanwhile, Greece’s super-rich have maintain lavish lifestyles, and over half of Greek businesses are cheating on their taxes. No wonder a majority of Greeks say the austerity measures are unfair. Clearly, Greece’s austerity/bailout scenario isn’t working. Now that the Greek government is posting a primary surplus, largely on suffering of ordinary Greeks, perhaps it’s time to consider the unthinkable, and default.

Redemption through austerity has exhausted whatever utility it ever had in Greece. A restoration of some modicum of prosperity is required as the foundation for any future reform or recovery in that country. This is in Europe’s collective interest, not just that of Greece.

Iska Waran
Iska Waran

Could be a nice place for an American to retire once their standard of living falls to that of, say, Belize or Paraguay.

starfcker
starfcker

Stucky, look what globalism has done to them. They have the roma to the north, and africa to the south, both who love a generous welfare state. Tough for a country of 11 million to support a million new freeloaders. And the dot gov business of caring for all those parasites is a growth industry everywhere in the west, much to the detriment of thir actual citizens.

starfcker
starfcker

Those kind of immigration numbers would be the equivalent to the US taking in 30 million third worlders. Think that wouldn’t hurt us? Oh wait, that’s exactly what the chamber of commerce and the senate have been trying to do.

Anonymous
Anonymous

Bonner- The European Union insists on a certain standard of financial integrity, or it won’t let you in.

The how does Italy , Ireland , Portugal. Belgium and even France merit entrance? ..truth is the the fascist slime that created the EU wasn’t looking for partners, it was looking for victims.Sure ,all of Europe will suffer because of various governments’ gross mismanagement of revenue , but nevertheless the top 1% who set up the EU make out like sharks in a pool of captured tuna.

flash
flash

Financial integrity,he sez’.

comment image

stanley
stanley

We went to Greece twice in 2007, all over the placefor two months, just before the big fallout.

LOVED THEM!

Greeks are like warm climate Russians. They’re hearty, good natured, salt of the earth people. And if you offer them something for nothing they’ll throw the biggest party you’ve ever seen, drink your ass under the table, and spend every penny enjoying themselves to the hilt and sharing the good fortune with anybody who drops by. Till the good times run dry.

Then when the shit hits the fan, they go back to their old ways. Russians return to the dacha to grow cucumbers and harvest mushrooms, the Greeks go back to their olive farms and fishing boats. They can survive nicely like this or a very long time.

Then when the next traveling salesman who comes around offering them something for nothing — and it’s partay time again! Break out the vodka/ouzo, dance in the streets, live every minute like it’s now.

There is a certain culture that goes along with the eastern orthodox peoples and whatever it is, it contains very much the mindset of live for today. Tomorrow will come one way or another and we’ll deal with it when it gets here.

Truth be told, of all the religions in the world I find the eastern orthodox to be the most appealing. These are some kick ass people, and when pressed they will always go back to their roots and hunker down for as long as it takes for the good times to roll again.

Great stuff. A whole lot more fun way to live than dour puritan Protestantism.

Mark
Mark

Presumably , Greece is running a primary surplus . That means a surplus if interst payments on debt are not included.

Somewhere, as is the case in all of the EU , those Greek liabilities are sitting as assets on someone’s bank sheet.

You see the contagion problem when debt is wiped out, so are assets. Presumably, 80% of Soverign Debt in the EU is on government balance sheets.

This repudiation of liabilities will be a repudiation of assets on the other side of the ledger. This will be deflationary.

Governments will have to make up the difference if they want to continue to spend what they do. Increasing taxes or cutting government spending , in and of itself will only cause money to dry up and cause a further deflationary spiral as people hoard money out of fear. People don’t hoard money and stop spending to wait for prices to drop.

The only way out is to cut massively government spending and taxes simultaneously. And run a huge budget deficit and print money to devalue the currency.

With too many workers vested in the government in Greece this is not going to happen. Quite the opposite, increasing government spending with the money they save on interest payments is the new governments first order of business as payback to voters.

Stucky

stanley

+100 Your assessment of the Greek personality/life style is SPOT ON.

So, the C130 Hercules I’m riding in arrives at Athens Airport and I have a weekend to goof around before reporting for duty. One of the very first things I notice about Greek culture — within the hour, really — is bunches of people everywhere twirling these beads around.

They call it ‘Komboloi” ….. aka ‘worry beads’. Popular throughout the Middle East, but Greece was the first time I saw this phenomena. Its origins date back to a time when monks made strands of beads by tying knots on a string at regular intervals in order to say their prayers to God. In fact, Komboloi means ” “in every knot I say a prayer“.

However …….. in modern times the primary use is not for religious or ceremonial purposes but, rather for fun and relaxation. The Komboloi may be one of the most typical of all symbols showing off the easy-going mentality of Greeks.

Here, let this guy ‘splain it to you.

