Greece

[Chu Gai]

Things are tough in Greece. Why Miss Greece 2012 can't even afford clothes.

 

[Irvrobinson]

This is an interesting article for those interested:

http://www.cato.org/publications/commentary/think-greece-cant-happen-here-youre-wrong

Dumb article. Leaves out the fact that the US controls its own monetary policy and Greece doesn't, and uses one of those "alternative" fiscal scenarios to argue a point. And it added states' liabilities to federal ones to argue a federal point, and the feds don't bailout states (witness Illinois). Typical libertarian rhetoric from the top libertarian think tank. I really want to be libertarian, until I read the stupid stuff like this. The Republican Party platform keeps me from running with that crowd either. Ugh. Since I don't like income redistribution as a policy, being a Democrat is out. A man without a party.

 

[shadyJ]

Irv, you should look into anarcho-syndicalist party, its a great way to separate yourself from the crowd. You might also be interested in the Juche American Party where you can study the ideas of the great, late president Kim Il-sung. Also, if you lean right, the American Fascist Movement might have a place for you! There are lots of terrific alternatives, you just have to keep an open mind! I know the Khmer Rouge hasn't had much popularity lately, but I am betting it can make a comeback, so we should form an American Khmer Rouge wing. We can then be the most interesting people at parties!

 

[Chu Gai]

The Greek Debt Clock

 

[Rickster71]

Dumb article. Leaves out the fact that the US controls its own monetary policy and Greece doesn't, and uses one of those "alternative" fiscal scenarios to argue a point. And it added states' liabilities to federal ones to argue a federal point, and the feds don't bailout states (witness Illinois).

That's mentioned at about the 4th paragraph from the bottom:

"The United States also controls its own currency and monetary policy, while Greece is hostage to the European Central Bank, which must balance its interest against those of other countries in the monetary union, many of which are in far different economic positions.

The danger for the United States is that spending on entitlements will surge in the coming decades, which means that, absent reform, they take over the economy."

The mention of state spending:
That was added in to show a 'bottom line total' of all government spending by Feds, State and Local.
While the Feds don't bailout states, they do give vast amounts to every state.
Also, the "alternative" fiscal scenario was from the Congressional Budget Office, not the author.

 

[Irvrobinson]

That's mentioned at about the 4th paragraph from the bottom:

"The United States also controls its own currency and monetary policy, while Greece is hostage to the European Central Bank, which must balance its interest against those of other countries in the monetary union, many of which are in far different economic positions.

The danger for the United States is that spending on entitlements will surge in the coming decades, which means that, absent reform, they take over the economy."

The mention of state spending:
That was added in to show a 'bottom line total' of all government spending by Feds, State and Local.
While the Feds don't bailout states, they do give vast amounts to every state.
Also, the "alternative" fiscal scenario was from the Congressional Budget Office, not the author.

Even worse. Sorry that I missed the monetary policy point, but to acknowledge it and then still argue that Greece and the US are remotely comparable is stupid. Giving "vast amounts" to states is irrelevant; it only matters whether or not the USG is liable for state and local debt, and it isn't.

I know the alternative scenarios are from the USG, but they are offered mostly as unbelievable scenarios for effect. That's why I quibbled about it.

As for the absent reform, entitlements will take over the economy quip, yeah, yeah, yeah, absent any sort of save-ourselves behavior we'll all suffer and starve. No question about it. Sooner or later we might have to do ugly things to change course, like inflating away debt, means-testing every government benefit, raising taxes even more, cutting back on pork-barrel crap, or some other ugly fix. Or... new technologies may change everything, and make things that are currently expensive cheaper, and make the future brighter and different than we think it will be.

 

[Chu Gai]

From the Freakonomics website.

If Greece and Germany Were a Couple

 

[herbu]

Sooner or later we might have to do ugly things to change course, like... means-testing every government benefit... cutting back on pork-barrel crap, or some other ugly fix.

What is ugly about either of these?
Both seem like reasonable actions to balance a budget.

 

[Irvrobinson]

What is ugly about either of these?
Both seem like reasonable actions to balance a budget.

Reducing pork barrel legislation would require changes to how Congress works. Like eliminating the possibility of adding amendments to proposed bills. That won't happen.

