Greece

[herbu]

What you are missing is that the debt never has to be paid off.

Yes, I don't understand that. And I'm not interested, here, in the politics of this.

I know the only thing we HAVE to pay is the interest. But isn't this still a problem? Couldn't we use $4k/person in this country? And don't the countries that hold our debts influence other decisions we make?

I'll buy that our debt is not the end of the world, but still don't understand how we just shrug it off and can be content to let it continue growing.

 

[Chu Gai]

My sister-in-law is like Greece. My wife came from a family with four sisters, no boys. We got married in the 70's and after a couple of years decided we wanted a new living room set. I wanted to sell the old one and get some money for it. My wife told me that her sister was looking to replace hers which was pretty beat. I said fine, lowered the price to $250 and her sister agreed to the price. I even brought it over. it was in very good condition. "$250, right Sandra?" Well, Sandra had two kids at the time and was living with someone else. Rather, he was living with her. She said she couldn't pay it all now, but monthly. OK, fine. $50 a month.

We would run into her regularly since sh was just down the block from my wife's parents house. I didn't press the issue but a couple of months later when I saw her I asked about the money. Next time I see you she said. This happened a couple of more times and I brought it up to my wife. She said look we dont need the money and things are tough for Sandra. You're embarrassing her by mentioning it. Just let it go. So I did but not until I said if she didn't get high so much she'd have the money.that pissed my wife off. So, it was written off.

Couple of years later, for Sandra's oldest daughter, my wife wanted to do something special for a gift. So she signed her up for dance lessons, paying for 6 months, and even buying her the clothes and shoes she needed. Six months comes and goes and then Sandra asks my wife why she stopped paying? Wife says that was for six months and now you can take over the payments. Sandra said she couldn't afford it and that my wife was being hurtful to her niece. Entitlement, right! My wife refused, saying she is not made of money. There was a period of silence between the two but it passed. Neither of us ever lent her any money again regardless of whatever hardship or nerd there was or feigned to be.

 

[Irvrobinson]

Yes, I don't understand that. And I'm not interested, here, in the politics of this.

I know the only thing we HAVE to pay is the interest. But isn't this still a problem? Couldn't we use $4k/person in this country? And don't the countries that hold our debts influence other decisions we make?

I'll buy that our debt is not the end of the world, but still don't understand how we just shrug it off and can be content to let it continue growing.

First of all, $400B is not $4K per person. The US has about 320M people, so $400B/320M = $1250/person. And the other point you're missing is that we're not really spending $400B. The interest does not come out of tax revenue dollars. Interest on the federal debt just increases the rate at which the debt grows. Remember my explanation of treasury bill auctions and how it works? So if we eliminated all of the of the federal debt and had no interest payments on the books we would not have any additional tax revenue to spend, unless we issued debt. Get it?

As an aside, in the 1990s when the US government was running surpluses for a while, economists actually worried about there being too little federal debt for the world economy to function well. Ha!

As for the debt growing too fast, yes, that's a problem, but only because as the debt grows it, in theory, reduces the amount of available capital to invest in new debt, which increases interest rates. And if the situation gets really bad it gets to the point where the government has trouble raising money. And since the federal government almost always runs a deficit, meaning the US government really treats debt as a revenue source on par with taxes, if the government couldn't raise enough money by issuing debt it would have to terminate non-essential services - or expand the money supply to fund itself. As we already discussed, expanding the money supply is inherently inflationary, so governments avoid it if they can, or unless they are actually looking to increase inflation, as they are in Japan.

 

[Irvrobinson]

BTW, Herbu, you might find the US Treasury web site interesting. It explains the various kinds of US debt offerings, and even lets you open an online account to buy them yourself. The only kind that adds up to real dollars for the USG is treasury bills, but there are some interest-bearing kinds too (that add up to only billions of dollars, so they don't affect this discussion).

www.treasurydirect.gov/indiv/products/prod_tbills_glance.htm

 

[rnatalli]

an agreement had been reached and Greece will not leave the Euro.

 

[herbu]

First of all, $400B is not $4K per person. The US has about 320M people, so $400B/320M = $1250/person. And the other point you're missing is that we're not really spending $400B. The interest does not come out of tax revenue dollars. Interest on the federal debt just increases the rate at which the debt grows. Remember my explanation of treasury bill auctions and how it works? So if we eliminated all of the of the federal debt and had no interest payments on the books we would not have any additional tax revenue to spend, unless we issued debt. Get it?

