29 Jun 2015, 1:07pm
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  • A long hot summer, perhaps a Grexit – and hopefully a rescue mission

    This is a story too hard to call, and yet it seems to be gathering speed. Hot summers are also good for a decent rumble in the markets, in the immortal words of George “Dubya” Bush

    If money isn’t loosened up, this sucker could go down,

    And here it is from Tsipras himself

    Now I’m sure there’s going to be loads of punters and talking heads, most of them better qualified than I on the whole macro thing, but this is my blog so I’ll add to the wall of noise.

    I think the Greeks are taking the piss wanting to stay in the Euro on other people’s ticket, though I do see the point that the Germans are also taking the piss in a different way. The advantage the Germans have is they are the ones with the money. Fundamentally there seems to be the tension in the design of the Euro and the regulations about fiscal probity and not having it as a transferunion, it’s like wanting things to be light and dark at the same time. We’re about to find out, when push comes to shove whether we will have fiscal probity or we will have a transfer union in the Euro, and the symptom will be Grexit in the first case and Grescue in the second.

    My hope is for Grexit – it is a second shoe that didn’t drop in the 2009 financial crisis. Something unsustainable gets worse and worse as time goes by. I see the point that Europe stiffed the Greeks by bailing out Europe’s banks in 2010. Greece is owed something by Europe, but not everlasting transfer – unless that is democratically agreed not just by Greeks wanting it or not but by Germans and the rest of the Eurozone voting for a transferunion – it’s not just up to the debtors to holler “I want”. Too much of European policy is decided before putting it to the people, and that sort of thing needs to stop until the people can catch up or say “enough of that”. Half the trouble we have is that it’s not clear if there’s enough common cause for a United States of the Eurozone, the symptoms seem to indicate not. A lack of common cause in Europe has been ugly in the past.

    Europe does owe the Greeks something. A Grexit will be a serious shitstorm. Not much can be done to avert the initial storm, but Europe could do well to take inspiration from the United States. Both the Marshall Plan, and indeed how Nixon handled Hurricane Camille in the 1960s rather better than Dubya handled Katrina that attacked the same region.

    The Nixon administration realised they could not fight the storm, but they could chase it, and render assistance the day after. Perhaps something similar is owed Greece – yes, they may have to default, and return to the drachma to regain fiscal sovereignty. In the shitstorm that ensues, Europe should render humanitarian and basic stabilising  financial assistance without strings and given, not lent. It will then be up to the Greek people how they want to live, with some semblance of fiscal probity or with the high levels of tax evasion they seemed to have. In the latter the value of the drachma can fall to adjust, and people still feel good.It’s got form…

    As time went by you needed more and more drachma to buy that 1990s US dollar

    As time went by you needed more and more drachma to buy that 1990s US dollar (I mislabelled the £ and DM which need to be switched)

    I called this too early in February and maybe I call this early now. A long,hot summer is good for damn fine financial crisis.

    Interesting times ahoy?

    Too tough to call at this stage, but it’s worth getting ready. I don’t think that the credit crunch was ever properly fixed – what seemed to happen is QE went into inflating asset prices – that’s houses for you lucky BTL landlords if you can sell at the higher price and share prices for the rest of the PF community. The hard-pressed middle seemed to get the short end of the stick, and indeed are due for a second helping in Osborne’s budget next month. Further afield there seems to be trouble in paradise China though there seems to have been a fair bit of irrational exuberance too.

    I need to shift about half my AVCs to my SIPP, but the remaining half is due to come out in just over five years time, and I don’t need it for income. Although as a deferred member I am a second-class citizen it appears I can still switch from the cash fund I have been in for a while (when I thought I would have to draw it early) to the 50:50 Global:FTSE100 index fund that served me so well between 2009 and 2012. Since I can shift some to a SIPP I am not up against the 25% tax-free PCLS limit any more, so I may well go back in for another bite of the cherry over the next few months, spreading myself over time buying into (hopefully) a falling market.

    At the moment the market isn’t really reacting in any big way. For sure, I may look stupid saying that in the coming week!  The Grauniad says Shares slide as deepening Greek crisis shakes global markets and the Torygraph says World Markets in Turmoil but we’re only talking 2% – at the elevated levels shares have been this last couple of years a 20% fall would probably still be a correction rather than a dive IMO 🙂 Only hindsight will tell us if these are the trumpets at dawn heralding the second phase of the 2007-9 credit crunch. But yeah, looks like times could get more interesting and the stock market a lot less boring than it has been of late.

