Skip to comments.Greece, Tell Brussels “To Take A Hike” And Let The Troika Bail Out The ECB Instead
Posted on 09/27/2012 7:08:54 PM PDT by expat1000
Awful as Greeces GDP has been, it doesnt do justice to the economic fiasco. Take new vehicle registrations: in August, they plunged 46.7% from prior year. Only 3,886 new vehicles were sold. A collapse of 80% from August 2008 at the cusp of the crisis. For the first eight months of 2012, sales were down 42% from prior year, and 65% from 2008. People have stopped buying new cars. And not just cars.
The situation continues to deteriorate, wrote an acquaintance. My normally honest friends and relatives have all begun to find ways to avoid the ever increasing taxes. The horrible bureaucracy worsens even in this small town of 5,000. It took a friend a month of running from office to office just to get a permit to repair, not construct, but repair an existing balcony. Hopeless.
Ten years ago, he built a house in Southern Greece not far from Spartawith many fine workers, most of them Albanians and some excellent Greeks as well, but it took a long, long time. The house is surrounded by citrus and olive groves. In the distance, mountains and the sea. He writes:
I detest going to Athens because of the gridlock. Buildings built over the last twenty years have little or no dedicated parking. Why? Parking is low or no-revenue space that city planners have reserved for cronies with fakelos (envelopes with cash). Thus cars and scooters clog not only streets but sidewalks.
Though the gridlock might be thinning out. Over the last two years, 68,000 businesses have shut down; another 63,000 might succumb next year, predicted Vassilis Korkidis, president of the National Confederation of Hellenic Commerce (ESEE). It infected the busiest shopping streets in Athens: on Panepistimiou, 34.7% of the shops were shuttered; on Akadimias, 42%!
So a new austerity package must be devised for the Troikathe bailout and austerity gang from the EU, the IMF, and the ECBin return for more money so that Greece could service its debt that is rotting in some drawer at the ECB. As the coalition government was fighting over the provisions, a 24-hour general strike paralyzed parts of Greece on Wednesday. In Athens, 50,000 - 100,000 demonstrators streamed through the streets, shouting enough is enough.
Yet on Thursday, the leaders of the three coalition parties apparently agreed on the outlines of the austerity package, to be implemented in 2013 and 2014. It would include tax measures that might be applied to 2012 incomes. Theyre even trying to go after the well-represented freelance professionals such as engineers, doctors, and architects. But my acquaintance remained cynical:
Theres a popular saying here: I threw him. Loosely it means, I cheated him or I was smarter than him. Its considered a national sport to apply it to the taxman. Well, the taxman comethand he is fighting either 30 years or 2000 years of tradition. And he wont win.
As people refuse to pay taxes, the government is slowing disbursements. State-owned institutions have run out of money, and so have companies and individuals. And they stopped paying their bills. The ensuing circular absurdities push the country deeper into fiasco.
For example, the state-owned Social Insurance Foundation (IKA), itself out of money, hasnt paid Saronikos Gulf Kidney Dialysis Center on Aegina Island in months for the treatment of its patients. So the center hasnt paid its staff in six month, and couldnt even pay its electricity bill. On Wednesday, Public Power Corporation (DEI), fighting its own liquidity crisis, cut power to the center. Instant media uproar. And power was restored. But still, the money hasnt started flowing.
Greece is a victim of the monetary union, explained Czech President Vaclav Klaus. It would be much better for them not to be in the straightjacket. It would be a victory for them.
If the Greeks told the Troika to take a hike, as David Stockman said in his incomparable interview [The Emperor Is Naked], it would solve a host of problems. Greece would return to the drachma and regain control over its printing press. Troika members, and particularly taxpayers in Germany, whore reluctant, very understandably, to throw good money after bad in Greece, would then have to look at the ECB. It owns most of the now worthless Greek debt. The Troika could then bail out the ECB directly rather than via Greece. It would be closer to home, and more honestthough it still wouldnt solve the problem of taxpayers bailing out investors.