Thanks, Irv. You have a much clearer understanding of these economics than I. I used the $4k/person figure because somebody previously used it. The thing that escapes me is, "So if we eliminated all of the of the federal debt and had no interest payments on the books we would not have any additional tax revenue to spend, unless we issued debt."

I understand the argument that carrying a mortgage is advantageous to an individual, but that's because of inflation and tax breaks... and we're talking about real money. It sounds like govt debt is not real money or real debt, but intuitively that sounds like an intellectual argument to justify the debt. At this point, I'll just take your word for it and find the bliss in my ignorance. Thanks.

 

[Chu Gai]

an agreement had been reached and Greece will not leave the Euro.

Bailout details here.

 

[3db]

First, I don;t understand the anti German setiment on this thread. TLS's interpretation is utter BS. The second thing I don't understand why Greece won't fix their economy. Greece is acting as a "has been country" living on the laurels of their history. They have done little or nothing at all to contribute to their own welfare. Margaret Thatcher had to strip England to get it back England on its feet finiancially and this what is needed in Greece. If it weren't for Germany and France, there would be a lot more countries in diar finacial means.

 

[TLS Guy]

First, I don;t understand the anti German setiment on this thread. TLS's interpretation is utter BS. The second thing I don't understand why Greece won't fix their economy. Greece is acting as a "has been country" living on the laurels of their history. They have done little or nothing at all to contribute to their own welfare. Margaret Thatcher had to strip England to get it back England on its feet finiancially and this what is needed in Greece. If it weren't for Germany and France, there would be a lot more countries in diar finacial means.

Well this is the view of Boris Johnson, mayor of the City of London, and now also back as an MP in the House of Commons.

Also today: -
We will all be like Greece if the EU gets its way

 

[TLS Guy]

First, I don;t understand the anti German setiment on this thread. TLS's interpretation is utter BS. The second thing I don't understand why Greece won't fix their economy. Greece is acting as a "has been country" living on the laurels of their history. They have done little or nothing at all to contribute to their own welfare. Margaret Thatcher had to strip England to get it back England on its feet finiancially and this what is needed in Greece. If it weren't for Germany and France, there would be a lot more countries in diar finacial means.

You might also be interested to know that one of your fellow Canadians, Mark Carney, says that the Greek debt is unsustainable.

One of the many problems is that the EU does not have bankruptcy procedures to deal with a problem like Greece.

This whole house of cards may well come down soon, before Greece gets another Euro.

The settlement will make the situation worse for Greece.

They need bridging money until the proposed agreements can be ratified, which will be sometime September.

Claude Junker. wants to use EFSM funds. These are assessed right across the Euro whether in the Eurozone or not. This leaves the UK on the hook for just shy on one billion GBP. Now Cameron got a written agreement from the EU in June 2013 that the UK would not be liable for ANY Eurozone bailouts. Well yesterday Junker tore the agreement up. George Osbourne, the UK chancellor is in Brussels now, telling them where to go. All other non Euro EU countries are in lock step behind him and say they will not pay.

The interesting thing is that this no pay position is backed by Germany today.

This is evidence that Germany actually does want Greece out of the Eurozone, and will quietly scupper the funds to activate the agreement.

In any event the best course for Greece is default and Euro exit.

I will be really interested to see the poll numbers for the upcoming in/out of EU referendum which has to be held before the end of 2017. My money is on an out vote.

 

[Chu Gai]

I found your link above, TLS, thoughtful reading. From the Greek POV, seeing that they've been part of the EU for some time, what would've been the consequences to the country as a whole and the people as individuals, had their PM kept saying no? Not all of the requirements that are part of the present bailout deal which I linked to above are insulting. Some seem practical and pragmatic. If the EU was supposed to be in part something akin to the United States of Europe, they seem rather feckless when it comes to matters of Russian action on the western front. Further, I see the mass influx of what is politely referred to as migrants as catastrophic.

So if Greece said no and no monetary assistance of note came knocking ten what?

 

[TLS Guy]

I found your link above, TLS, thoughtful reading. From the Greek POV, seeing that they've been part of the EU for some time, what would've been the consequences to the country as a whole and the people as individuals, had their PM kept saying no? Not all of the requirements that are part of the present bailout deal which I linked to above are insulting. Some seem practical and pragmatic. If the EU was supposed to be in part something akin to the United States of Europe, they seem rather feckless when it comes to matters of Russian action on the western front. Further, I see the mass influx of what is politely referred to as migrants as catastrophic.

So if Greece said no and no monetary assistance of note came knocking ten what?

There is the thorny problem.

The Euro is largely a construct of the French and Germans. It has largely benefited Germany as the Euro effectively devalued the Euro. France however is failing and is now right behind south Med and Ireland in requiring a bail out.