    Interesting times are also times when it’s more comforting to have paid down the mortgage and be debt-free, with a unreasonable amount of cash, and have most of this year’s ISA allowance free. Mind you, over at Fidelity there are fellows telling you to go a step further and hold physical cash in the mattress…

    Let’s hope for some statesmanship from our EU leaders

    It may be time to surrender a piece of the Eurozone dream in the case of Greece. But I despise the talk of Greece having to leave the EU at the same time, and I hope in the back rooms there are people drafting a different tone. If the Greeks move to the drachma which is probably their best long-term route, the history of the EU and indeed the spirit of the people who set up the Treaty of Rome in 1958 should prevail. Europe fought a second world war because the victors pushed for an ignominious defeat. Greece doesn’t belong in the Eurozone, but it belongs in the EU if that is the wish of the Greek people, and the EU as a whole owes it the grace of assistance across the troubled times ahead. It’s time for a magnanimous resolution, and giving thought to establishing what a successful Eurozone looks like, what needs to happen and whether the people really want that. The markets will be gunning for the next target soon…

     

     

     

    12 Feb 2015, 2:15am
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  • Zorba the Gr€€k is still skint after five years

    As the euro continues to fall amid disappointment that the EU has not come up with a solid rescue plan for Greece, Zorba makes an appearance

    Patrick Blower, Feb 2010

    It was five years ago to the day that I saw this livedraw on what was then the Guardian’s Comment is Free 1. Only one of the leaders in the cartoon is still standing after the five years, – five years is a really long time in politics.

    In those heady days, a nervous Ermine was still at work, but had roughed out a flight plan for the exit. All this turbulence in the market seemed hazard and opportunity, and I was convinced the Euro was going to blow, the internal contradictions of a finance union without a transfer union, the lack of common cause.

    None of these things have changed, but I underestimated the doggedness with which people cling to old forms, and of course perhaps the preparations the rest of the eurozone felt they needed to do to bolster the creaking edifice against Grexit. Even now it’s hard to say – will I look back at this in five years time and wonder how nothing has changed? Exactly how long can the markets stay irrational while the entirety of the Eurozone grinds its way into insolvency.

    Just like then, it feels that the forces are gathering for a showdown. It is in points of change that opportunity arises and destruction threatens. The five year anniversary seems to be a good one to invoke the spirit of Zorba the the Gr€€k once again. The world has still not recovered from the 2008 financial crisis, there is still too much capital chasing not enough productive assets. Greece is a symptom as well as a cause – the Eurozone serves two masters. As Lincoln observed the problem in a different field

    A house divided against itself cannot stand. I believe this government cannot endure, permanently, half slave and half free. I do not expect the Union to be dissolved — I do not expect the house to fall — but I do expect it will cease to be divided. It will become all one thing or all the other.

    Abraham Lincoln, 1858

    So too with the Eurozone, it lumbers endlessly from crisis to crisis, and it is time for it to become one thing or another. It has crushed too many dreams already, and it needs to shape up or to start to cut away the dead wood, and become small enough to for a political and transfer union to hold. Or the United States of Europe needs to be constructed.

    To call in another American view on the fiasco, I was glad to hear Greenspan finally call it out in public

    “I believe [Greece] will eventually leave. I don’t think it helps them or the rest of the eurozone – it is just a matter of time before everyone recognises that parting is the best strategy.
    […]

    The problem is that there there is no way that I can conceive of the euro of continuing, unless and until all of the members of eurozone become politically integrated – actually even just fiscally integrated won’t do it.”

    Until that comes to pass or the whole misbegotten enterprise disintegrates from its internal inconsistencies the rotting corpse that was wounded by the original financial crisis will endlessly stink up the place and ruin Europeans’ lives – particularly young folk by the looks of it.

    As a young man I was unlucky enough to graduate into Thatcher’s first recession in 1982, but although deep it recovered relatively quickly compared to the 2008 recession that seems to be combining with other strategic shifts in the workplace. In Britain although these problems may be affecting the quality of jobs, in the Eurozone and southern Europe there seems to be grinding youth unemployment as well as a general protracted recession – five years of that is a serious hit on one’s working life. No wonder there is a Greek youth brain drain.

