So...Economics (Greek Bailout)

[The Somberlain]

This is gonna be a general thread on economics, but I was inspired to make this thread by this story: With Greece Near Default, Wider Impact Feared : NPR

So, I had a few discussion questions:

1. What does bankruptcy of a country mean? Is it all that bad?
2. How can a country fail?
3. One school of thought is to cut Greece loose and let it fail. How will this be a solution?
4. Does our current economic structure need to collapse and be reconstructed in a "new or improved" way, or should we make the best of what we have and tweek our current structure?

So, discuss, and add questions of your own, and don't make this another thread that goes totally off topic and argues about the virtues of anarchism!

 

[-42-]

1. Effectively, when a country is bankrupt, the government is totally unable to pay off any of the debt it has incurred and is unwilling to print money to pay it off (for fear of inflation and the impact upon that nation's credit). And it can be very bad. (i.e. drastic reduction in revenue)

2. It isn't a country that fails as much as a government, and governments collapse with alarming frequency for a plethora of reasons (civil unrest and the like).

3. The argument for cutting Greece loose akin to cutting away a tumor. For to pay off Greece's current debt is to incur more debt, debt that Greece has shown itself unable to pay. Countries would pour huge amounts of money into Greece hoping to stabilize it, only to have it return to square one.

4. It's not a matter of 'should' as much as 'will.' Markets are the kind of entities which usher in their own destruction at some point or another. At some point, the system will fail, and then the rules will change.

 

[renzoip]

This is gonna be a general thread on economics, but I was inspired to make this thread by this story: With Greece Near Default, Wider Impact Feared : NPR

So, I had a few discussion questions:

1. What does bankruptcy of a country mean? Is it all that bad?
2. How can a country fail?
3. One school of thought is to cut Greece loose and let it fail. How will this be a solution?
4. Does our current economic structure need to collapse and be reconstructed in a "new or improved" way, or should we make the best of what we have and tweek our current structure?

So, discuss, and add questions of your own, and don't make this another thread that goes totally off topic and argues about the virtues of anarchism!

1. As far as I know, bankruptcy of a country is similar to personal bankruptcy in the principle of a country declaring it is not able to pay its debts. In this case, a State may be unable to pay it's foreign debt (money borrowed from other Countries or institutions such as the IMF/World Bank), it's domestic debt (Money borrowed from itself/taxpayers), or both.

It may not be the end of the country, but it is certainly pretty bad. If a country goes bankrupts, it becomes susceptible to severe austerity measures that will result in social unrest and possibly polarization/radicalization. Another susceptibility is to inflation if the state decided to keep funding what it cannot afford to fund; this is because the state will have to print more money and devaluate the currency, thus, making the cost of living more expensive.


2. Once the country goes bankrupt, then one can say it economy has failed. If this economic failure lead to enough weakening of State institutions and enough strengthening of social discontent, that the State is no longer able to function and control the chaos, then one can talk about a failed State (Ex: Somalia, Afghanistan).


3. I cannot comment with a much Authority about this particular case. What I can say is that it is probably in Germany's and France's best interest (State wise) to bail out Greece again. Letting Greece fail will certainly discredit the EU model. Also, it is a security hazard for other EU countries. Finally, it may bring a great influx of Greek migrants to other countries.


4. That's an interesting question. I for one think Capitalism is one of the worst inventions since the Atomic Bomb, lol. However, it is also not 100% certain that an Economic collapse will bring the best out of all of us and make us work together for a new and more sustainable model. In fact, everyone plays nice in an affluent capitalists society; but when economic crisis hits, then we see what people are willing to do in order to "survive"

I say we can work with the market economy model and tweak it so that it can provide a more even growth and fair trade.

Just my 2 cents.

 

[The Somberlain]

-42-, I really see no argument with you. Greece has simply overextended itself, and we are seeing one of two possibilities of an economically fucked country (same with Portugal, and less so, Ireland), but we still don't know the lesser of two evils: inflation or bankruptcy. With Weimar Germany, we saw hyperinflation, and we all know what evils it begat, instability, cabaret music, and nazism, and we don't want to go down that road again. Cutting Greece loose may be an interesting, but ultimately safe (as they don't have the manpower and resources that Germany did in the 30's) in the failure of a Western industrialized nation. We must weigh whether the potential instability of Greece is worth avoiding through weakening our economies with a bailout.

