Quite an ‘exciting’ day we had, we should review some of yesterday’s ‘more interesting’ developments…and most of you already know what I’m hinting at.
The markets dropped a 1,000 points in a matter of minutes yesterday…sparking some fairly intense debate as to whether it was a genuine ‘panic’ or if it was just some kind of ‘glitch’.
Viewing a video that captured the ‘reversal’…(as er, disturbing as the downward movement was, watching it spring back up 600 points was perhaps more disturbing.) I could only wonder if somebody was ‘buying up’ the ‘loose shares’ or if someone was simply ‘erasing’ (canceling) the losses (or the transactions that resulted in the losses…)
Because we weren’t there, we’ll never know.
Yesterday, I briefly touched upon the ‘real reason’ stock prices have staged their ‘miraculous’ recovery (and it doesn’t have anything to do with economic performance…)
Most rational people know that today’s market prices are ‘fluff’, they have no basis on reality nor is there anything behind them…which is to say Wall Street would be hard pressed to pay even a tiny fraction of ‘notational value’ out to shareowners…because the money isn’t there!
Weirdly, this is the same ‘principle’ the banking system operates off of. It is ‘assumed’ that everybody won’t want to withdraw all of their funds at the same time, providing the depositing public with the illusion of liquidity (where there actually is none.)
Oh, don’t get the ‘wrong impression’…they can ‘make good’ on their obligations…if you’ll be kind enough to accept their check! (And observe the statutory waiting periods regarding ‘the availability of funds’.)
Now, keeping this part of the ‘banking system’ active in your head, let us now examine Central Bank ‘bailouts’ by other Central Banks (Like events currently unfolding in Greece.)
Understand good citizen we have ‘two sets of rules’ in play here…when the fucking bank owes YOU money, you HAVE TO accept their check and everything that comes along with that…but when a bank owes another bank money, suddenly a CHECK is no good!
They need a ‘guarantee’!
Just to make a bad situation even worse it looks like at least part of the reason why the government ran out of money is because the banks sold them ‘bad’ securities!
WTF!
Sort of puts the rioting over there in a different light, doesn’t it?
But let’s not lose sight of the bigger picture, shall we?
Greece, like California, is part of a ‘monetary union’…so neither ‘legal entity’ can print their own cash (for the moment.)
Like Greece, California can’t fund its ‘budget deficit’ (and there are a dozen other states in the same position...)
So, will Washington (continue) to fund California’s (and other states) ‘budget shortfalls’ or will the Fed step in and inflict ‘austerity measures’ upon them, forcing these ‘spendthrift’ states to put their affairs into order?
Um, like the Greeks, State budgets might as well have been made on Mars for all the say the average citizen has in creating/overseeing the process.
While there are literally hundreds if not thousands of ‘political appointments’ that serve no discernable purpose beyond providing some ‘well-connected’ individual with a damn good paycheck, the public is ‘commanded’ to surrender hard won services while paying higher fees and taxes.
It’s a Democracy…until it isn’t.
I don’t think I’m the only one who suspects there’s a lot less ‘democracy’ to this thing than we’re lead to believe there is…which leads us to a disturbing conclusion…that the fight for freedom isn’t over.
It is difficult to direct your attention ‘back to reality’ when so much of punditry insist on reporting from ‘Fantasy Island’
A Money Too Far
By PAUL KRUGMAN
Published: May 6, 2010
So, is Greece the next Lehman? No. It isn’t either big enough or interconnected enough to cause global financial markets to freeze up the way they did in 2008. Whatever caused that brief 1,000-point swoon in the Dow, it wasn’t justified by actual events in Europe.
Nor should you take seriously analysts claiming that we’re seeing the start of a run on all government debt. U.S. borrowing costs actually plunged on Thursday to their lowest level in months. And while worriers warned that Britain could be the next Greece, British rates also fell slightly. [Which, in a very small pool of players, brings us to such niggling qualifiers like ‘less bad’ and ‘perceived safer’, comparatively speaking, than other governments/currencies. Given the fast and loose, anything goes, blatantly corrupt state of our financial sector, one really begins to question the sanity of the individuals making these ‘judgement calls’.]