    Can’t pay, won’t pay

    The Greeks are never going to repay the debt in Euros. Writing the debt off which is what Syriza seem to want isn’t going to help them in the long run either. They are yoked by the Euro to people that like to live in a different way. Let’s see what happened in the past. I hit up these guys for some historical USD to GDR, GBP and DEM from 1990 to 2001. I then normalised everything to a value of 1 on Jan 1990. Basically you needed 2½ times as many Drachma to buy a US dollar in 2000 than you’d needed 10 years before. Germans, who didn’t exactly have a great 1990s needed roughly the same and even in Blighty we only needed about 20% more GBP to buy that dollar. You can quibble as to what sort of store of value a US dollar represents but the difference cancels that out. There’s something different about the way Greece likes to do things and its currency reflected that.

    As time went by you needed more and more drachma to buy that US dollar

    When Zorba the Gr€€k was drawn, roughly the same distance as is covered by this chart had elapsed after the drachma was crash-locked to the Deutschemark’s proxy the Euro. Now it’s 1.5 times the space covered by this chart. There’s no point in resetting this to zero now, it’s a structural difference. In a true currency union like the United States, rich parts continuously transfer money to poor parts, else a New York City dollar would appreciate against a Detroit, MI dollar – in the chart above you’d need a lot more Detroit dollars to buy a beer in NYC at the end than at the start.

    The Greeks may be the canary in the coal-mine

    Those Gr€€k €uro debts ain’t gonna get paid. There’s a history lesson in this for the rest of us too. In the good times it’s easy to believe in financial promises, but in the end a lot of finance is just that, promises. A lot 2 of my ISA is also promises, so are all those British mortgages taken out of overinflated house prices at low interest rates by people who will never earn enough in a lifetime to discharge those debts unless something changes. At the moment the lens is focused on Greece, but it can move, and maybe zoom out. Odd things are happening in the economy – we have created a lot of money to buy off the day of reckoning in 20o8 and after seven years it’s still not finding things of value to stand proxy for, companies are hoarding cash because they can’t invest it to make things people can/will buy more of. It’s not necessarily all bad. Maybe it is the final denouement of consumerism -the Post Carbon Institute’s Richard Heinberg in a curiously upbeat mode

    The practical result of declining overall societal EROEI 3will be the need to devote proportionally more capital and labor to energy production processes. This is likely to translate, for example, to the requirement for more farm labor, and to fewer opportunities in professions not centered on directly productive activities: we’ll need more people making or growing things, and fewer people marketing, advertising, financing, regulating, and litigating them. For folks who think we have way too much marketing, advertising, financialization, regulation, and litigation in our current society, this may not seem like such a bad thing; prospects are likewise favorable for those who desire more control over their time, labor, and sources of sustenance (food and energy).

    […]

    The energy glut of the 20th century enabled us to embody energy in a mind-numbing array of buildings, infrastructure, machines, gadgets, and packaging. Middle-class families got used to buying and discarding enormous quantities of manufactured goods representing generous portions of previously expended energy. If we have less energy available to us in our renewable future, this will impact more than the operation of our machines and the lighting and heating of our buildings. It will also translate to a shrinking flow of manufactured goods that embody past energy expenditure, and a reduced ability to construct high energy-input structures. We might find we need to purchase fewer items of clothing and furniture, and fewer electronic devices, and inhabit smaller spaces. We might also use old goods longer, and re-use and re-purpose whatever can be repaired. We might need to get used to buying more basic foods again, rather than highly processed and excessively packaged food products. Exactly how far these trends might proceed is impossible to say: we are almost surely headed toward a simpler society, but no one knows ultimately how simple. Nevertheless, it’s fair to assume that this overall shift would constitute the end of consumerism (i.e., our current economic model that depends on ever-increasing consumption of consumer goods and services). Here again, there are more than a few people who believe that advanced industrial nations consume excessively, and that some simplification of rich- and middle-class lifestyles would be a good thing.

    I grew up in a simpler London, and when I look around me at the shocking waste and inefficiency of consumerism compared to only 40 years ago I do wish we could distil the many great and genuine innovations and improvements from all the destructive busywork and tat that takes away.

    Why? For crying out load, why?

    Consumerism. Why did this misallocation of resources happen?

