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Beware of American econ professors!
Beware of American econ professors!
How Krugman, Sachs and Stiglitz led the Greeks astray.
In countless public utterances and interviews since his resignation, former finance minister Yanis Varoufakis has spoken of how he urged the prime minister to authorize the issue of a parallel currency, to declare that Athens would default on €3.5 billion in Greek government bonds owed to the ECB on July 20 and to seize control of the Bank of Greece. Such an aggressive move would have led inevitably to the introduction of a new currency.
The idea was to use the personal data of Greek taxpayers to secretly create parallel accounts that would facilitate payments in case of a major liquidity squeeze. These accounts would be denominated in euros, but if the need presented itself, they could be turned into the new drachma “at the drop of a hat.”
Varoufakis is not the only one to have harbored revolutionary plans.
“They have served Greece’s cause very poorly indeed.”
On July 14, a few days before he was dismissed from the cabinet for voting against measures mandated by the agreement reached between Tsipras and Greece’s creditors, Panayotis Lafazanis, the head of the Left Platform, the influential far-left faction within Syriza, suggested seizing the national mint and expropriating up to €22 billion in reserves (his figure).
Euro ministers give blessing to Greek bailout, wooing IMF on debt
Euro ministers give blessing to Greek bailout, wooing IMF on debt
Euro zone finance ministers have agreed to lend Greece up to 86 billion euros ($96 billion) after Greek lawmakers accepted their stiff conditions despite a revolt by supporters of leftist Prime Minister Alexis Tsipras.
Assuming approval by the German and other parliaments, 13 billion euros should be in Athens next Thursday to pay pressing bills and a further 10 billion will be set aside at the European Stability Mechanism, earmarked to bolster Greek banks’ capital.
In all, euro zone governments will lend 26 billion euros in a first tranche of the bailout before reviewing Greece’s compliance with their conditions in October.
One remaining uncertainty – aside from Tsipras’ ability to deliver sweeping budget cuts and privatizations opposed by many of his own party – is the role of the International Monetary Fund. After backing two previous bailouts, the IMF renewed its call for the Europeans to grant Athens debt relief – a bone of contention between the Eurogroup and the Washington-based Fund.
Managing Director Christine Lagarde told the Eurogroup by telephone that she could not commit until the IMF board reviewed the situation in the autumn. Officials said the Fund needed more assurances and detail on Greek reforms, notably to pensions, and steps to persuade it that Greece’s debt burden was sustainable.
But after deadlock since January that ravaged the already weak Greek economy and ended in a dramatic U-turn a month ago by the anti-austerity leftist government to avert Athens’ expulsion from the euro, there was a cautious sense of optimism among ministers gathered in a Brussels deep in summer holiday languor.
“After six months of very difficult negotiations with lots of ups and downs, we finally have an agreement,” Greek Finance Minister Euclid Tsakalotos told reporters on Friday. His appointment by Tsipras six weeks ago in place of his abrasive predecessor has been hailed by counterparts as a mark of a new Greek “realism”.
…click on the above link to read the rest of the article…
EU Aims to Lure Greek Deposits Back to Banks With Bail-in Shield
EU Aims to Lure Greek Deposits Back to Banks With Bail-in Shield
Euro-area finance ministers shielded Greek bank depositors from any losses resulting from the restructuring of the nation’s financial system, as part of Friday’s deal on an 86 billion-euro ($96 billion) bailout.
Senior bank bondholders will be in the crosshairs if Greek lenders tap into any of the financial stability funds set aside in the new bailout. Euro-area finance ministers agreed to a deal that would next week place 10 billion euros in Greece’s bank recapitalization fund, with another 15 billion euros available if needed.
“Bail-in of depositors will be explicitly excluded” from European Union rules to make private investors share the cost of fixing troubled banks, Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem told reporters after the six-hour meeting in Brussels.
“When so much money must be invested in banks, in the first place, banks must take part of the risks,” Dijsselbloem said.
Alpha Bank AE’s 400 million euros of 3.375 percent notes due 2017 traded at 70.5 cents on the euro Friday to yield 25.4 percent. Those securities are up from a low this year of 27.5 cents in July.