Means testing for Social Security has been proposed over and over again, and even many ardent SS supporters I've talked to agree it's a dubious idea, because it turns SS from a pension system into a welfare system. A majority of American voters still seem to dislike welfare systems, so they tend to come under attack a lot. Not to mention the huge administration cost it would entail. Increasing the SS-taxable income caps is also an idea of questionable merit, because that increases the maximum benefits, and since SS is such a bargain for recipients it becomes more of an income redistribution mechanism to the top 10%. What most people think of as increasing the income cap means increasing the cap without increasing benefits, which is a really big and ugly law change. FDR would roll over in his grave, because if we let Congress rethink the SS legislation most of us will likely be very unhappy with the results.

Means-testing some entitlements is already done, but means-testing the big stuff, like SS, Medicare, veteran-related benefits, etc, would IMO be pretty ugly.

 

[herbu]

Reducing pork barrel legislation would require changes to how Congress works. Like eliminating the possibility of adding amendments to proposed bills. That won't happen.

Means testing for Social Security has been proposed over and over again, and even many ardent SS supporters I've talked to agree it's a dubious idea, because it turns SS from a pension system into a welfare system.

For pork barrel, it seems your problem is with implementation, not with the idea itself. Agreed, most pork barrel is done w/ back room deals, horse trading and amendments. But eliminating the pork is a good idea if we could find a way.

Means testing should not apply to Social Security because SS payments are already largely based on how much you paid, (in most cases). Means testing should be applied to Welfare programs.

Remember, the govt cannot give somebody anything they have not first taken from somebody else. They should not take from you to give me something I'm capable of providing for myself. In the case of SS, they don't take from you to give me, (barring exceptional illness or accident).

So I still don't understand why eliminating pork and means testing welfare is "ugly".

 

[Irvrobinson]

For pork barrel, it seems your problem is with implementation, not with the idea itself. Agreed, most pork barrel is done w/ back room deals, horse trading and amendments. But eliminating the pork is a good idea if we could find a way.

Means testing should not apply to Social Security because SS payments are already largely based on how much you paid, (in most cases). Means testing should be applied to Welfare programs.

Remember, the govt cannot give somebody anything they have not first taken from somebody else. They should not take from you to give me something I'm capable of providing for myself. In the case of SS, they don't take from you to give me, (barring exceptional illness or accident).

So I still don't understand why eliminating pork and means testing welfare is "ugly".

Finding a way to eliminate pork barrel legislation is ugly.

We already means-test welfare. Turning SS into a welfare system is, IMO, ugly, and we currently don't means test benefits. And what a bargain SS is... the current maximum withholding, counting employer and employee portions, is $14,600/yr, and the maximum benefit is currently $3501/month or $42K/year, if you wait until age 70 to collect it. At normal retirement age it's currently $2663/month. That's a very nice return.

 

[lsiberian]

It's still crazy to me that we have an average overall debt of 750k per family in the US.

 

[Hobbit]

It's still crazy to me that we have an average overall debt of 750k per family in the US.

There are many ways to look at this. Sure, it's a BIG number! But, we are a big economy and debt has been accumulated over time and needs to be inflation adjusted to the same dollar.

Here's an interesting article on deficits, debt, presidents, and congress:

http://home.adelphi.edu/sbloch/deficits.html

and here's another interesting take on it:

http://www.forbes.com/sites/danielmitchell/2012/05/24/mirror-mirror-on-the-wall-which-president-is-the-biggest-spender-of-all/

 

[Swerd]

While thinking about debt in $ makes sense for individuals or businesses, it's a classic mistake to do that if you are talking about national economics. Instead of $, it works better if you think about debt in terms of % of GDP (gross domestic product). Of course, GDP changes each year; its never constant.

Greece's debt is now about 170% of its GDP, and rising. In 2009, when austerity measures were first imposed, it was 130%. Most of that change was not due to greater debt (it only increased by about 6% during that time), but was caused when its GDP shrank by about 20%. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.

Greece, as part of the Euro Zone, no longer has its own currency (which it could devalue), and it could not control interest rates from its banks. Lower interest rates could make for easy business loans and might create conditions for a growing GDP. The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, involved a toxic combination of austerity, without the ability to devalue its currency, and without the ability to lower interest rates.

 

[herbu]

While thinking about debt in $ makes sense for individuals or businesses, it's a classic mistake to do that if you are talking about national economics.

I have trouble understanding that. To my simple mind:
> GDP is the value of all products produced by the people in that country.
> That value is the total available, (without borrowing), to support the people and the govt.
> The govt produces nothing. All govt income is taken from the people's income.
> So all debt "paid" by the govt must first be taken from the people.