    Perhaps Greece rubbing up against the evil heart of darkness in the common cause assumptions of the Euro is reminding us that in the battle of illusion against reality the latter tends to win out over time. We tell ourselves many stories round the virtual campfires weaving meaning into the flickering shadows on the wall. Although these myths are symbolic, not all of them are true. It is going to be an increasingly difficult task to find a way of turning cash into usefully productive long-term assets against a background of secular stagnation, and making easy assumptions is probably not the way to do it. Much of the appreciation is asset prices like shares and houses doesn’t reflect an increase in underlying value or future income stream in the case of shares. It merely reflects the increased amount of QE money chasing those assets. Anybody could be a great investor over the last few years with that sort of tailwind, though the day of reckoning seems to be getting closer with the help of our Greek friends shining a light on what unrealistic claims upon the future look like.

    The Greeks want to live with a currency that depreciates faster than the Germans. It is called the drachma. Possibly if Northern Europe wants its money back from the repudiated € loans, sue Goldman Sachs who aided the Greeks get into the Euro under false pretences, and good luck with that. It’s always good when seeking repayment to pressure people who actually have some money, and the Vampire Squid would seem to be where a lot of the money ended up 😉

    Goldman Sachs arranged swaps that effectively allowed Greece to borrow 1 billion Euros without adding to its official public debt. While it arranged the swaps, Goldman also sought to buy insurance on Greek debt and engage in other trades to protect itself against the risk of a default on those swaps. Eventually, Goldman sold the swaps to the national bank of Greece.

    The drachma is dead. Long live the drachma.

    Notes:

    1. Sadly along with it’s other faults the Internet is not forever – because meaning is held on the transitory relations of bits of spinning discs and network switchery that somebody has to pay for the rust that is linkrot  never sleeps. Analogue media coded information in what they were and didn’t need a constant supply of power and rent, though they had their own decay mechanisms. I was surprised to find this was hard to get hold of again after only five years. For me at least the Guardian’s link doesn’t play, but the artists own livedraw site still has it. I used a youtube link
    2. okay – all of it – a solar flare/EMP would vaporise the lot, but even without that some promises are more hand-waving than others
    3. energy return on energy invested – how much energy you have to invest in getting energy
    26 May 2012, 10:08pm
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  • Treuhandanstalt for Greece – the first glimmer of a solution?

    All the so-called ‘solutions’ for keeping Greece in the Eurozone have been targeted at the symptoms. Too much debt or not enough money; Greece spends more than it earns, so either cancel their debts or give them a load of money. That sort of thing works well enough to address the debt, but not the deficit.

    Which is why Angela Merkel hates it. In there mind’s eye she sees Greece’s National Debt as some sort of nasty sawtooth function starting at 0 in 2001, dropping to -loadsamoney in 2011, injection of loadsamoney from someone probably Germany, rinse and repeat every 10 years.

    Merkel's vision of Greece's finances. Nasty, eh? Each red oval is a injection of Someone Else's Cash

    Meanwhile, over at FT Deutschland we have the Dutch finance minister de Jager snarling about the way club Med have taken over the ECB and the clowns are running the circus. You don’t need to speak German to understand the graphic showing the vicious circle (Teufelskreis). Basically the kitty is empty, the government goes to the IMF, IMF gives money with strings that include raising pension age, weakening employment protection etc, the voters go on the streets, kick the government out, new government forms, goes to IMF etc..

    So de Jager wants to take the process out of the hands of the Greek government, by privatising the state organisations in a similar way to how West Germany bought out the East German state-owned organisations. He has to sell the money going to Greece to his own Dutch voters, insisting the money is only doled out via a Greek Treuhandanstalt.

    It might be a solution. What needs to happen in Greece is for the rule of law to be broken – the contracts that established the absurdly low retirement age and overmanning would be annulled, just as the rules of the old East Germany were written off. There will be a lot of losers in that game.

    Now you can’t impose that sort of thing from outside. But Greece will have an election in June, so a clear message ‘ we offer this solution, that has worked before, and the money to make it fix your problems’ together with the clear alternative ‘or you need to find a different way on your own’ is binary enough to be put to the vote.

    The problems seems to be that the Greek constitution doesn’t work with the Eurozone – it can’t achieve enough productivity to have any hope of sorting the balance of payments. There’s not enough trust in the action of Government to get enough tax revenue to pay for what it does. Indeed, de Jager is most forthright about it –

    Weite Teile der griechischen Wirtschaft sind nicht nur sozialistisch, sondern fast kommunistisch organisiert

    Large parts of the Greek business are organised not so much along socialist lines, rather they almost organised along communist lines.

