All eyes on Europe as Greece teethers on the brink of default. Unrest in the streets at the latest austerity measures and people start to ask, how has it gotten so wrong? Why is Germany responsible for Greece? And if Greece goes why are people so worried?
In my opinion all the current measures the G20 leaders are discussing are playing hackey sack with the issue until they can duck out of office and leave the actual complete shattering to their replacements. That or maybe they are actually trying to get their countries out of the mess... which they should have been watching out for in the first place. But lets not place the blame on who over-leveraged and speculated and exposed who to who.
Essentially what has been created have been financial bubbles where money is pumped in and prices soar to artificially induced rates. This is where some of the food crisis in Africa originate. The prices of food are speculated on the commodities market. Basic foodstuffs suddenly are not priced simply according to actual price and demand, financial speculation plays around with the prices. Leaving such basics out of reach of the poor. There is food available. Just that few can afford it at market price.
Conclusion? Europe is going to be hit hard financially with repercussions for the rest of the world. The question at the moment is how bad is bad when it hits. I wonder how much China can really help. As mentioned earlier by First Striker. Rule of Law is a key component of governance anywhere. And China has been lacking for quite some time in even some of the more basic fundamentals of rule of law. Simply that even those at lower levels of authority are accountable. The Chinese Dragon is indeed rising, but it better see a doctor soon for its internal problems.
I must apologize for the slightly disjointed nature of this post, but I thought it would be useful for people to know what some of the resources I have been using to read up on the current economic crisis were. Some of these were sent to me, others I caught on TV. I've been really wanting to write about weapons instead to be honest. But welp, can't ignore the drowning economy in the room can we? Especially since the capacity to wage warfare is explicitly linked in a country's ability to generate the revenue required to fund it. The origins of bonds in fact.
And now the links.
Very helpful overview
11 Investing Terms one would be wise to know. before descending into the shark pit.
Article discussing the issues SMEs have in China
Documentaries I highly recommend:
The Ascent of Money
The Men Who Crashed The World (Al Jazeera)
Overdose: The Next Financial Crisis
The whole Euro Crisis is stupid. There is no crisis. The situation could be solved( depending on how you define solved ) by the E.C.B printing a heap of Euros in exchange for the Debts of the PIGS countries. That is the true extent of the problem.
ReplyDeleteThe some goes with the U.S debt ceiling non-issue. A country that creates its own money will always be able to pay back debt denominated in that said currency.
The purpose of the Rule of Law is to maintain the value of currency. Someone once said, 'Give me control of a nation's money, and I care not for who makes its laws'.
But the ECB cannot or will not print more Euros. So how to solve that problem? What is Germany's role in this? They seem to be this last bastion of financial solvency. So the appeals go to them, but news is coming out the Greece is telling Germany they can shove their austerity measures (3rd party source for added unverfiable fun).
ReplyDeleteAlso, the USA can't create more money because... devaluation or is it because Congress has now become a monkey house? Dead locked while the country weakens. Outstanding.
Hah... money is power... and all pithy sayings are old pithy sayings. But yes, money is power because of its liquidity. Was just thinking of Gaddaffi and I was asked why his forces were so badly wiped out from the air if he had so much gold reserve to potentially spend on weapons and troops. And the thing is, money can only buy you things if the seller is willing. And for military hardware no country seems willing to have sold him the actual anti-air missile technology required against modern jets. Funny that...
Also the Rule of Law isn't just to maintain the currency value. it is to maintain the state and the government. Which might induce better currency value. I reckon.
But the ECB cannot or will not print more Euros. So how to solve that problem?
ReplyDeleteThe constraint is self-induced. The way the ECB and any other central bank manages monetary policy is by primarily buying & selling Government Debt. Q.E 2 the FED bought Government Debt outright. This is what the E.C.B could also do, thereby exchanging the Greek debt in return for euros. People need to get their heads around this and remove this damaging constraint.
Greece should tell the rest of Europe to f-off, and leave the Euro. If the Euro maintains its current design, then eventually it will fail. This is because unlike Australia or the U.S that issue their own currency, Greece and other Euro nations must obtain more Euros from other countries. Such a situation is stupid, because in order to avoid a deflation Greece must have a constant influx of Euros to support economic growth, where do those Euros come from? Someone has to create them first. If Greece left the Euro, they could go back to using their own currency and increase Aggregate Demand to fix their massive unemployment and capacity under-utilization.
Also, the USA can't create more money because... devaluation or is it because Congress has now become a monkey house?
People have this misunderstanding that all money printing is devaluing for an economy, this is only true if an economy is being fully utilized. But if it is not, then printing money & spending it on the public good will always result in better outcomes for all. Fresh money is used to employ people or unused resources, to produce goods and services. Fresh money is inflationary & capacity utilization is deflationary, therefore net effect is zero, though I would argue below zero.
So now that is out of the way, America had a debt-ceiling non-crisis but they had another more important issue of growing unemployment and capacity under-utilization. Therefore it is a no brainer, increase the debt ceiling, create more money, employ more people and utilize resources, create value for all and increase value of U.S.D. Like I said that is the extent of the problem. As long as people think that a country that creates its own money can run out of said money, then they won't question it.
BTW, if Sovereign debt was such a huge issue why hasn't Japan collapsed? Japan 197.5% of GDP, Greece 116.0 of GDP, U.S 62.3% of GDP and U.K 76.1% of GDP.
ReplyDeleteWhy wasn't there a U.K 'debt crisis' ???
Ohh and those Credit Ratings come from the same people that Rated the Toxic Debt AAA, the Toxic Debt that caused the G.F.C.
ReplyDeleteWell... but the EU can't leave can they. They've written themselves into a corner, and well Rule of Law. They're stuck. So they can't implement the solutions it seems, that would get them out easier than the current course.
ReplyDeleteDo they actually have a plan, or is the next G20 going to a mad flop? Its like any sort of group work, except bring politics into play and now the idea that everyone will work something out seems remote. Lets hope though eh?