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Generational Dynamics Web Log for 19-Mar-2010
19-Mar-10 News - Greece delivers ultimatum to Europe

Web Log - March, 2010

19-Mar-10 News - Greece delivers ultimatum to Europe

Greenspan says that he didn't cause the housing bubble.

Greece delivers an ultimatum to Europe

The European finance drama took some additional amusing turns on Thursday, as various officials scrambled to avoid making a decision, and to save their own political skins.

The most dramatic moment of the day came at a press conference in Brussels given by Greece's Prime Minister George Papandreou at which, according to Reuters, he issued what amounts to an ultimatum to the European Union to come up with a clear offer of standby loans next week or face the embarrassment of Athens asking the International Monetary Fund (IMF) for help.

"But I would prefer the European solution. I would prefer the European solution as part of the euro zone, as a European," he said.

I'm trying to think of an analogy that would convey exactly why this is a big threat, and the only thing I can come with is California governor Arnold Schwarzenegger announcing that he would ask China for financial help unless Washington bailed out California within one week, adding, "But I would prefer an American solution, as an American."

No European Union country has ever gotten help from the IMF, and there's a strong aversion to seeking help from the Washington-based foundation. ECB President Jean-Claude Trichet, French President Nicolas Sarkozy and former EC president Jean-Claude Juncker, have said that asking the IMF for help would show that the EU can't solve its own problems.

However, Sarkozy, Trichet and Juncker don't want their respective countries to bail out Greece. They want Germany to bail out Greece. That would be their idea of the EU solving its own problems.

And that's why German Chancellor Angela Merkel has changed her mind on this issue, according to Bloomberg, saying that Merkel now wants the IMF to bail out Greece.

But wait -- Greece doesn't actually want a bailout, from either the EU or the IMF, according to Reuters. He's complaining that the cost of borrowing money is too high, because speculators are pushing up yields (interest rates) on Greek bonds. So he'd like regulators to control speculators, which is a laughable goal. And he'd like the EU to supply not aid, but the PROMISE of aid. He claims that if the EU commits to bailing out Greece in the future as a last resort, then the commitment will never have to be honored, since speculators will be discouraged from speculating on Greek bonds.

But wait -- does that actually work? The WSJ says that Papandreou's strategy could actually backfire:

"Message to George Papandreou: Silence is golden. Thursday, the Greek prime minister called on European leaders to agree next week to a package of standby loans to buy his country breathing space on reform. But every time Mr. Papandreou opens his mouth to complain about the lack of European Union support for his country, or hints that he might go to the International Monetary Fund for aid instead, he actually makes the job of financing his country's deficit more difficult.

Mr. Papandreou's fear is that high borrowing costs will dilute the impact of the harsh budget measures already announced. That is a legitimate fear. But by talking so much about the need for support to bring borrowing costs down, he risks bringing about the very thing he most fears by raising in investors' minds the idea that Greece has a problem with market access—when it clearly doesn't."

You know, Dear Reader, I keep writing about this Greek crisis almost every day, because it's always different every day. One gets the feeling of a Laurel and Hardy comedy, with a new scene every day, each one funnier than the last.

For some reason, what Greece is going through with France and the others reminds of the lyrics of Teresa Brewer's great song, Let Me Go Lover: "You don't want me, but you want me, to go on wanting you. How I pray that you will say that we're through."

So, for today's entertainment, here's a video of still pictures of Teresa Brewer, accompanying her great recording:

I can't end this report without mentioning that, despite all the laughter, this is a very serious situation. The reason that it seems like a bad comedy is because there's no solution. Greece, and Europe in general, are headed for a devastating financial crisis, and no one has any idea how to prevent it.

Greenspan says that Fed didn't cause the housing bubble

On Thursday, former Federal Reserve chairman Alan Greenspan gave a 48-page speech (PDF) at the Brookings Institution, describing the causes of the financial crisis.

In a summary by the NY Times, Greenspan is quoted as saying: "We had been lulled into a sense of complacency by the only modestly negative economic aftermaths of the stock market crash of 1987 and the dot-com boom. Given history, we believed that any declines in home prices would be gradual. Destabilizing debt problems were not perceived to arise under those conditions."

Of course, I've discussed the false panic of 1987 many times. The stock market was underpriced at that time, and that's why the effects were modest. (See "System Dynamics and the Failure of Macroeconomics Theory.")

Greenspan also denied that the Fed's low interest rates did not cause the housing bubble. He said, "The global house price bubble was a consequence of lower interest rates, but it was long-term interest rates that galvanized home asset prices, not the overnight rates of central banks, as has become the seemingly conventional wisdom."

As I've explained many times on this web site, interest rates had nothing to do with the housing bubble. The housing bubble began around the world in the mid-1990s, just as the risk-averse survivors of the Great Depression were all disappearing (retiring or dying). The Boomers and Gen-Xers that were then in charge practiced debauched and depraved forms of credit abuse that caused not only the housing bubble, but the credit bubble. (See "The housing bubble began in 1995" and "The global housing bubble began in the mid-1990s.")

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Those people expecting hyperinflation are going to be very disappointed by the economic data of the last couple of days. On Thursday, the US Labor Department announced that consumer prices were flat BBC, and on Wednesday, the US Labor Department announced that wholesale prices fell unexpectedly. BBC.

How Millennial are you? A quiz by Pew Research. I took the quiz but didn't do very well. I think it's because my nose isn't pierced.

There are very few American journalists with international prestige, and Christiane Amanpour is probably the best of those few. She's been with CNN for years, but will now move to ABC, where she will anchor the Sunday morning "This Week" program. NY Times

(Comments: For reader comments, questions and discussion, see the 19-Mar-10 News - Greece delivers ultimatum to Europe thread of the Generational Dynamics forum. Comments may be posted anonymously.) (19-Mar-2010) Permanent Link
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Generational Dynamics Web Log for 19-Mar-2010 19-Mar-10 News - Greece delivers ultimatum to Europe

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Greenspan says that Fed didn't cause the housing bubble

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Generational Dynamics Web Log for 19-Mar-2010
19-Mar-10 News - Greece delivers ultimatum to Europe