Firewall Fund
At the start of the new aid program, the bank funds will be placed in a designated account at the European Stability Mechanism, the currency bloc’s firewall fund. Bank supervisors can tap the money as required once Greece’s banks have gone through stress tests and an asset-quality review.
After Greece’s lenders are recapitalized, the subsequent bank holdings will be transferred to the nation’s planned privatization fund, which will then be able to sell off the stakes and use the proceeds to pay back bailout funds.
…click on the above link to read the rest of the article…
Greeks: How did we lose our way?
Greeks: How did we lose our way?
In the heart of Athens everyday Greeks show us how they face the hardship and constraints brought on by the crisis.
For five years Greece has been mired in economic crisis, haunted by the spectre of expulsion from the eurozone.
A Greek exit seemed closer than ever this summer until a last-minute deal with the creditors – the international Monetary Fund (IMF), the European Central Bank and other eurozone countries – kept Greece in, but at the cost of more painful austerity measures and a humiliating further loss in sovereignty.
The grim figures of Greece’s great depression are well-known: a 25 percent contraction in the economy; youth unemployment at over 50 percent.
But while almost all Greeks have stories of hardship and anxiety to tell, life does go on.
Al Jazeera’s Barnaby Phillips heads to the Athenian middle-class neighbourhood of Nea Smyrni to see how Greeks are getting by, and hear their hopes and fears for the future.
| The banks used to phone us. They’d say, ‘Take this money and have a lovely holiday!’ or ‘Take this money and buy the car of your dreams.’ The people who accepted this money made a big mistake. |
The bailout agreement impacts all Greeks, but pensioners and small business owners are particularly worried.
We meet 68-year-old pensioner Sandy Karaiskou who lives on her own. Sandy was an airhostess for Olympic Airways, the Greek national airlines that went bust in 2009.
She takes us on a tour of her neighbourhood to meet her local baker and pharmacist, and to a laiki, the weekly street market.
Baker Dimitris Papavassiliou struggles to keep his business afloat. He talks to us about how the crisis has changed his family and work life and what will happen to his employees. He tells us about how he thinks the past governments are responsible for the crisis.
“Previous governments didn’t take the measures that they should have taken and failed to enforce necessary reforms. And now it’s escalated into a mountain,” he says.
…click on the above link to read the rest of the article…
Greeks Flock to Grassroots Alternative Currencies in Affront to Euro Debt Slavery
Greeks Flock to Grassroots Alternative Currencies in Affront to Euro Debt Slavery
Necessity is the mother of invention.
When Christos Papaioannou noticed his car needed new tires, the Greek computer engineer bought them with euros—but used an alternative currency, called TEM, to pay his mechanic for the labor.
His country has avoided a catastrophic exit from the common currency, at least for now. But a small but growing number of cash-strapped Greeks, who are still grappling with strict money-withdrawal limits, have found another route in TEM and other unconventional payment systems like it.
Before then, Ms. Sotiropoulou said she was only aware of two such programs. No official record of the number of alternative currencies and local bartering systems appears to exist in Greece. But according to an Athens-based grass roots organization called Omikron Project, there are now more than 80 such programs, double the number in 2013. They vary in size, from dozens of members to thousands.
– From the Wall Street Journal article: Alternative Currencies Flourish in Greece as Euros Are Harder to Come by
Hundreds of millions of people throughout the Western world are being forced to admit an obvious, yet uncomfortable reality.Democracy is dead. Your vote and your voice doesn’t matter. Not at all.
No group of people understand this as intimately as the Greeks. They voted for one thing, got something else, and in the process were unceremoniously reminded of their political irrelevance. The Greeks are now in a position to show the rest of us how it’s done. Communities need to take matters into their own hands and tackle challenges at the grassroots level. Nowhere is this more impactful and necessary than in the monetary realm, and some Greeks are already leading the charge.