If the US govt debt is $750k per family, the govt must effectively "take" $750k per family to pay it off, whether it is in devalued currency or actual dollars. Either way, it will be a huge impact and drain on resources available to the people, (just like a big mortgage payment is an impact and drain to $ available in your budget).

What am I missing?

 

[Irvrobinson]

I have trouble understanding that. To my simple mind:
> GDP is the value of all products produced by the people in that country.
> That value is the total available, (without borrowing), to support the people and the govt.
> The govt produces nothing. All govt income is taken from the people's income.
> So all debt "paid" by the govt must first be taken from the people.

If the US govt debt is $750k per family, the govt must effectively "take" $750k per family to pay it off, whether it is in devalued currency or actual dollars. Either way, it will be a huge impact and drain on resources available to the people, (just like a big mortgage payment is an impact and drain to $ available in your budget).

What am I missing?

What you are missing is that the debt never has to be paid off. It is just a number, and the only tangible effect is the interest that must be paid on the debt, which I posted earlier was on the order of $400 billion per year. So, currently, the real "obligation" per family is less than $4000 per year, and because of the wonders of a progressive tax system most of the interest obligation is borne by only 10% of the population, because the top 10% pays most of the taxes.

And, by the way, the federal government doesn't actually pay interest. It's an accounting trick. Federal debt is auctioned at a discount to the face value of the bond. The difference between the price the government receives and the face value of the bond is the effective interest, which isn't realized until the debt must be renewed after some number of years (e.g. 30) by a new debt offering.

 

[TLS Guy]

While thinking about debt in $ makes sense for individuals or businesses, it's a classic mistake to do that if you are talking about national economics. Instead of $, it works better if you think about debt in terms of % of GDP (gross domestic product). Of course, GDP changes each year; its never constant.

Greece's debt is now about 170% of its GDP, and rising. In 2009, when austerity measures were first imposed, it was 130%. Most of that change was not due to greater debt (it only increased by about 6% during that time), but was caused when its GDP shrank by about 20%. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.

Greece, as part of the Euro Zone, no longer has its own currency (which it could devalue), and it could not control interest rates from its banks. Lower interest rates could make for easy business loans and might create conditions for a growing GDP. The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, involved a toxic combination of austerity, without the ability to devalue its currency, and without the ability to lower interest rates.

That is exactly the problem. The whole Eurozone is an economic laggard, especially the south MED and Ireland. As Nigel Farage said this week, they are in the wrong currency. Internal devaluations DO NOT work. Yet the Germans continually want to enforce that doctrine. Greece is being forced to buckle for more of the same failed policy.

There is an increasing drum for Brexit and not just from Britain.

The idea is for Britain to form a new free trade block.

 

[Swerd]

I have trouble understanding that. … What am I missing?

This kind of thinking reflects politics, as presidential candidates are jockeying for the 2016 campaign. It has little to do with understanding national economics.

During the 2000 presidential campaign, one GOP candidate (who became president in 2001) made the opposite argument, compared to today's GOP candidates, about national debt. He said the size of the debt (and cutting it) didn't matter – we could grow out of it. One political party with opposite positions on the same issue. Only time has changed.

But politics in the US and has little, if anything, to do with the problem in Greece and the rest of the EuroZone. Trying to understand it using political arguing positions of another nations political campaign is useless.

 

[rnatalli]

The U.S. debt ratio to GDP today is far better than it was after WWII and that was a time of prosperity for the country. People often like to compare government accounting to personal and they're completely different. The U.S. will not meet the same fate as Greece for many reasons. For example, U.S. citizens don't retire till the age of 62 (early retirement). In Greece, many up until 2010 could retire at 55 (men) and 50 (women) which partly explains the mess they're in. When the EU and IMF asks they raise these ages, Greece calls it austerity. Americans also work much more than their European counterparts, don't take as much time off, get very little in comparison when it comes to maternity leave, etc. In all honesty, we are suckers in this country. Seriously, 90 days for maternity leave? Anyone who has kids knows this is not nearly enough. What will ultimately undo the U.S. is the dumbing down of the population.

As the saying goes, this is Greece's bed and they have to lie in it.

 

[Swerd]

… In Greece, many up until 2010 could retire at 55 (men) and 50 (women) which partly explains the mess they're in. When the EU and IMF asks they raise these ages, Greece calls it austerity.

Don't underestimate how bad this is for Greece. Unemployment is at 25%. I don't know how that compares to Greek unemployment levels before this trouble began, but 25% is very high – about as high as it was in the USA in 1933-35 during the worst of the Great Depression.