Category: politics

08:25 – Well, it’s official. I just read an article that says Greece’s finance minister says there are three possibilities, one of which is that Greece will default and pay off creditors at 50 cents on the euro. The article didn’t mention the other two possibilities, but my sources tell me the first is that Greece will default and pay off creditors at one cent on the euro, and the second is that Greece will default and pay off creditors at zero cents on the euro. I’ll let my readers decide which of the three is most likely.

There have been millions of words written about the euro crisis, but few of them about the root cause of the problem. As I’ve been saying for 20 years or more, European cradle-to-grave socialism simply will not and cannot work. The reason that Europe is bankrupt is that the costs of these social programs are coming home to roost, paid for with borrowed money. As bad as the sovereign balance sheets of Europe look now, they’re nothing compared to what they would be if unfunded pension and healthcare liabilities were being shown at their actual present values.

Making matters worse, the horrible demographics of Europe ensure that the downward spiral will continue. Europe’s population is old and getting older. Fifty years ago, for example, German women bore an average of something like 2.5 children each. That figure is now down to something like 1.5 children each, not even replacement level. The rise in government employment is equally ominous. The ratio of productive workers to retirees and government workers is falling fast, and that trend is accelerating. There’s simply no way this can continue.

Which reminds me of last night. We were watching an episode of Desperate Army Housewives (or something like that). One of the characters was a 30-something nun. I commented to Barbara that that must be the youngest nun on the face of the planet. She said that was ridiculous, that there must be plenty of young nuns. I said I thought the average age of US nuns must be something like 70 years old, and she said that was ridiculous. So I did a quick Google check and found that the average age of US nuns is currently about 77 years old. And that’s Europe’s problem. It’s full of 77-year-old nuns.

10:43 – Someone asked me what I’d estimate actual European debt loads to be if “hidden” liabilities were included. That’s impossible to answer with any accuracy, for several reasons. First, because much of the data remains hidden. Second, because events can cause huge changes in the underlying data, almost always for the worse. Third, because any net present value calculation has to make many assumptions, some of which inevitably make the error bars larger than the calculated values. If someone forced me to answer that question for, say, Greece, I’d say that the nominal sovereign debt load is currently around 1.5 times GDP (which itself is falling, thereby increasing debt as a percentage of GDP), but the actual debt load including bank and personal debt as well as unfunded liabilities (the biggest chunk) is probably around 15 times GDP. The same factors apply to the debt loads of the US and other countries, albeit at considerably different multipliers.

14:12 – If you’re wondering why I haven’t commented on the recent news articles about neutrinos traveling faster than light, it’s because I don’t believe it. As Sagan said, “Extraordinary claims require extraordinary evidence”, and we don’t yet have that evidence, as the original investigators were the first to admit. In fact, they presented their data as something they themselves didn’t believe and asked other scientists to help refute it. If it turns out that this phenomenon is reproducible, much of what we think we know about physics goes out the window. It is unlikely that scientists have been that wrong for so long, so the inescapable conclusion is that this phenomenon almost certainly does not actually exist, but is a result of experimental error.

Actually, although I don’t believe they will be, I hope these scientists are proven right. What an exciting world it will be if FTL is real. Perhaps one day we really will learn how to send ships through wormholes, and we can begin colonizing first the galaxy and then the universe.

08:17 – Greece is shut down by strikes today, in response to the announcement yesterday by the Greek government that it intended to make some trivially small spending cuts. The problem is that Greece has been living far, far above its means for many years now, partying on borrowed money that it never had any hope of repaying. Now that lenders are no longer willing to continue subsidizing the party, Greece is going to have to admit belatedly that it is poor. Not just poor, but dirt poor. Living standards will plummet to third-world levels, and all the strikes and riots in the world can’t change that. Greece is a basket case, and is likely to remain so for decades.

Greece, about the size of North Carolina and with a population of only about 10.7 million, has about 800,000 government employees. (Just to put this in perspective, if the city of Winston-Salem was in Greece, our share of that would be about 18,000 government employees.) About 800,000 Greek government employees, all of whom are paid what would be considered a good salary in the United States, let alone a third-world country, and all of whom can retire young with excellent pensions. Is it any wonder that Greece is bankrupt? And, despite its repeated promises to the EU and IMF, Greece has done essentially nothing to cut government employment and spending. It’s no surprise that Germany and the other wealthier northern-tier nations have had about enough.

Work on the biology book continues.