It’s pretty funny —– ” … we continue to have a nice family with no drugs, no black people. no Chinese, no problem”.

stanley
stanley

@Mark

I’m downvoting that for the huge WTF factor.

^ Did you read my post? They don’t give a shit about that. They just knew that the the EU showed up one day, offered them shitloads of money, and they threw a 5 year party.

Nordic/Germanic protestants do not understand how these people think, and then lay out all of their mistakes just as you have, expecting them to change and fix the problems as you have out lined.

That.is.not.fucking.going.to.happen. Wake the fuck up.

The EU as it is currently constructed is a huge mistake. The Euro a much bigger mistake. And because the thick headed northerners cannot get it through their heads that the southern people, especially the orthodox ones, will NEVER cooperate with the straight and narrow road of subservience to a life philosophy that is not part of their culture.

As it turns out, culture may well trump economics and politics. Think about for a while and then look around to see – how true it actually is.

Angela Merkel for all her effort will NEVER turn Greece into a an obedient southern German province.

DC Sunsets

The ultimate welfare queen is the public sector.

Go to coastal FL and look around at the big boats, the beachfront condo highrises, etc.

WHO do you think owns them?

My guess: 30% successful entrepreneurs.
70% upper-level gov’t employees (including military brass) and the executives of their suppliers.

Your politicians, your bureaucrats, your cop-enforcers, and the armies of people who supply them….those are the GREAT WELFARE QUEENS, always have been, always will be.

Who else is on the Gravy Train?
Doctors, nurses, physical therapists, radiologic techs, medical assistants, and the entire food chain feeding the Medical Industrial Complex.
University employees, from professors to bottle-washers, and the loan industry and admissions industry that supports them.
Obviously, the entire military industrial complex, from the grunts to the engineers at Raytheon.

It’s all WELFARE. None of it actually exists for the “reason” it claims. NONE of it.

Mark
Mark

When the government runs a decit it issues bonds to the public , it is in effect a tax on the private sector. A sneaky tax without explicitly having to raise taxes and tax rates.

It is in effect a way to maintain government largess especially during recessions which will always happen under any economic system.

The government gets the full allotment of taxes in one lump sum with the cost of accurial payments over the life of the bonds. Hopefully, the economy will recover to such an extent that tax revenue will rise enough to pay for everything including the borrowing.

Governments don’t care about the economy just their preservation. However, the accumulated interest payments reach a point where no more issuing bonds to the public is possible.

The government of Greece has decided to in effect cut government spending by not paying bond holders. The bond holders asset no longer exists. Where does the money go? It goes poof out of existence. Now you have too few Euros or Dracma or whatever in the system chasing the same amount of private sector goods.( the goods people actually want)

If something costs $10 and I only have $8 what could a producer expect to get?

This debt repudiation is going to be deflationary no matter how much exports rise in price.

Mark
Mark

If the Greeks don’t go back to the Dracma there will be too few Euros circulating in their economy.

If they do go back to the Dracma. Government workers and pensioners will see a reduction by half of what they earn or receive. Imports will double in price. However, by halving wages their exports including tourism will become attractive.

Stucky

“Those kind of immigration numbers would be the equivalent to the US taking in 30 million third worlders …” ———— starfcker

Indeed.

You wanna know what unchecked immigration looks like? Look no further than Greece.

I know it’s a half hour video … but, check out the first few minutes …. all dem NEEGROWS!! …. yuck. Hilarious how they bitch and complain about the Greek government not giving them enough free shit (I guess Neegrows are the same everywhere) …. when the conditions in their homelands were 10x worse. But, I guess going back to their godforsaken shithole country is out of the question.

DC Sunsets

Stucky,

It is clear that leftist ideologues opened the borders of every country. What they expected, I do not know.

Open borders cannot possibly coincide alongside a welfare state. A 6-year-old could see how this goes.

The “immigrants” complain about low level violence. I suspect that is but the tiniest hint of what’s coming.

The entire world is awash in “IOU’s” that today represent “wealth” because their issuers are trusted to “deliver” what is owed, even though anyone who can add and subtract can see that such belief is purest fantasy.

As the Middle Class, tax-paying, rule-following 80th-99.9th percentile see their wealth collapse alongside the opportunities for their kids, expect to see BLIND RAGE replace the wilting tolerance.

It’s sad to see this happen, because lots of folks who will suffer (and many who die) will be innocent of any evil intent. They were simply responding to a set of perverse incentives put in place by those leftist ideologues. The latter basically robbed you and gunpoint and put YOUR STUFF in the town square and invited all comers to invade and lay claim to it.

I don’t blame those who saw such a golden opportunity for trying to grab it. I do blame the leftists who instituted the game. Sadly, when the pent-up rage explodes, it will be the former who constitute a “target rich environment.”

Europe and the USA are no different in this regard, except that Americans are Very Well Armed.

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