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Generational Dynamics Web Log for 15-Feb-2010
15-Feb-10 News - Finance Ministers meet to decide Greece's fate

Web Log - February, 2010

15-Feb-10 News - Finance Ministers meet to decide Greece's fate

How soon will Greece's disease spread to America?

European finance ministers meet on Monday to discuss Greece

There's an article on the EuroIntelligence web site by Jacques Delpla, a well-respected French economist.

Titled "Greek Crisis: Ending (at last) the Trojan War," it ties the current financial crisis to three millennia of history of warfare between Greece and Turkey. According to the article,

"Despite markets' fears, Greece will not default on its debt. Why? Because, with some diplomatic impetus, Greece could easily reduce its military spending by at least 3 points of GDP, if a multilateral peace initiative is launched between Greece, Turkey and Cyprus, with the help of the US and of the Europeans. Unlike Portugal or Ireland, Greece could benefit from significant peace dividends to reduce its titanic fiscal deficits."

I kept reading through the article to see if I could find a "LOL" or a "Ha Ha," but no luck. This is an economist who seriously believes that the solution to Europe's Greece problem is simple: Just get Greece and Turkey to sign a peace agreement. Delpla then lays out how it would work. The EU and US would supply military forces to guarantee peace. The EU will fund both countries to compensate for displaced families on Cyprus. Both Turkey and Greece will permanently reduce their military spending, and the money saved can be used to pay off the debt. Easy.

Regular readers of this web site know how often I refer to the insanity that's going on in Washington and around the world, but this is the most bizarre thing I've seen in a while. Unfortunately, though it may be extreme, it represents the level of insanity that's common in France and throughout Europe. And let's not forget that it was France that Friedrich Nietzsche was thinking of when he wrote, "Insanity in individuals is something rare - but in groups, parties, nations and epochs, it is the rule."

Just to be clear, from the point of view of Generational Dynamics, such a peace agreement is about as absurd as you can get. The article is very interesting in how it lays out millennia of warfare between the two countries, beginning with Trojan War of Homer's Iliad. How could anyone who grasps that history possible even entertain the idea that this warfare is over? It boggles the mind.

Unfortunately, that's probably the kind of reasoning we can expect from the European finance ministers when they meet in Brussels on Monday to discuss what measures they'll take to rescue Greece. According to Bloomberg, investors will also be looking for clues on how they're going to rescue Portugal and Spain as well.

As we reported last week, the Europeans met and issued a statement saying, "Euro area member states will take determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole. The Greek government has not requested any financial support." This statement was laughable for its vagueness and obscurity.

Unfortunately, it didn't satisfy investors, and the euro has been under attack. Speculators have been taking short positions on the euro currency, which means that they're betting that the situation in Greece, Portugal and Spain is going to sink the euro.

The Guardian quotes Greek prime minister George Papandreou complaining that his country had become "a guinea pig in a battle between Europe and the international markets", as the euro ended the week at a fresh eight-month low of $1.35 against the dollar.

Thus, the finance ministers are under a tremendous amount of pressure to try again on Monday to come up with something that will convince the speculators that they will lose money betting against the euro.

Unfortunately, there is no REAL solution to the Greece bailout problem. A real solutions is, in fact, mathematically impossible. If Greece DID somehow convince its public sector unions to swallow the necessary budget cuts, then Greece's GDP would be lowered, and so the country would still have a large budget deficit.

And it's not just the Greek people who are blocking a solution. According to Reuters, a new poll published on Sunday says that two-thirds of the German people oppose any bailout of Greece, and 53% said that the Europe Union should, if necessary, expel Greece from the euro zone.

This is what happens in a deflationary spiral. During a bubble, everyone goes deeper and deeper into debt, and the debt is used for investments that boost everyone's budgets. When the bubble bursts, the opposite happens, since all those debts have to be paid back.

You can even see that in Delpla's "end the Trojan War" proposal. If Greece cut back on its military by 3% of GDP, then since military spending is part of the GDP, the GDP would go down, and the deficit would still be a large percentage of the smaller GDP.

Niall Ferguson: A Greek crisis is coming to America

An interesting change appears to be going on: Niall Ferguson appears to be replacing Nouriel Roubini as the favored "Dr. Doom" figure among financial pundits.