    Before the Euro Greece could simply devalue to adjust. That’s the great thing about having your own currency – if you can’t be bothered to be productive, your currency will fall to make imports dearer to compensate, so your national lifestyle choice can be retained. Greece doesn’t have this luxury now, something has to change. Greece and Germany are outliers in Europe, and somehow thay have to become more alike. There are huge risks – a lot of what Greeks think of as rights and value will be written off.

    Interestingly, there is a similarity between the Treuhandanstalt proposal for Greece and the analogy to the nascent USA drawn by Ray Dalio (hat tip to Monevator). At the moment Europe is a collection of countries each pursing their national self-interest. There is no executive tax-raising entity called Europe [1].

    The early American states had many of the problems Europe has now, including trade imbalances and debt. This too took about a decade to show up, post Independence. What they did to resolve it was create the United States of America. Pretty wild, eh?

    They had advantages over Eurozone Europeans, though.

    • no extensive history of fighting each other like rats in a sack
    • a single language
    • greater commonality of situation (all had recently become independent from Britain)
    • no common currency

    East Germany compared to Greece

    Although I see the Griechische Treuhandanstalt as a potential technical solution, I don’t think it will fly. East Germans shared a common pre-war history with West Germany, a common language and a common culture. There were obvious things wrong with their pre-unification existence in terms of material wealth and restrictions on movement. It’s interesting that even so, there was a lot of turmoil and discontent in the actions of the Treuhandanstalt, as things east Germans had taken for granted such as job security and some entitlements were wrecked in the upheaval and the shift to private enterprises from the old State run enterprises.

    The West Germans weren’t all chuffed either. I recall my grandmother grouching about how her generation had rolled up their sleeves to rebuild Germany after the war and implement the Wirtschaftswunder (economic miracle of postware Germany under Adenauer) and now their pensions were being taxed another 1% to do the same for the East. The Hartz reforms of the early 20o0s in Germany reduced the level of unemployment benefits, and caused some public unrest.

    The equivalent of the economic handouts to Greece was the acceptance of the OstMark at parity with the West German Deutschmark. The East German economy was a basket case and this vastly overvalued the Ostmark.

    However, it would be churlish to say that the buying out of East Germany by the West has been anything other than a success

    Let’s take a look at the comparison with Greece. Greeks have had a great time of the early 2000s, so all they see is loss in any move to a Griechische Treuhandanstalt. That’s the greatest problem – there’s no real upside. As Christine Lagarde said, it’s payback time for Greeks. That’s a hard sell, and voters are likely to flip the bird to such a suggestion, even if the alternative isn’t all milk and honey either.

    So although it’s the first suggestion about the Greek crisis that might work at a fundamental level, I don’t expect to see Greeks to vote for a Greek THA. That’s the trouble with IMF tough love in a democracy, it’s not a vote winner. And herein lies the problem with democracy all round – it’s hard to get votes for tough  decisions. I’m still expecting a Grexit

    [1]before UKIPpers jump in, if the British Government didn’t agree to the level of EU taxation it could secede which is not so much the case for say, Idaho.
    8 Nov 2011, 10:02pm
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  • past the point of no return

    The original wartime meaning of the point of no return is easy enough to work out. For an aircraft it is when slightly more than half the fuel has been used – in a single-hop journey the craft is then committed to carry on to its destination, for insufficient fuel reserves remain to return to the point of origin.

    It isn’t so easy to determine the point of no return for a complex feedback system like the economy. In the Greek and Euro debacle I feel that time has come. Even in the UK economy, it feels like the rollercoaster has crested the rise, and we are staring at an uncontrolled descent. So much effort has been thrown at the Greek problem, and yet still more is required. It seem that the effort to fight the issues have failed – for the Greeks they could never work, and for the rest of the Eurozone the price seems too high.

    Some ugly truths are becoming apparent, too. The people of a nation state do not appear to be in control of their own destiny. Yes, they were greedy, their politicians lied on entry to the Eurozone and they spent money that wasn’t theirs to spend.

    Somewhere along the line, Greeks seem to have unwittingly surrendered their right to call which of the bad options facing them they wish to take up. The FT offers up a pretty grim scenario for what an uncontrolled exit would look like.