…click on the above link to read the rest of the article…
Greeks Ditch Euro For Alternative Currencies As Parliament Votes On Bailout
Greeks Ditch Euro For Alternative Currencies As Parliament Votes On Bailout
Greece released a bit of amusing econ data on Thursday, as the country’s statistical authority claimed GDP grew by 0.8% in Q2, well ahead of estimates of a 0.5% contraction. While we suppose it’s feasible that things weren’t as bad in Q2 as they have been since (capital controls weren’t in place during the quarter), we think you’d be hard pressed to find anyone in Greece who thought things were looking up for the economy heading into the referendum. In any event it doesn’t matter, because as WSJ notes, the fiscal retrenchment enshrined in the country’s third bailout program combined with the generally poor outlook means Greece faces a two-year recession – at least:
Greece faces two years of recession amid sharp budget cuts and overhauls mandated by its €86 billion ($95 billion) bailout agreement, European Union officials said, as Greek Prime MinisterAlexis Tsipras expressed confidence that the deal would be completed.
The country’s economy is expected to shrink 2.3% this year because of the recent months of turmoil and the cuts required by the bailout, the officials said, citing the latest estimates from the institutions that have been negotiating Greece’s new aid program. Next year, it is projected to contract 1.3%.
Miraculously, the Greek economy is expected to rebound sharply in 2017, when it will supposedly grow at 2.7%. Clearly that’s optimistic to the point of being largely meaningless, but that’s the story Athens and creditors are sticking to for now and on Thursday, Greek lawmakers will be herded into parliament where they’ll be pressured to pass some 40 new laws which will serve to plunge the country even further into depression than it already plunged during the first two months of Q3.
…click on the above link to read the rest of the article…
Sorry Troika, Spain’s Economic Recovery Is “One Big Lie”
Sorry Troika, Spain’s Economic Recovery Is “One Big Lie”
During six months of protracted and terribly fraught negotiations between Athens, Berlin, Brussels, and the IMF, the idea that Spain, Italy, and Ireland somehow represented austerity “success stories” was frequently trotted out as the rationale behind demanding that Greece embark on a deeper fiscal retrenchment despite the fact that the country is mired in recession. Here’s the official line from the German Council of Economic Experts:
The economic turnarounds in Ireland, Portugal, Spain and – until the end of last year – also in Greece show that the principle “loans against reforms” can lead to success. For the new program to work, Greece has to show more ownership for deep structural reforms. And it should make use of the technical expertise offered by its European partners.
As we’ve shown, the idea that the periphery has truly implemented anything close to “austerity” is absurd on some measures – like debt-to-GDP for instance.
Equally absurd to the 44.2% of Italian youths who are unemployed and, no doubt, to the nearly 23% of Spain’s population that are jobless, is the idea that the policies imposed by the troika in exchange for aid have done anything at all to engineer what Germany’s economic wisemen are calling “turnarounds.”
Here, courtesy of The New York Times, is what “success” and “recovery” looks like in Spain:
Spain, heralded by many as a success story for austerity policies, is on track for more than 3 percent growth this year and has created more than one million jobs since the beginning of 2014.
…click on the above link to read the rest of the article…
Greece – A Mystery and the Core of the Problem
Greece – A Mystery and the Core of the Problem
The Industrious Greeks Mystery
In the course of the Greek crisis, animosities between creditor countries like Germany and Greece didn’t take long to surface. They were fired up in the tabloid press, which was quick to revive various stereotypes. In Greece, Germans soon found themselves compared to their Nazi predecessors, while German tabloids inter alia complained sotto voce about those allegedly “lazy Southerners”.
The stereotype of “lazy Greeks”
This complaint seemed only natural, after all, everybody knows how hard-working Germany’s citizens are compared to the siesta-prone indolent slackers inhabiting assorted Mediterranean shores, right? Not so fast, said economists. OECD studies show that the average Greek worker toils for 2,017 hours per year, the by far highest figure in Europe.
More stereotyping …
This compares to a seemingly ridiculous 1,408 hours put in by the average German worker per year, who finds himself almost at the very bottom of the OECD’s list. Oops, there goes a well-worn stereotype. These figures have to be put in to perspective though. Superficially, it looks like the average Greek citizen in the labor force is working 40% more than his comparable German counterpart, but to some extent this is comparing apples to oranges.
OECD statistics on hours worked per year. This is a slightly dated statistic, but not much has changed since it has been compiled – click to enlarge.