In regards to capitalism, it's far from perfect, as is communism. I think a mix of both (i.e. social democracy) is best as long as a country doesn't overextend itself. After all, nothing is free. There is always a tradeoff for subsidies, tax breaks, benefits, defense, etc, so we must choose where to put our money wisely. I for one, strongly believe in Keynsian economics, where a government saves in good times, and spends in bad times as a mitigating force, but we all stepped off that train because everyone wants MOAR, whether it be tax breaks for the rich in the US or hella benefits in Europe. So, I suppose the one thing we can do is anticipate the bad during good times.

 

[Edika]

As a Greek person that has been living abroad for the last three years it pains me to see my country at this state. There are several reasons that lead to the economic state of Greece, from corrupt politicians, over employing in the public sector to gain votes in elections, idiotic management of public companies that could be profitable. Greek industries and capitalists seemed to not care about the well being of the country (as most capitalists don't really care about their country). The Greek government would loan money to companies and industrialists with low interest that they would not collect in it's entirety and then borrow with higher interest. But other factors outside of Greece also played a factor for things blowing out of proportion, like Goldman-Sachs (Greece tried to hide the debt to enter the Euro zone as most countries in Europe did. We got screwed), financial forces betting in the failure of Greece and the delayed response of Germany and the European Union to help Greece when the notions of bankruptcy started. Greece was forced to turn to the IFM which only pushes countries to selling everything (to them most probably) of their resources making the country unable to pay any debts. France and Germany decided to support Greece at some point lending us money with the condition that we would buy submarines and jet fighters from them (lending us money to buy weapons to boost their economy).

It is not at the EU interest for Greece to fail because it will prove the model is not working, it will have the value of Euro decline and then they will have to cut loose all the other problematic countries.

I do not agree with capitalism but since humans are greedy I don't see any actual change happening soon. But this is not exactly capitalism. It is more like inhuman exploitation of a bigger part of the world for the an average quality of life of a small part of humanity and extremely decadent way of life for a handful of people. Only if this system crashes then changes would occur, since that would mean that the part of the world that has the average quality of life will no longer have this privileges and will react. That is not socialist or communist talk, this is human history. Until then they will try to keep this monstrosity alive and we will keep leaving the dream.

 

[TheJokker]

part of the problem is that other countries have made a sizable investment in the debt of greece. if greece defaults as a country it would most likely create a crisis in french banking and weaken the germans. if greece falls so does the euro.

the rise of china with an undervalued currency is forcing a devaluation of western currencies with the resulting consequence of revenue shortfalls. western countries cannot afford massive socialist economies and compete globally at the same time.

we "need" to attract back business that has gone offshore. right or wrong politically wages, taxes and regulation of business needs to go done if those jobs are going to return. if the companies that left return than there will be more jobs and higher federal revenues.

we "must" make america business friendly again. unfortunately that means doing the opposite of everything the president is now doing.

 

[Edika]

The only way to make a "developed" country (where most of the citizens have an adequate quality of life), will be to become like the "undeveloped" countries with lower wages. The cost of production is a major factor for companies going to China, Indonesia, India etc etc. So the only way for companies to actually produce stuff in Western countries would be if they would pay their employs around 300 dollars (or 300 Euros per month) with no health benefits and pay the minimum amount of taxes to the country they reside. I don't think any North American, French or German would accept to work like this. A company like this would work as a parasite in an economy (like they do in Asian countries), taking without giving. A healthy capitalist economy which provides adequate funds to the people that afterward will consume these funds to buy products and pays taxes to the respective government to help provide other kind of benefits to its citizens can prosper.

Without being an Obama fan, I don't think your president is driving companies away. I think the effort to boost Green energy initiatives and investments is actually a way to increase industrial activity in countries like the US. Green energy is still being developed and researched. Also it is not widespread in most of the world and the technology in manufacturing needs more specialized personnel (like most high tech applications). So production will be done in US (jobs), encouraging people to buy photovoltaics, wind, geothermal applications, insulating homes etc etc, creates more basic jobs and economy moves forward.