The EU is now regarded in many UK circles is not just undemocratic, but anti democratic. It is widely referred to as the EUSSR. In fact just recently Mikhail Gorbachev wondered out loud why the EU has replicated the USSR in Europe.

The EU has next to no electoral oversight. No one voted for Claude Junker or Martin Schulz. It was their turn!

The Eurozone is nothing like the USA or UK which are true monetary transfer unions. The German cry all along has been no transfer union ever! So the Euro is a crude and harsh currency peg. That point can not be argued, the facts speak for themselves. A big part of the reason for this is that Germans have a deadly fear of inflation, funnily enough so do the Greeks!

So we now have a bad problem. I suspect few Euro nations will actually relish extending more credit to Greece when it comes to it. Germany is desperately trying to extend the burden, as it I think has made the calculation that default and right off is better than more money after bad. Don't be surprised if Germany does not vote the money. What they should do is right down the debt. However they are afraid of the queue behind Greece and a transfer union by the back door. If the Euro is to succeed it has to be a transfer union like the US. However under the current governance of the EU a transfer union would be a disaster.

That leaves Greece in a tough position, of having to float a new currency as a bankrupt nation. Undoubtedly there would be huge initial problems. However everyone wants deal and money would start flowing into Greece. The Greeks are overloaded in real estate, and there would be big influx of real estate purchases by foreigners. In addition, smart Greeks sent their Euros abroad while Drahgi was keeping Greek banks liquid. So these Euros will return as the new currency devalues and gives good deals. Obviously the Greeks will have to mend their ways. However by defaulting from debt they have a chance. Under the current debt structure they have no chance. Everybody except the EU understands that Greek debt needs massive restructuring. That includes the IMF, the US and the UK. It is the construct of the Euro that makes this next to impossible in any meaningful way.

It is quite a mess with a lot of chickens coming home to roost in a hurry.

 

[Swerd]

I am not familiar with the term transfer union. I suspect its a term many in the US have not heard until very recently. Can you define it?

A Google search did not come up with a simple definition, but I did find articles which discussed political unions, fiscal unions, and transfer union, such as

http://fistfulofeuros.net/afoe/political-union-is-transfer-union/.

http://www.economist.com/node/17632957

http://lexicon.ft.com/Term?term=fiscal-union

This last link defined a fiscal union as the transfer of some of one country’s tax receipts to another.

Example
This may be a step too far to eurozone politicians who fret about national sovereignty. But with the European Financial Stability Facility (EFSF - rescue fund backed by the eurozone member states to help resolve the eurozone sovereign debt crisis) issuing its own bonds, a fiscal union has in effect come closer.

 

[TLS Guy]

I am not familiar with the term transfer union. I suspect its a term many in the US have not heard until very recently. Can you define it?

A Google search did not come up with a simple definition, but I did find articles which discussed political unions, fiscal unions, and transfer union, such as

http://fistfulofeuros.net/afoe/political-union-is-transfer-union/.

http://www.economist.com/node/17632957

http://lexicon.ft.com/Term?term=fiscal-union

This last link defined a fiscal union as the transfer of some of one country’s tax receipts to another.

Example
This may be a step too far to eurozone politicians who fret about national sovereignty. But with the European Financial Stability Facility (EFSF - rescue fund backed by the eurozone member states to help resolve the eurozone sovereign debt crisis) issuing its own bonds, a fiscal union has in effect come closer.

I think your first link explains it well.

Your last link is out of date.

The European stability fund represents a problem. The countries in the EU not using the Euro, especially the UK objected to being on the hook for European Euro bail outs.

In June of 2013, David Cameron got a signed agreement that the UK would not be liable for any of those funds. He got a clear opt out. Claude Junker literally tore up that agreement yesterday. This caused the UK chancellor to head to Brussels pronto and put some stick about.
The other EU nations not part of the Euro, for instance Denmark, have lined up behind the UK and said not a penny from us.

The EUs own lawyers have ruled today that Claude Junkers attempt to use the Emergency Stability fund, as Claude Junker proposes is illegal. For one thing the non EU nations had, and were not able to have any part or input into the Greece discussions, except the debate by the EU MEPs in the sham of a European parliament. I hope you watched what MEP Nigel Farage had to say in that debate.

The EU is a totally inept chaos center and this saga will continue and unfortunately for a few years I reckon. It Britain exits that will give a good shove to ash bin of history.

 

[3db]

There is the thorny problem.