I've criticized Roubini in the past, at one point calling him the "Paris Hilton of economics," because always knows exactly how much leg to show in order to keep himself in the headlines. Some of the analyses he's published have been brilliant, but he's flip-flopped numerous times on what the eventual outcome is going to be. (See "Nouriel Roubini predicts recession will end in 2009.")

Ferguson has had a much more consistent message about the worsening financial crisis, including his acclaimed PBS documentary, The Ascent of Money, which puts it into a historical framework going back centuries.

Last week, he wrote an article for Financial Times that has received quite a bit of notice. It's called, "A Greek crisis is coming to America."

He begins by alluding to the "P.I.I.G.S." acronym for the European countries in trouble -- Portugal, Ireland, Italy, Greece and Spain:

"It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate."

He points out that "Because of the way the European Monetary Union was designed, there is in fact no mechanism for a bail-out of the Greek government by the European Union...." He then explains why any ad hoc bailout would be extremely unpopular, especially "because any decision about Greece will have implications for Portugal, Spain and possibly others."

He then makes a point that I love:

"Yet the idiosyncrasies of the eurozone should not distract us from the general nature of the fiscal crisis that is now afflicting most western economies. Call it the fractal geometry of debt: the problem is essentially the same from Iceland to Ireland to Britain to the US. It just comes in widely differing sizes."

I love this application of fractal geometry to debt, because the entire Generational Dynamics theory has an underpinning of fractal geometry. Various financial and war crises occur in populations of all sizes -- from small tribes millennia ago to huge groups of nations today. The crises are, in fact, always the same, the only difference being in size and scale.

I saw Ferguson being interviewed on TV a couple of days ago. He pointed to the collapse of the Soviet Union in 1991, and pointed out that, prior to its collapse, almost no one in the world expected the entire Soviet Union to collapse completely. But once it started, he said, it happened very rapidly. Ferguson said that the collapse of global support for US Treasuries could occur overnight, with the right trigger.

That's the essence of generational change, of course. Massive changes come from generations of people, and all they need is the right trigger. Barack Obama triggered one change when he won the election in November, 2008, and Scott Brown triggered a different change when he won the election in January, 2010.

I hope some day that Niall Ferguson can spend a few moments familiarizing himself with Generational Dynamics. I believe that he'll find that it synergizes perfectly with his own view of history.

Ferguson's view is also supported by economics professor Carmen Reinhart, whom the AP quotes as saying, "One thing we can say with a fair amount of certainty. We never know when the wolf will be at our door. The wolf is very fickle and markets can turn very quickly. And a high debt level makes us very vulnerable to shifts in sentiment that we cannot predict."

Additional Links

Fraud besets the EU carbon trade system, according to the NY Times. This doesn't surprise me in the least. As I've said many times, even if all of climate change science is true, the proposed "cap and trade" carbon trading systems are simply financial scams being promoted by the same bankers who defrauded the public with toxic mortgage-backed securities.

Another error by the UN climate panel: 26% of the Netherlands is below sea level, not 55%, as the UN report claimed. Reuters.

There's another side to the story of Chinese hackers breaching America's computer systems. They're also breaching China's computer systems, leaving "China alarmed by threat to security from cyberattacks." NY Times.

New Jersey is on "the edge of bankruptcy," according to Governor Christie. Asbury Park Press.

In his new book, Hank Paulsen says that Lehman Brothers entire balance sheet was bogus, prior to its collapse. And yet no has been arrested, or held accountable. How is that possible? My answer is that you have the same lethal combination of greedy, nihilistic Gen-Xers, managed by greedy, incompetent Boomers, running the regulator agencies as you have running the banks. (See, for example, "Laughable SEC report on Madoff absolves SEC management of blame.") Bloomberg.

Michael Panzer, in his latest Financial Armageddon blog entry, quotes two of his readers explaining why their small businesses will not be hiring. The bottom line is that no one wants to hire, for fear they'll have to fire them later because of the bad economy.

(Comments: For reader comments, questions and discussion, see the 15-Feb-10 News - Finance Ministers meet to decide Greece's fate thread of the Generational Dynamics forum. Comments may be posted anonymously.) (15-Feb-2010) Permanent Link
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Generational Dynamics Web Log for 15-Feb-2010 15-Feb-10 News - Finance Ministers meet to decide Greece's fate

European finance ministers meet on Monday to discuss Greece

Niall Ferguson: A Greek crisis is coming to America

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Generational Dynamics Web Log for 15-Feb-2010
15-Feb-10 News - Finance Ministers meet to decide Greece's fate