And then new money would start flowing because Greece would still be a member of the 27-nation EU and of NATO. Thats the difference between Greece and Argentina. Greece could restructure its government and society, or it could slide back into its old ways of doing things. It would be up to the Greeks, not the Troika.
It should look at Argentina, however. A perfect example of how not to run a post-default economy. And its policies are now taking on desperate and ugly forms. Read.... Not An Effective Capital Control, Import Control, Or Tax Measure But An Effective People Control, by stilettos-on-the-ground economist Bianca Fernet.
And here is Jan Bennink, a Dutch columnist and self-described anti-EU populist, who wonders, Is there anything more frightening than bureaucrats with a dream? Read.... The New Great Dictators Are Gaining Momentum In Europe.
Argentina is how not to. Chile is how to:
Thanks to Pro-Free Market Reforms, Chile Is the Latin Tiger
You can thank Gen. Penuche’s elimination of marxists in his country for Chile’s success. Absent the general they would be just another Marxist hell hole. Hope I spelled his name correctly.
It's the Micawber thing (see Dickens) - and the result - misery!
Greece is in a lose-lose situation. The EU wants them to take more and more austerity measures--there have been several waves of them--to cut spending. And they are increasing taxes to get more revenue. But all in does is dig the hole deeper and prevent any real growth. The people are resisting paying more taxes, which means the Greek deficit continues to grow. And the reduced government spending hurts the economy.
Greece needs to get out of the EU now. The Euro makes them less competitive and reduces their flexibility.
We borrow 42 cents of every federal dollar spent. It is one thing to come up with a plan and another to pass it thru Congress and the WH. It has to be realistic and enjoy public suppport to at least some degree.
Exactly. The plan would be in place until we are in surplus and start paying down the debt. The plan has a simple idea. Freeze the budget at current expenditures then then cut one cent from every dollar spent by the government until in surplus. As to selling it who could not afford to loose 1% of their income? So how could the government whine and snivel about loosing 1%? We could destroy the dims with this argument. Couple this with an incentive program that returns 10% of every dollar saved to the individual that eliminates waste, fraud, or abuse and we will start finding money we never knew existed. Institute pro growth economic policies and the situation will get better quickly. And within the first ten years or so of implementation essentially painlessly. You know how dire the situation is currently. You know the Ryan plan is hopeless. There will not be enough enough continuity of purpose to see the plan to fruition. The debt situation will be corrected either by application of reason and fiscal restraint or by collapse. IMHO the penny plan offers the only way out b/c it is simple, sellable and effective. Otherwise...
That won't work. You can't freeze the entitlements unless you reform the programs. The costs are going to increase faster than inflation and the retirement of millions of baby boomers will double the population of those over 65 in less than 20 years thus driving up costs. And the artificial low interest rates will have to go up to the historical norm of 4% to 5%. That will have a major impact on debt servicing costs, which could reach nearly $1 trillion in a decade.
The operative word in such plans is "simple." They may appeal to the uninformed, but it won't work given the drivers of our debt. Paul Ryan has been quite explicit on this. You must reform the entitlement programs to bend the spending arc. Below is his chart:
As to selling it who could not afford to loose [sic] 1% of their income? So how could the government whine and snivel about loosing [sic] 1%? We could destroy the dims with this argument.
I can think of many. The 54 million SS recipients would not like to see their incomes go down or those on disability. The hospitals and doctors that receive payments from Medicare and Medicaid (already deemed too low) would not like to see their revenues/incomes reduced. DOD would not like to see its already pared down budgets reduced by 1% each year. And how do you account for inflation if you freeze all spending?
You know the Ryan plan is hopeless. There will not be enough enough continuity of purpose to see the plan to fruition. The debt situation will be corrected either by application of reason and fiscal restraint or by collapse. IMHO the penny plan offers the only way out b/c it is simple, sellable and effective. Otherwise...