The Euro is largely a construct of the French and Germans. It has largely benefited Germany as the Euro effectively devalued the Euro. France however is failing and is now right behind south Med and Ireland in requiring a bail out.

The EU is now regarded in many UK circles is not just undemocratic, but anti democratic. It is widely referred to as the EUSSR. In fact just recently Mikhail Gorbachev wondered out loud why the EU has replicated the USSR in Europe.

The EU has next to no electoral oversight. No one voted for Claude Junker or Martin Schulz. It was their turn!

The Eurozone is nothing like the USA or UK which are true monetary transfer unions. The German cry all along has been no transfer union ever! So the Euro is a crude and harsh currency peg. That point can not be argued, the facts speak for themselves. A big part of the reason for this is that Germans have a deadly fear of inflation, funnily enough so do the Greeks!

So we now have a bad problem. I suspect few Euro nations will actually relish extending more credit to Greece when it comes to it. Germany is desperately trying to extend the burden, as it I think has made the calculation that default and right off is better than more money after bad. Don't be surprised if Germany does not vote the money. What they should do is right down the debt. However they are afraid of the queue behind Greece and a transfer union by the back door. If the Euro is to succeed it has to be a transfer union like the US. However under the current governance of the EU a transfer union would be a disaster.

That leaves Greece in a tough position, of having to float a new currency as a bankrupt nation. Undoubtedly there would be huge initial problems. However everyone wants deal and money would start flowing into Greece. The Greeks are overloaded in real estate, and there would be big influx of real estate purchases by foreigners. In addition, smart Greeks sent their Euros abroad while Drahgi was keeping Greek banks liquid. So these Euros will return as the new currency devalues and gives good deals. Obviously the Greeks will have to mend their ways. However by defaulting from debt they have a chance. Under the current debt structure they have no chance. Everybody except the EU understands that Greek debt needs massive restructuring. That includes the IMF, the US and the UK. It is the construct of the Euro that makes this next to impossible in any meaningful way.

It is quite a mess with a lot of chickens coming home to roost in a hurry.

Why should Germany write of the Greek debt if the Greeks are not willing to change their ways? Thats freaken ludicrous. And don't be fooled.. The Greek aren't about to go through what England went through with Maragret Thatcher. The Greeks seem to have a false sense of entitlement that needs to change first before they could ever hope to make that country sustainable again. I don't forsee that happening soon, do you?

Maybe Germany is better leaving the EU and going it alone again and saying to hell with everyone.

 

[Hobbit]

I understand the argument that carrying a mortgage is advantageous to an individual, but that's because of inflation and tax breaks... and we're talking about real money. It sounds like govt debt is not real money or real debt, but intuitively that sounds like an intellectual argument to justify the debt. At this point, I'll just take your word for it and find the bliss in my ignorance. Thanks.

There are two ways to view carrying a mortgage. Of course, having a place to live that you couldn't otherwise afford outright is a plus as is owning something that could potentially increase in value (which really only matters if you downsize or move to someplace considerably less expensive).

However, I believe one of the biggest misconceptions in America is the tax write off part of it. Using simple numbers, let's say you pay $10k a year in interest on your mortgage and you make $100k/yr. Now you write off the $10k and it lowers your tax based income to $90k. In both cases you're in the 28% tax rate. Ergo, you just spent $10k in interest to "save" $2800 on your tax bill.

OTOH, if you have $X to buy a house outright you will hope to be able to earn more than the 4.xx% 30yr current mortgage interest rate if you invest the $X. In this case, you don't suffer the loss of liquidity and you do get some tax relief (albeit at a cost..)

Still, to beat the 4% means investing in a the market, and if something should happen like the economy dips and you lose your job funds may get drained quickly making the mortgage payment. There is piece of mind owning your home. Especially if you're disciplined enough to make a "payment" to yourself to invest (above and beyond your 401k/Roth/IRA). Of course, you'll have to pay taxes on the capital gains (eventually, one way or another), but so what? I'd rather have a $10k capital gain and owe $2800 in taxes than vice versa. There's also less concern about market fluctuations, and you have a lot of equity in case of emergency.

 

[3db]

There are two ways to view carrying a mortgage. Of course, having a place to live that you couldn't otherwise afford outright is a plus as is owning something that could potentially increase in value (which really only matters if you downsize or move to someplace considerably less expensive).

However, I believe one of the biggest misconceptions in America is the tax right off part of it. Using simple numbers, let's say you pay $10k a year in interest on your mortgage and you make $100k/yr. Now you write off the $10k and it lowers your tax based income to $90k. In both cases you're in the 28% tax rate. Ergo, you just spent $10k in interest to "save" $2800 on your tax bill.