    I’m not sure they’ve still got the option. Sitting here in the good ship Europe it looks like every economic indicator is heading towards the red, as the second dip comes our way. If it feels like this in the UK outside the Eurozone, then in Italy or France it must feel pretty dangerous, and as for Greece, looks like they no longer have any control of where they are going anyway. Outside forces even seem to be ready to ping the odious Silvio Bunga Bunga Berlusconi from Italy.

    Throughout Europe there seems to be a desperate lack of leadership and direction. Each mini-crisis is fought as if it were an isolated incident. It isn’t. For ten years the West has been living way beyond its means, and in Europe the Eurozone was designed without a lender of last resort. Or perhaps it was always assumed that the lender of last resort was Germany,  which seems the only economy able to create real wealth, assisted by the ballast of the rest of Europe to drag the currency down.

    Unlike the aircraft, the point of no return in economic affairs seems hard to foresee, and is only readily identifiable with hindsight. Nevertheless, I’ll stick my neck out and say I figure we will pass it by Christmas. The next year will be a hazardous time, though shot through with opportunities.

    There isn’t enough time now to forestall the flameout of the financial system – my financial net worth could be destroyed in the maelstrom to come.  I’ve left it too late to try and convert my net worth into non-financial investments, and these are illiquid and often immobile to boot. I’m not even that sure how well the canonical hedge against financial collapse, gold would hold up. You need something that has value in the immediate aftermath of a financial collapse, not something that has value five years down the line, when there is some semblance of an economy that can value gold, and, more to the point, offer you something of value in exchange for it.

    So the only logical thing is to play the second dip as if the financial system will recover. I’me already chuffed and having picked up Tesco in the August crapshoot for less than Warren Buffett paid for his share.

    It is at points of great change that opportunities arise. If I am going to play on the principle that the financial system will recover, then I expect that the second dip will hold opportunities…

    29 Jun 2011, 11:20pm
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  • Greece – a long hard rain’s gonna fall

    Well, that’s all right then. Looks like the Greeks have passed their vote on the austerity measures, so everybody gets to ignore the issue for another month or so. FTSE100 is up, everything is good and we’ll carry on as normal then. Both the Greek people and us as Europeans have been failed yet again by the dismal spinelessness and lack of leadership across the board.

    Any fool can see the Greeks can’t live with the same currency as the Germans under the current rule of engagement. They only managed in the first place by fiddling the figures, and the poor foundations of Greece’s entry to the Euro are now giving way under the load of their lifestyle and lack of earning power. Greece either spends too much or doesn’t work hard enough. They can never make up the productivity difference with Germany, even if they wanted to. There are two possible responses to that, either drop them out of the Euro, preferably before the Army generals take over the country again and the EU has its first military dictatorship in the ranks, or treat them in the same way as the Americans treat Indian reservations, and simply accept that we have a group of people that will continually require Federal subsidy.

    It’s not as outlandish as it sounds. We do that sort of thing in the UK already – we take the money that used to be earned by financial services in the City and Labour used that to cover up the increasing structural unemployment in the rest of the country, both explicitly in generous and uncapped benefits, and more perniciously as middle-class welfare by excessively expanding the public sector (ONS stats). Part of the hoo-hah from Yvette Cooper, Harriet Harperson et al that the cuts are going to disproportionately impact women and the poor is because that stands to reason – the primary beneficiaries of the largesse will take the greatest hit when it runs out.

    Greece could be made to work with a permanent financial transfer from other countries, though it would be polite to ask both the donor countries and indeed the Greeks themselves if that is really what they wanted of a European Monetary Union. And perhaps get some more political accountability all round, so that politicians can’t let grand ideas run away without regularly testing them against the ideas of the poor sods that are going to have to pay for it all. It’s the old taxation and representation issue that caused a load of trouble in some obscure colonial outpost in 1776.

    What isn’t working is to pretend that Greece can sort the problems out without continuous gifts from abroad. Even if they get the gifts they may not make it, so endless talk of bailouts and austerity is whistling in the dark. In the beginning, perhaps there was a case to be made for pretending it won’t all end up in a horrible mess, so enable the French and Germans to stabilise their banks. They’ve had long enough now.

    It’s time to stiffen the spine of leadership and start taking action to deal with the place we find ourselves. Europe is still reasonably rich, and in some areas reasonably productive. We have some serious macro challenges. We are living beyond our means. We may have less oil available to us that we had in future. Some of us have created a monetary union without creating a fiscal union.