That’s the good news. The bad news is that Greece’s problems are deeper than Europe’s leaders are willing to acknowledge, even now — and they’re shared, to a lesser degree, by other European countries. Many observers now expect the Greek tragedy to end in default; I’m increasingly convinced that they’re too optimistic, that default will be accompanied or followed by departure from the euro. [Naturally, AFTER the Greek government collapses under a tidal wave of civil unrest.]
In some ways, this is a chronicle of a crisis foretold. I remember quipping, back when the Maastricht Treaty setting Europe on the path to the euro was signed, that they chose the wrong Dutch city for the ceremony. It should have taken place in Arnhem, the site of World War II’s infamous “bridge too far,” where an overly ambitious Allied battle plan ended in disaster.
The problem, as obvious in prospect as it is now, is that Europe lacks some of the key attributes of a successful currency area. Above all, it lacks a central government.
Consider the often-made comparison between Greece and the state of California. Both are in deep fiscal trouble, both have a history of fiscal irresponsibility. And the political deadlock in California is, if anything, worse — after all, despite the demonstrations, Greece’s Parliament has, in fact, approved harsh austerity measures.
But California’s fiscal woes just don’t matter as much, even to its own residents, as those of Greece. Why? Because much of the money spent in California comes from Washington, not Sacramento. State funding may be slashed, but Medicare reimbursements, Social Security checks, and payments to defense contractors will keep on coming.
What this means, among other things, is that California’s budget woes won’t keep the state from sharing in a broader U.S. economic recovery. Greece’s budget cuts, on the other hand, will have a strong depressing effect on an already depressed economy.
So is a debt restructuring — a polite term for partial default — the answer? It wouldn’t help nearly as much as many people imagine, because interest payments only account for part of Greece’s budget deficit. Even if it completely stopped servicing its debt, the Greek government wouldn’t free up enough money to avoid savage budget cuts.
The only thing that could seriously reduce Greek pain would be an economic recovery, which would both generate higher revenues, reducing the need for spending cuts, and create jobs. If Greece had its own currency, it could try to engineer such a recovery by devaluing that currency, increasing its export competitiveness. But Greece is on the euro.
So how does this end? Logically, I see three ways Greece could stay on the euro.
First, Greek workers could redeem themselves through suffering, accepting large wage cuts that make Greece competitive enough to add jobs again. [Total Fantasy] Second, the European Central Bank could engage in much more expansionary policy, among other things buying lots of government debt, and accepting — indeed welcoming — the resulting inflation; this would make adjustment in Greece and other troubled euro-zone nations much easier. Or third, Berlin could become to Athens what Washington is to Sacramento — that is, fiscally stronger European governments could offer their weaker neighbors enough aid to make the crisis bearable. [Equally unlikely although not ‘unthinkable’.]
The trouble, of course, is that none of these alternatives seems politically plausible.
What remains seems unthinkable: Greece leaving the euro. But when you’ve ruled out everything else, that’s what’s left.
If it happens, it will play something like Argentina in 2001, which had a supposedly permanent, unbreakable peg to the dollar. Ending that peg was considered unthinkable for the same reasons leaving the euro seems impossible: even suggesting the possibility would risk crippling bank runs. But the bank runs happened anyway, and the Argentine government imposed emergency restrictions on withdrawals. This left the door open for devaluation, and Argentina eventually walked through that door.
If something like that happens in Greece, it will send shock waves through Europe, possibly triggering crises in other countries. But unless European leaders are able and willing to act far more boldly than anything we’ve seen so far, that’s where this is heading.
Um, Mr. Krugman’s proposed solution only works ‘in theory’; Greece would HAVE TO BE totally ‘self-sufficient’ food wise to, er, ‘compete’ with the Chinese and play the game the way they do! Because, at the moment, the US doesn’t need to ‘subsidize’ Greek food markets, China is already making sure US (factory) farmers don’t go hungry or destroy too much ‘surplus food’.
Which leads to another ‘pet theory’ of mine…the principle reason the Chinese worker doesn’t starve to death is because the US is paying for a good chunk of what it imports in food.
And the Chinese government is making that available to its people at prices we’ll never see on the shelves here!
There are no ‘accidents’ just as there is no magic…wish we could say the same thing about deceit and treachery…
Sadly good citizen, this is a situation that won’t fix itself…worse, if we fail to fix it, somebody else is sure to ‘fix it for us’ or perhaps, more correctly, for themselves!
Thanks for letting me inside your head,
Gegner
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