OTOH, if you have $X to buy a house outright you will hope to be able to earn more than the 4.xx% 30yr current mortgage interest rate if you invest the $X. In this case, you don't suffer the loss of liquidity and you do get some tax relief (albeit at a cost..)
.

We are not able to deduct the interest paid on our mortage from our salary here in Canada. I wish it were so as it would help those of us financially responsible.

 

[3db]

Well this is the view of Boris Johnson, mayor of the City of London, and now also back as an MP in the House of Commons.

Also today: -
We will all be like Greece if the EU gets its way

That's the British view who always looked at themselves as outsiders to Europe. I would definately take it with a grain of salt. Bottom line is, Greece needs to desperately clean up its act just like Margy Thatcher did in England. Problem is Greeks aren't willing to change. They feel entitled to monies that Greece just can't afford at this time. That's what it ultimately boils down too and using smoke and mirrors and anti Euro sentiment to try hide what the real problem is just foolish.

 

[Swerd]

I think your first link explains it well.

Your last link is out of date…

Thanks. That helps… I think.

I'm probably like many in the US who largely ignored the development of the European Union and its common currency until all the recent talk about the crisis in Greece. It's rather different from our own history, which didn't happen overnight, and involved many events that had no precedent. Because we are a large political union that has a single currency and monetary control institutions, I find it difficult to understand the whole euro zone business. Just how do separate nations, that function as separate political entities, function while unified only for fiscal or transfer purposes?

I suppose there are many in Europe who also don't understand our history, such as the recent kerfuffle over the Confederate battle flag. How can we explain to others how a modern powerful nation tolerates flying the flag of a failed armed insurrection from 150 years ago? I don't find it easy.

In Europe, I never understood how rapidly things changed beginning in 1990. The Iron Curtain fell and the Soviet Union collapsed (just like the 'domino theory' but in reverse). Although people in the US used to rant & rave about the unfairness of the Iron Curtain and the Soviet threat to western Europe, people in western Europe, certainly those in the UK and France, never seemed to mind keeping Germany split in half for 45 years.

And in an instant, all that ended, with a newly unified Germany. It should have seemed obvious at the time, that with no political or military rivals, Germany would eventually dominate Europe. I guess we should be glad it happened without war. Now, 25 years later, Germany dominates Europe economically. And most others in Europe (UK the exception, among some others) were glad to go along, as long as their economies were all growing. It has only been since the economic collapse of the previous decade, that all the major flaws of the European union have been revealed.

I barely understand it, and can't suggest any solution. I don't envy Greece or Spain. 25% unemployment is a steep price to pay.

 

[3db]

Thanks. That helps… I think.

I'm probably like many in the US who largely ignored the development of the European Union and its common currency until all the recent talk about the crisis in Greece. It's rather different from our own history, which didn't happen overnight, and involved many events that had no precedent. Because we are a large political union that has a single currency and monetary control institutions, I find it difficult to understand the whole euro zone business. Just how do separate nations, that function as separate political entities, function while unified only for fiscal or transfer purposes?

I suppose there are many in Europe who also don't understand our history, such as the recent kerfuffle over the Confederate battle flag. How can we explain to others how a modern powerful nation tolerates flying the flag of a failed armed insurrection from 150 years ago? I don't find it easy.

In Europe, I never understood how rapidly things changed beginning in 1990. The Iron Curtain fell and the Soviet Union collapsed (just like the 'domino theory' but in reverse). Although people in the US used to rant & rave about the unfairness of the Iron Curtain and the Soviet threat to western Europe, people in western Europe, certainly those in the UK and France, never seemed to mind keeping Germany split in half for 45 years.

And in an instant, all that ended, with a newly unified Germany. It should have seemed obvious at the time, that with no political or military rivals, Germany would eventually dominate Europe. I guess we should be glad it happened without war. Now, 25 years later, Germany dominates Europe economically. And most others in Europe (UK the exception, among some others) were glad to go along, as long as their economies were all growing. It has only been since the economic collapse of the previous decade, that all the major flaws of the European union have been revealed.

I barely understand it, and can't suggest any solution. I don't envy Greece or Spain. 25% unemployment is a steep price to pay.

England would have suffered the same fate as Greece if it wasn't for Margaret Thatcher. She had the forsight and stones to make tough economic decisons which hurt a hell of a lot people. What she did had to be done. Many workers had to leave England and get jobs in Germany and other European countries. Hell, Mark Knopfler made reference of this in the album "Ragpicker's Dream".