    None of these issues are intractable, either in isolation, or together. But they are hard, and if we leave them to fester they will cause us very serious grief. We need leaders that will give it to us straight, and get us to roll up our sleeves, spit on our hands and get to work fixing some of these, to build us a better future, rather than lolling about resting on the fruits of the last twenty years.

    Of course, what the Greek government says and what it does are two very different things. And yet another shedload of EU taxpayers’ and IMF money is going to be burned worthlessly on the pyre of this characteristically European failure to take decisive action. Guys, the mission is lost. There’s no way back from here. Either man up and buy Greece  time, again and again forever, or let go.

    The Greek public sector workers, and indeed ours here in a much lesser way, just haven’t accepted that in the fight between European living standards and global capitalism has been won. The living standards lost, to the rest of the world that generally gets by on less, and to the transnational corporations and the guys that own the capital wealth.

    Defeat is inevitable, but if effective action is taken soon then a successful retreat may be possible. Living standards are going to fall across the West in general and Europe in particular, the question now is how quickly. And if we continue to ignore reality and go la-la-la-la all the time, then they’re going to fall pretty damn quick.

    Greek public sector workers aren’t going to be retiring in their mid fifties in the coming years, unless they have been saving hard and been squirreling their savings abroad. If they’re lucky they’ll get to retire at all! This bomb is going to go up in the next year or so, as Labour’s Liam Byrne so succinctly put it ‘there’s no money left‘. At least in the UK we can create the money, effectively taxing holders of cash and all consumers to make up the difference.

    The Greeks could do the same with the drachma. They have the advantage of a decent climate and a place people want to go on holiday to. If they want to kid themselves they are rich enough to retire at 53 then they have to get other people to fund it, and it’s more civilised to do it by continual devaluation making the country a cheap destination for tourists that blagging it from other people via the EU and IMF. Of course that will have the corollary that imported Stuff will continually get dearer, but Greece can probably feed itself, and hey, early retirement does have its price!

    This one is going to cause the mother of all financial shitstorms when it finally comes off the rails. I’ve been holding off buying shares for the last couple of months, partially because I wanted to get into index-linked cash in a serious way, but now I am going to start saving towards a war chest to buy into that shitstorm when it turns up.  I have a list of firms I like the look of, that do real stuff and have been doing for years, and get to pay a dividend. They’ve been getting too dear of late.

    There’s some chance IMO that the storm will be such that it may take down the Western currencies, in which case all bets are off and money itself may no longer have any value, effectively we will have what happened to the Reichsmark. That kind of thing destroys things like pensions, savings and anything that isn’t stuff or land. It’s not impossible to imagine that happening, but it is probably not going to happen, and in that case the storm will offer opportunities. It will probably be ruthless in testeing for value, however – ‘goodwill’ has questionable value when all around you are losing their heads.

    It’s also interesting that the old saw about the volatility of the capital value being higher than the volatility of the income is what I experience. Against that should be set the fact that I’ve only been tracking this for a short while, so it’s hardly like I have been seeing things over a couple of business cycles. I qualify yield in terms of income as a fraction of what I paid for a share rather than in terms of the current share price, which takes at least one volatile variable out of the equation. However, it does reflect how I intend to use my holdings, once I have retired.

    I’m also surprised that there aren’t more PF writers getting ready to steer into the coming storm. Maybe I am just crazy, but I am up for it, though I need a bit more time to save up that war chest. So in some ways I’d rather the EU and the Greeks play a little more shadow boxing before the levee breaks and the shaky edifice assembled from the combination of cowardice and misplaced conviction crumbles in the tide, perhaps later this year or early next year.

    For sure, I could end up doing the same as the EU politicians, and burning the whole stake as I buy into a moribund market if the financial system is destroyed, the sky turns to endless falling rain and the markets flame out. On the other hand, this is one crisis that is clearly going to happen, the only uncertainty is in when the deonouement will play out. It seems kindof rude not to at least consider whether I can make something of it… Yes, it is market timing. No, I can’t call the exact bottom, so I will have to wade in when I feel enough damage has been done and have to be prepared to see gut-wrenching losses if I call the low too early. That’s life – the meek do not inherit the earth, they get slaughtered in the crossfire. The main lesson I should take is from the pusillanimous European elites fixated on weak deferral of action. That lesson is “Be Not Them”. Yoda had it about right. “Do or Do Not. Do not Try”

     
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