For one thing, Greece’s labor force has a fairly large number of self-employed people, who habitually work longer hours than salaried employees. For another, every fourth German worker is working part-time. However, even if one adjusts for these effects and only compares full-time employees, Greeks still work approx. 10% more than Germans on average (the latter take longer vacations, as well as more sick and maternity leave).
…click on the above link to read the rest of the article…
This Is What Global Currency War Looks Like: A Complete History Of Recent FX Interventions
This Is What Global Currency War Looks Like: A Complete History Of Recent FX Interventions
After the dramatic collapse in the SNB’s defense of the Swiss Franc peg to the Euro, there was a period of relative FX peace in which few if any central banks engaged in outright currency intervention (aside from the countless rate cuts so far in 2015 in response to the soaring strength of the USD, which has risen dramatically over the past year for all the wrong reasons). Then China last night reminded us what happens when in a centrally-planned world one or more markets take too great advantage of relative FX differentials, in this case Japan, whose Yen plunged from USDJPY 80 to 125, and the Euro, which tumbled from EURUSD 1.40 to just above parity.
Now, it’s China’s turn.
But as we pointed out before, FX interventions never take place in a vacuum, and especially during periods of rising dollar strength, when the entire FX world, and especially exporters and mercantilists, go berserk.
Furthermore as Stone McCarthy notes, “this is the sort of “international development” that the Fed will need to keep an eye on and assess as conditions align for the start of policy normalization.” The reason is simple: what China just did could make a rate hike impossible as multinational US corporations will be slammed with a double whammy of soaring dollar and sliding CNY, making US exports that much tougher. And as we won’t tire of repeating, the Fed can not print trade.
And just to help remind readers of what happens when the entire world engages in wholesale currency war, here is a complete list of all the recent FX interventions, courtesy of Stone McCarthy.
Summary of Recent FX Interventions:
The last period of any significant Fed interventions in foreign exchange markets was during 1994-1995 when the dollar reached all time lows against what were then the benchmark currencies of the Japanese yen and German deutsche mark, and the period of the Mexican Peso Crisis. After that, it was acting to defend the value of the yen and new-minted euro.
…click on the above link to read the rest of the article…
Deflation, Debt and Gravity
Deflation, Debt and Gravity
Far too many people have already used lines like “We Are All Greeks Now” for the words to hold on to much if any meaning by now. But it’s still a very accurate description of what awaits us all. Just not for the same reasons most who used it, did.
No, I don’t really want to talk about Greece again. I want to talk about where you live. And about how similar the two will be not too long from now. How Greece is holding up a lesson and a big red flashing warning sign for all of us.
Greece is the mold upon which all of our futures will be based. Quite literally. Greece is a test tube baby rat.
Greece will never “recover” to our North American and Western European economic levels (if ever they were there). Instead, it’s us who will descend, “uncover” so to speak, to the levels Greece is at today. That is baked into the cake, that is inevitable, and that is therefore what we need to be ready for.
If we wake up in time to this new reality, we may, and that’s still only may, be able to prevent the worst, prevent something akin to the same punitive measures the Troika has unleashed upon Greek society, fully wrecking it in the process, its healthcare system, the safety nets for its most needy.
We may find a way to make a smoother transition from here to there if we prepare in time. But that’s the best we can do. As societies, that is; individual fates will vary.
…click on the above link to read the rest of the article…
You Can Add Iraq And Ukraine To The List Of Economies That Are Collapsing
You Can Add Iraq And Ukraine To The List Of Economies That Are Collapsing
The list of nations around the globe that have collapsing economies just continues to grow. In recent weeks I have written about the ongoing saga in Greece, the stock market crash in China, the debt crisis in Puerto Rico and the economic meltdown in South America. But there are more economic flashpoints that I have not even addressed yet. For example, did you know that a full-blown economic collapse is happening in Iraq right now? And did you know that the economy of Ukraine is contracting rapidly and that it cannot pay its debts? Back in 2008, the financial crisis was primarily centered on the United States, but this time around it is turning out to be a truly global phenomenon.