 

[The Somberlain]

part of the problem is that other countries have made a sizable investment in the debt of greece. if greece defaults as a country it would most likely create a crisis in french banking and weaken the germans. if greece falls so does the euro.

the rise of china with an undervalued currency is forcing a devaluation of western currencies with the resulting consequence of revenue shortfalls. western countries cannot afford massive socialist economies and compete globally at the same time.

we "need" to attract back business that has gone offshore. right or wrong politically wages, taxes and regulation of business needs to go done if those jobs are going to return. if the companies that left return than there will be more jobs and higher federal revenues.

we "must" make america business friendly again. unfortunately that means doing the opposite of everything the president is now doing.

Lowering the standard of living will worsen, not improve living conditions as we will have less money to spend on consumer products, which is the driving force of the economy. In regards to the US economy, see this: YouTube - ‪The Truth About the Economy‬‏

 

[Murmel]

It is not at the EU interest for Greece to fail because it will prove the model is not working, it will have the value of Euro decline and then they will have to cut loose all the other problematic countries.

If this happens part of me will be very happy, because we don't have Euro here and that means that importing guitars will become even cheaper
But I guess the Swedish Krona will get fucked over in one way or another if the Euro goes down.

 

[TheJokker]

The only way to make a "developed" country (where most of the citizens have an adequate quality of life), will be to become like the "undeveloped" countries with lower wages. The cost of production is a major factor for companies going to China, Indonesia, India etc etc. So the only way for companies to actually produce stuff in Western countries would be if they would pay their employs around 300 dollars (or 300 Euros per month) with no health benefits and pay the minimum amount of taxes to the country they reside. I don't think any North American, French or German would accept to work like this. A company like this would work as a parasite in an economy (like they do in Asian countries), taking without giving. A healthy capitalist economy which provides adequate funds to the people that afterward will consume these funds to buy products and pays taxes to the respective government to help provide other kind of benefits to its citizens can prosper.

Without being an Obama fan, I don't think your president is driving companies away. I think the effort to boost Green energy initiatives and investments is actually a way to increase industrial activity in countries like the US. Green energy is still being developed and researched. Also it is not widespread in most of the world and the technology in manufacturing needs more specialized personnel (like most high tech applications). So production will be done in US (jobs), encouraging people to buy photovoltaics, wind, geothermal applications, insulating homes etc etc, creates more basic jobs and economy moves forward.

will it?

look at the levels of wages in the 1960's compared to today. the same way the dollar inflated for decades it could also deflate in value. if the deflation was sudden it could cause massive problems. look at the sudden deflation of the value of the euro in july of 2008. the price of oil dropped simultaneously and two months later there was a banking crisis.

if the deflation was to occur slowly over a period of years we could see a drop in wages AND a drop in domestic prices. the longer the period of deflation the more stable the economy although the longer the recession will last.

is this happening? the dollar has been falling in value for several years and the euro has been dropping as well. we can also observe inflation in china and other developing nations. over-valued currencies are falling while under-valued currencies are rising. at some point an equilibrium will be reached.

the recovery in america has been slowed by obama's policies. it would be prudent to decrease federal spending during a period of deflation and falling revenues to avoid massive debt and a greece experience.

 

[TheJokker]

Lowering the standard of living will worsen, not improve living conditions as we will have less money to spend on consumer products, which is the driving force of the economy. In regards to the US economy, see this: YouTube - ‪The Truth About the Economy‬‏

not a robert reich fan...

the best way to build a strong middle-class is through jobs. jobs come from employers and employers are typically "rich". if we increase the number and wealth of "rich" people we will increase the number of jobs. you may argue that this is not "right" but it doesn't matter. big animals have always eaten smaller animals way before dinosaurs. we are no different.

if taxes are too high, if there is too much regulation, if wages are forced higher and higher through overly powerful unions than the rich will invest their money in developing third world countries instead of the united states. robert reich might try and convince us that this is not "right" but his argument is irrelvant. the rich will take their ball and leave if they don't get what they want. it's not about right/wrong it's about either/or.

either we create an environment where american manufacturing returns or accept permanent economic decline. grow the jobs and you grow the middle-class. robert reich would have us continue to drive the "rich" away...

 

[The Somberlain]

Well, Jokker, I ask you one simple question: if "the rich" are making record profits and have some of the lowest possible taxes for a developed country, why aren't jobs being created?

