Mish has an excellent run down of the sheer idiocy the IMF and ECB are carrying on regarding Portugal, Greece and rest of Europe’s bankrupt “PIIGS”. Meanwhile, over at Zero Hedge there is an excellent article of just what everyone can expect when (not if, when) Greece defaults. Not a pretty picture, anywhere you look.
Massive protests are spreading across Spain and unrest continues to grow in Greece and Portugal. People are demonstrating mostly over the tax hikes and benefit cuts being imposed to meet IMF and ECB requirements for more funding. To be sure, all of the European nations need to trim their socialist welfare system, but I’m all sympathy for the regular folks there. Sure, they voted in to office twits who promised them no work and high benefits, so this mess if fundamentally of their own making…but, then again, why should a Greek or Spaniard agree to a lower standard of living so that bond holders don’t lose money? Additionally, why should Germans and Frenchmen agree to tax themselves so that more money can be provided for profligate, bankrupt States?
But the wheels of the Ruling Class continue to grind forward. In Spain, the government’s response to the protests is to insist that no one is allowed to protest at the moment, so please go home (the Spanish people don’t seem to be listening, however). Protests, money printing, more loans to pay off old loans…all a bunch of nonsense. The bottom line is that countries like Greece and Spain cannot pay their debts – not now, not ever. Doesn’t matter how much they jack up taxes and cut benefits, there isn’t enough money in either country to pay off the full debt load and there never was. Essentially, financial gamblers bet that reality would never show up and kept loaning money to people who could never pay. The rational response to this would be to just default, pay off at, say, 50 cents on the dollar, and have done with it.
Ah, but the bond holders have the ear of government and governments are deathly afraid of a crash – it might result in the worst possible outcome: loss of office at the next election. So, they’ll keep twisting and turning and hoping against hope that something will turn up to avert catastrophe. They will be disappointed in their hopes – there is no way out of this other than by default. And default really isn’t the worst thing possible – all it does is allow everyone to find out what everything is really worth and then move forward. Sure, some banks will fold and unemployment will rise (though with unemployment already at 21% in Spain, this might not be as noticeable as you think)…there will be three or four bad years as everything shakes out. But once past it, you’re past it – debts defaulted upon cannot burden you a second time. With a bit of wisdom and grit (mostly in the areas of cutting back on the more lavish aspects of welfare, and then also being willing to work hard), things will improve fairly quickly…and in ten years it will be like it never happened.
Unless, that is, they really do keep trying to put it off – because the longer they put it off, the worse it will be when the wheels come off the cart. This, by the way, is why I’m a “gloom and doom” person regarding the economy – even if one wishes to believe that we are in a genuine recovery, the economic fundamentals around the world are so weak that another crash is bound to happen some where, and some time soon…and when the string does finally snap, it will take down one financial institution and/or government after another. It’ll be kind of like the collapse of the Creditanstalt in 1931 – just a bank, but when it went down it exposed the underlying bankruptcy of the global financial system…and that is when the thus-far normal depression of 1929 turned in to the Great Depression of the 1930s. We’re teetering right on that cliff right now…
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