When the U.S. “liberated” Iraq, the future for that nation was supposed to be incredibly bright. But instead, things have just gone from bad to worse. This has especially been true since we pulled our troops out and allowed ISIS to run buck wild. At this point unemployment in Iraq is at Great Depression levels, the economy is steadily contracting and government debt is spiraling wildly out of control…
But Iraq’s oil industry, and the government’s budget, is beingsqueezed by low oil prices. As a result, the nation’s finances are being hit hard: the market price is now half that needed to break even, expanding the budget deficit, forecast to return to balance until the rise of IS, to a projected 9% of GDP.
In the past, Iraq’s leaders approved budgets without seriously taking into account a drop in the price of oil. Now the severe revenue shortfall is forcing leaders to cut back on new investments. Russia’s Lukoil, Royal Dutch Shell, and Italy’s ENI are also cutting back, eyeing neighbouring Iran’s pending economic opening as a safer investment.
Despite improving its finances after the US troop withdrawal, the drop in oil prices and the rising costs of battling IS have pushed Iraq’s economy into a state of near-crisis. According to the IMF, the nation’s GDP shrank by 2.7% in 2014 andunemployment is estimated to be over 25%.
Things are even worse in another nation that was recently “liberated”. The new U.S.-friendly government in Ukraine was supposed to make things much better for average Ukrainians, but instead the economy is absolutely imploding…
The country’s GDP contracted by 6.8 percent last year, and is forecast to shrink by another 9 percent this year — a total loss of roughly 16 percent over two years.
Just like in much of southern Europe, the banks are absolutely overloaded with bad loans and the entire banking system is on the verge of total collapse. The following comes from a CNN article that was posted earlier this year…
…click on the above link to read the rest of the article…
Greek Bank Stocks Crash Again Amid Fresh Signs Of Economic Disintegration
Greek Bank Stocks Crash Again Amid Fresh Signs Of Economic Disintegration
After trading limit-down on Monday when Greek stocks opened for trading for the first time since PM Alexis Tsipras called a referendum that would later prove to be a complete waste of time, shares of Greek banks once again flirted with the daily 30% loss limit on Tuesday as there were simply no bids for a set of institutions that everyone knows is insolvent.
The banks, which are only operational because the ECB has decided to keep the ELA liquidity drip on at least until the central bank sees whether or not Greece will be able to make a €3.2 billion bond payment on August 20, are in desperate need of recapitalization, and according to Brussels’ estimates, will need somewhere on the order of €25 billion to stabilize the system.
Of course that total effectively grows by the day, as the collapsing Greek economy (and we mean “collapsing” in the most literal sense of the word after yesterday’s astonishingly bad PMI print) takes its toll, driving up NPLs in a vicious circle wherein capital controls meant to stem the deposit outflow cripple the economy which in turn serves to further cripple the banks.
Speaking of this self-feeding loop, here’s Kathimerini with more on how the banking sector deep freeze has reverberated through the broader economy:
The state’s losses from indirect taxes alone in the first couple of weeks of capital controls and the shuttering of banks is more than half a billion euros, according to a study published on Monday by the Hellenic Confederation of Professionals, Craftsmen and Merchants (GSEVEE).
The drop in consumption in the first two weeks after June 28 amounted to 50 percent, or 3.8 billion euros, with corporate turnover falling 48 percent on average. This meant the state coffers missed out on 570 million euros in taxes.
…click on the above link to read the rest of the article…
Is Puerto Rico the New Greece?
Is Puerto Rico the New Greece?
While the world’s attention has been firmly fixed on Greece’s debt crisis and the “Grexit” threat, there is trouble brewing much closer to home. Staying largely in the Greek shadow, Puerto Rico is on the brink of defaulting on its debts. The parallels with Greece are unavoidable, and not just on account of the timing, so it is worth taking a deeper look into whether Puerto Rico is the United States’ own Greece and if its looming debt default could potentially have similar repercussions.
Background
What has been going on with Puerto Rico? In short, once a prosperous Caribbean nation, in the past decade Puerto Rico has seen its economy shrink considerably. This trend, the growing migration of citizens to the mainland, as well as the island’s labor policy, have all conspired to create the perfect storm for Puerto Rico.