12:07 – Someone asked me what I’d do if I were the Greek government. First, I’d continue lying, as the Greek government has been doing for more than 10 years now. I’d promise the EU/IMF authorities anything to get my hands on that next $10 billion tranche of aid, and I’d ask for it in small bills with non-consecutive serial numbers. As soon as I had my hands on that money, I’d announce immediately that Greece is defaulting on all foreign debts, whether owed by the government or by Greek companies or persons, and that it plans to pay zero cents on the euro. Instead, it will pay off in new drachmas, with those new drachmas valued at one drachma per euro, and only if the debt holders agree that that payment constitutes full and complete payment. The new drachma would quickly lose a bit of value, of course, probably from 1:1 drachma:euro to something in the 100:1 range and falling in the first day or so. I’d also announce an 80% cut in government employee headcount, and that henceforth all salaries and pensions will be paid at their former levels at one new drachma per euro. Oh, and I’d confiscate all real property and financial assets held by the church, which has been a leech on Greece for far too long.

That done, I’d immediately apply to the UN for emergency humanitarian aid to feed the starving people of Greece, which is to say nearly all of them. And I’d plan for a slow recovery that will probably take literally decades. Meanwhile, I’d run ads to let Americans and Brits know that they could enjoy a fantastic Greek vacation for only a few dollars (or a few million new drachma) per day. Because tourism is going to be about the only way that Greece will be able to earn foreign currencies for the foreseeable future.

09:00 – It’s official. I’m crazy, or so says the IMF. Those of us who think a eurozone breakup is likely are engaging in crazy talk according to the IMF. The eurozone situation is fixable, they say, if only the EU will take certain actions. The article didn’t go into details, but as it happens I have a mole within the IMF. He or she tells me that the IMF’s proposal to fix the euro situation includes the following:

Tell them to make us a cambric shirt,
Without any seams or needlework.

Tell them to wash it in yonder dry well
Where water ne’er sprang, nor drop of rain fell.

Tell them to find us an acre of land,
Between the salt water and the sea strand.

Tell them to reap it with a sickle of leather
And tie up the sheaves with a rope made of heather

If they tell us they can’t, we’ll reply,
Let us know that at least you will try.

EU, when thou hast finished thy task,
Parsley, sage, rosemary and thyme,
Come to us, our loans for to ask,
For then thou art a true love of mine.

The bank runs are spreading. Greek, Portuguese, Spanish, and Italian banks have been under siege for some time. No one–people, companies, or other banks–wants to have money on deposit with a bank that is likely to go bust. And now French banks are coming under siege. It was announced yesterday that Siemens had withdrawn $6 billion–that’s billion with a “b”–from the French banking system and put it on deposit with the ECB, a strong indication that Siemens expects the French banking system to fail. And Siemens is by no means alone. Capital flight has become critical, with Europe being sucked dry by depositors fleeing to the US dollar, UK pound, Japanese yen, and other currencies that are perceived as safe havens.

Modern economies are credit-based. To state the obvious, no one can borrow if no one is willing to lend. In Europe, increasingly, that’s the case. So, on top of a debt crisis, we now have a liquidity crisis. Germany is moving to recapitalize its own banks, allocating available funds to that rather than to more subsidies for Greece and other debtor nations. Although doing that is sensible for many reasons, it’s also the first step Germany would take if it intends to withdraw from the euro and introduce a new DM or thaler. That could happen today, or it could happen six months from now. But one way or another, I think it will happen. Parsley, sage, rosemary, and thyme.

09:23 – Some people apparently have poor reading comprehension. I got email the other day from someone who asked why I was cheering for the euro to crash.

In the unlikely event that any of my other readers believe I’m cheering for the euro to crash, let me be clear: I believe the collapse of the euro is inevitable, but what I believe will happen and what I would like to see happen are not necessarily the same thing, and in this case are definitely not. The collapse of the euro will be catastrophic, and not just for Europe. The consequences of that collapse will be felt worldwide. Those consequences will include a great deal of human suffering, and a reduction in standard of living across the board. Most of southern and eastern Europe will become what amounts to third-world countries, but the rest of us will not escape entirely. The US, Canada, Australia, and the rest of the first world will also suffer, the UK more so, and northern Europe even more so. And the effect of this economic collapse will be catastrophic in many of the world’s poorer countries, which depend on subsidies from the formerly wealthy nations even to feed their populations.

All of this has happened because governments have been living beyond their means and encouraging their citizens to do the same, consuming now with a promise to pay later. Well, it’s now later, and we’re all going to pay the price in the form of lower standards of living, much higher unemployment, cuts in salaries and benefits in real terms, later retirement age, drastic cuts in government social programs, and so on. Well, at least those of us who are not members of privileged classes, such as government employees. And even they will suffer cutbacks, as taxpayers revolt.

Our financial mess a couple years ago lit the fuse, which is now rapidly approaching the European powder keg. The result is not going to be pretty.