 

[TheJokker]

Well, Jokker, I ask you one simple question: if "the rich" are making record profits and have some of the lowest possible taxes for a developed country, why aren't jobs being created?

because we don't have the lowest rates: http://www.deloitte.com/assets/Dcom...ocuments/Tax/dtt_corporate_tax_rates_2011.pdf and we are not making record profits and we are competing with "undeveloped" countries. a lot of jobs are being created in brazil and india and china that used to be created in america.

why are we no longer making clothing, or televisions, or computers? because they can be made cheaper elsewhere. why is boeing moving some of it's manufacturing from washington state to south carolina? favorable conditions. if we can create favorable conditions than the jobs will return.

america has a lot going for her. we have an educated population, natural resources, (relative) political stability. we don't need to have the cheapest labor in the world but we need to be in the same ball park.

 

[Mexi]

well to say the only reason there aren't jobs being created is because taxes aren't low enough is a gross oversimplication of larger issues that affect job creation and really, do we WANT shitty, low-wage menial jobs to return to north america? if we're so educated and have political stability, we should expect higher quality jobs coming from these corporations. thing is that they aren't using tax breaks/incentives to hire more workers or extend benefits, but to create part-time, low-wage jobs (if any at all) and the rest goes to their bottom line. how can we institute the same bs reaganomic policies from 30 years ago and expect different results now? didn't work then and it sure as hell won't work now.

edit: and the reason we can't build computer/chipsets here in north america is because the chemicals used in their processes are banned, not necessarily because our workforce is uncompetitive.

 

[Jakke]

If this happens part of me will be very happy, because we don't have Euro here and that means that importing guitars will become even cheaper
But I guess the Swedish Krona will get fucked over in one way or another if the Euro goes down.

Not nescessarily, the euro got pretty cheap, so I jumped at buying a Ran. The euro can dive without affecting the SEK. On long term of course it will be harmful, but in short term perspective it is mostly only positive for us outside the euro

For the rest of the thread, I think the greeks will have to learn that economy not only happen to other people... You can't have a well-run state where people get 14 months of pay per year and retire when you are 50-55.

My confidence in the greek economics went down when I saw that the taxi drivers were on a strike because they had to leave receipts for every tour they take. One can only but wonder how much money that got skimmed of the top by those drivers...

Also the tax avoidance in Greece is higher than other European countries, which is very much like shooting your own foot.

When you put these factors together with a widespread corruption and incompetent politicians, you've got a recipe for disaster...

 

[Homebrew1709]

It would be nice if corporations had job creation at the top of their list of priorities, but job creation is mostly a priority for politicians, not corporations. Corporate responsibility is to the shareholder, not the overall American public. And jobs aren't created out of kindness, they're created organically out of necessity - at least they should be.

 

[hereticemir]

Where did the Greek debt come from I keep on hearing it was pushed on them from the Banks. Is this true or is it they built up their debt by themselves over time.

 

[Jakke]

Where did the Greek debt come from I keep on hearing it was pushed on them from the Banks. Is this true or is it they built up their debt by themselves over time.

I personally believe that people wants to blame banks, they have started a lot of crap for people. But in this case they did not, see, there rules when entering the EU, your finances must be good enough. Greeces weren't, but they managed to trick the commission in charge of inspecting, it's that kind of behaviour that started this crisis, they did not have the muscle to have a part in the EU, but damn well wanted too.

Not to mention that corruption saps a countries economy, and Greece has loads of that too

 

[Explorer]

If Greece managed to "trick" the EU's internal group which specializes in researching credit-worthiness. wouldn't that place the blame for being tricked on the EU for having shitty investigators? Why didn't the EU use professionals?

----

We'll never see jobs come back to the US until the US government stops giving tax breaks to corporations which send jobs overseas. We're subsidizing exporting of jobs, and the only ones profiting from that are the corporations and the politicians whom those corporations are paying. I suspect it is mainly one political party which fights for corporate welfare like this, but am willing to consider research which shows total campaign contributions to both sides of the aisle.

 

[Jakke]

If Greece managed to "trick" the EU's internal group which specializes in researching credit-worthiness. wouldn't that place the blame for being tricked on the EU for having shitty investigators? Why didn't the EU use professionals?

I should have mentioned that I am not an expert in national economics, but in some way Greece doped their economy to look good for the inspectors... Forgive me for using laymans terms, but I am one