No, the Ryan plan is far more realistic given the reality this country faces. We need to reform the entitlement programs before we can meaningfully reduce spending in the long term. More than half of our budget is on automatic pilot.
Great powers in decline have faced similar circumstances. First we will see the familiar battle between guns versu butter. Butter usually wins because it has more constituents. DOD will suffer deeper cuts as the politicians defend it by various rationalizations to excuse the decline in American power. Once DOD is raped then the next step is reducing the welfare state. And then we will be Greece with people in the streets demanding that the government live up to its promises. The government will respond with more austerity measures cutting spending and increasing taxes, which will cripple the economy. The death spiral won't be pretty.
If Obama is elected, the country is finished. Obamacare will be fully implemented--it is already the law of the land. And Obama will appoint a few more justices to SCOTUS to eliminate the last impediment to his transformation of the country, i.e., the Constitution.
Given our history we will never toe the line through the multiple administrations Ryan's plan needs to work. It simply won't happen. We are saying the same thing to each other.
You seem to be oblivious to the fact that we have to deal with the political reality. People will not willingly give up benefits they believe they have paid for. The fact is that the average person receives three times more in benefits than they paid into system. Medicare Part A has been running in the red since 2008, i.e., it is taking in less revenue thru the payroll tax than it is paying out. To make up the shortfall, they have been cashing in IOUs in the Medicare (HI) trust fund, which requires more money from the general fund where we borrow 42 cents of every dollar spent.
In January of this year, C. Eugene Steuerle and Stephanie Rennane of the Urban Institute published an update to their earlier work "Social Security and Medicare Taxes and Benefits over a Lifetime." The chart below illustrates their findings and shows the huge discrepancy between lifetime Medicare taxes paid and Medicare benefits received.
This graph shows that the average man and woman (average defined in the study as average income over their working lives and living to the average life expectancy) who start receiving benefits in 2010 get over 3 times more in benefits than they pay in to the system! Of importance, the study accounts for inflation by calculating all past taxes and future payments in 2010 dollars to provide an accurate comparison.
And SS has been running in the red since 2010. And you know how the shortfall is made up? By cashing in the IOUs in the SSTF. Again, the General Fund picks up the tab.
Matters are even worse than this chart shows. In December, Congress passed a Social Security tax reduction. Workers are temporarily paying 2 percentage points less, from 6.2 percent to 4.2 percent, in Social Security payroll taxes this calendar year. Since the government is making up the shortfall out of general revenues, CBOs deficit projections for the trust funds do not include that. But CBOs figures predict that the "payroll tax holiday" will cost the governments general fund $85 billion in this fiscal year and $29 billion in fiscal year 2012 (which starts Oct.1, 2011.) Since every dollar of that will have to be borrowed, the combined effect of the " tax holiday" and the annual deficits will amount to a $130 billion addition to the federal deficit in the current fiscal year, and $59 billion in fiscal 2012.
Social Security has passed a tipping point. For years it generated more revenue than it consumed, holding down the overall federal deficit and allowing Congress to spend more freely for other things. But those days are gone. Rather than lessening the federal deficit, Social Security has at last as long predicted become a drag on the governments overall finances.
You tell me the Paul/Mac plan won't work because we will not reform spending. I reply that Ryan's plan won't work because the nation does not possess the political discipline to disregard the marxists/progressives and follow Ryan's plan to fruition.
Disagree with both your statements. I don't think the Paul/Mac plan can work at all because it doesn't include reform of the entitlement programs. They are the biggest driver of our debt and deficit. Why? It is an actuarial certainty due to our aging population. The costs of these programs must go up.
Re the Ryan plan or some version of it. Both parties will come together to support such a solution because otherwise Medicare goes belly up. Just as Reagan and Tip O'Neill struck a bargain when SS went into red in 1983, the politicians will be forced into some sort of solution. The Dems will demagogue the issue until after the election. They have offered no solution for a reason.
The vast majority of the American public doesn't have a clue as to how bad our fiscal situation is. There is no simple solution like the ridiculous Payl/Mac plan.