Jumping to present day, Governor Alejandro Garcia Padilla recently told the New York Times that the nation’s $72 billion debt was ‘not payable,’ while Reuters quoted Moody’s as warning that the probability of Puerto Rico defaulting on its securities was approaching 100 percent.
Much like Greece, Puerto Rico has been asking its creditors for debt relief, and much like Greece, it relies on a much wealthier economy to the north. The island’s debt, owed to a combination of creditors, is higher per capita than any US state.
Default Repercussions
With Puerto Rico’s default almost certain, one cannot help but wonder about the potential impact on the US economy, especially given the parallels with Greece and the chaos which the Grexit could unleash not only on the Eurozone but on the world.
In addition to disrupting the life of Puerto Rico’s citizens, the repercussions of a default would ripple through the traditionally low-risk bond market, impacting investors such as retirement funds.
…click on the above link to read the rest of the article…
Crashing: Apple, Twitter, Oil, Commodities, Greek Stocks, Chinese Stocks
Crashing: Apple, Twitter, Oil, Commodities, Greek Stocks, Chinese Stocks
The month of August sure has started off with a bang. Tech stocks are crashing, oil is crashing, industrial commodities are crashing, Greek stocks crashed the moment that the Greek stock market reopened for trading, and Chinese stocks continue to crash. At this point we have not seen a broad crash of U.S. stocks yet, but it is important to note that the Dow is already down more than 700 points from the peak in May. If it continues to slide like it has in recent days, it won’t be too long before we will officially reach “correction” territory. Just a few days ago, I described August as a “pivotal month“, and so far that is indeed turning out to be the case.
A full-blown financial crisis has not erupted yet, but we are well on the way. In this article, I want to look at a few of the “crashes” that are already happening…
Apple
This is more of a “correction” than a “crash”, but it is very noteworthy because it is happening to one of the most important U.S. stocks of all. The price of Apple stock has already broken through the 200 day moving average, and at this point it is down nearly 11 percent from the peak…
Shares of Apple are down 10.9% from their highest point in a year — which places the stock squarely in what’s considered to be a correction. The unofficial definition of a correction is a 10% or greater drop from a recent high. Shares of Apple hit a 52-week (and all-time) high on $134.54 on April 28.
Greek Stocks, Economy Collapse, Suffer Worst Declines In History
Greek Stocks, Economy Collapse, Suffer Worst Declines In History
The Athens Stock Exchange reopened on Monday and unsurprisingly, some folks were selling.
Trading was suspended five weeks ago after PM Alexis Tsipras’ dramatic midnight referendum call precipitated capital controls and a lengthy bank “holiday.” Shares opened lower by nearly 23% and the country’s banks traded limit-down, which makes sense because they are, after all, largely insolvent. Here’s NY Times:
The Athens Stock Exchange plunged 22.8 percent when it reopened on Monday after a five-week shutdown imposed by Greek authorities as part of efforts to prevent a financial collapse.Bank stocks, which are particularly vulnerable as Greek lenders are set for new recapitalization in the coming months, took a battering, falling by as much as 30 percent.
Although foreign investors face no restrictions in the Athens exchange, local traders can only use existing cash holdings to buy shares; they are prohibited from tapping local bank deposits to buy shares as the authorities seek to prevent capital flight.
Asked about the harrowing decline, European Commission spokeswoman Mina Andreeva had no comment but did say that Brussels has “taken note” of the reopening. Amusingly, she also said the decision was made by “competent” Greek officials. A ban on short-selling was due to expire on Monday but will be extended, an unnamed official told Reuters.
Meanwhile, monthly PMI data from Markit confirmed that the Greek economy suffered an outright collapse in July. Last month marked the 11th consecutive month of contraction, but it was the depth of the downturn that was truly shocking as the index plummeted to 30.2 from 46.9 in June. It was the lowest print on record. New orders plunged to 17.9 from 43.2.
“July saw factory production in Greece contract sharply amid an unprecedented drop in new orders and difficulties in purchasing raw materials,” Markit said. Here’s more from the report:
…click on the above link to read the rest of the article…
