Will the Collapse of Greece affect Canada?

Rocky Road · April 4, 2012

http://online.wsj.com/article/SB10001424052702303816504577319743650637600.html?mod=googlenews_wsj

"Canada Beats America

And we don't mean in hockey. Try taxes, spending and energy. " - Wall Street Journal

dre · April 4, 2012

You really have to wonder about a magazine like Adbusters, that portrays the workers struggle the same way, whether the workers are making a pittance, or whether they have gold plated benefits plans as in some European countries.

This is advocacy pure and simple... no reasonable person can conclude that all of these situations are the same.

It doesnt matter if they are the same or not. Benefits and wages that are too high will be reduced by the market, because the value of the Spanish dollar will decrease. The nice thing about this is that politicians dont have to do anything contraversial.

The real problem here is that these decisions are being driven by a bunch of unelected beaurocrats and bankers in the EU, ECB, and IMF, and the decisions are made based on whats best for the Euro project and not whats best for Greece, Spain etc.

PEople in spain or greece should absolutely NOT accept the subversion of democracy by an unelected political class and the very same bankers that got them into all this trouble in the first place. And the world in general should not accept it either.

These countries need to withdraw from the Eurozone and start rebuiding. THe idea that they are going to fix their debt problems with a fresh round of borrowing is ludicrous.

Rocky Road · April 5, 2012

Its like a heroin addict that keeps wanting more,

The dependence on debt is truly insane, Europe & the US especially.

We are spending our children's inheritance and leaving them with the tab,

once the economy is collapsed then it will be near impossible to pay back,

just like what Greece is going through - the man who committed suicide called

for violence on the "occupation government" which is to say - the heist of their country

and the death of their sovereignty.

dre · April 5, 2012

Its like a heroin addict that keeps wanting more,

The dependence on debt is truly insane, Europe & the US especially.

We are spending our children's inheritance and leaving them with the tab,

once the economy is collapsed then it will be near impossible to pay back,

just like what Greece is going through - the man who committed suicide called

for violence on the "occupation government" which is to say - the heist of their country

and the death of their sovereignty.

Yeah its really disturbing whats going on over there. Countries like spain, portugal, greece, ireland etc, are stuck with the monetary policy that works for France and Germany. Low interest rates have caused false economic booms that are now turning bust. And unelected thugs at the ECB are telling these countries that they are not allowed to hold elections.

Iv enjoyed this guy recently from UKIP. Hes a member of the so called European Parliament but he really just wants the whole project shut down.

We are headed for a world run by bankers where democracy is merely symbolic.

Edited April 5, 2012 by dre

Rocky Road · April 5, 2012

"false economic booms"

That is exactly what they are, false.

It is like we our status quo has become consuming vastly beyond our means.

That video shows a sliver of the frustration, he was being polite.

I am certain that things will get increasingly violent this summer.

Michael Hardner · April 6, 2012

It doesnt matter if they are the same or not. Benefits and wages that are too high will be reduced by the market, because the value of the Spanish dollar will decrease. The nice thing about this is that politicians dont have to do anything contraversial.

The Euro will decrease ? That means imports such as oil will become much more expensive.

And European assets would lose value ?

These countries need to withdraw from the Eurozone and start rebuiding. THe idea that they are going to fix their debt problems with a fresh round of borrowing is ludicrous.

It's also austerity, though. What else should they do ?

dre · April 6, 2012

The Euro will decrease ? That means imports such as oil will become much more expensive.

And European assets would lose value ?

It's also austerity, though. What else should they do ?

I answered that question in the same posted you quoted. They should remove themselves from the economic euro prison, and start rebuilding. Instead they are trading democracy for more borrowed money. Thats like treating your concussion by smacking your head with a hammer.

The Euro will decrease

Nope, Im suggesting they go back their own money... IT would decrease in value. which is exactly what needs to happen.

Michael Hardner · April 6, 2012

Nope, Im suggesting they go back their own money... IT would decrease in value. which is exactly what needs to happen.

It would decrease... probably collapse. They wouldn't be able to import anything. A country like Greece doesn't manufacture anything or have resources.

Topaz · April 6, 2012

Should Canada worry that the head of the Treasury is a born Greek?

Rocky Road · April 6, 2012

It would decrease... probably collapse. They wouldn't be able to import anything. A country like Greece doesn't manufacture anything or have resources.

I agree, they are doomed either way, dropping the Euro or stayin on and borrowing to finance their debt obligations.

Spain, Portugal, Ireland, Italy are also in trouble.

dre · April 6, 2012

It would decrease... probably collapse. They wouldn't be able to import anything. A country like Greece doesn't manufacture anything or have resources.

Propping them up with yet more borrowed money will not prevent a collapse.

Look... theres a reason why countries like Greece and Portugal need different monetary policy and interest rates than countries like Germany and France. These countries have suffered under low interest rates the same way Canada is going to suffer... when interest rates are too low for too long, theres too much consuming and borrowing and not enough production.

These countries for the most part rely on things like agricultural exports and tourism. These things will boom with a devalued currency, because their exports will be cheaper. They will also start making more things for themselves because imports will get more expensive. This is the exact kind of economic medicine that is required, and this indeed is the market mechanism to deal with these type of situations. If these countries had not been in the Eurozone they would have had to decrease borrowing a long time ago, and wages would have already decreased through devaluation, instead of acts of government that cause the population to take to the streets and set stuff on fire.

You need to read about the history of the floating exchange rate system, and why its there! Its really easy to see why arbitrary currency unions are an incredibly bad idea. What the hell are these countries supposed to do when things like wages and personal savings rate get out of wack! They cant even set their own bloody interest rates.

Michael Hardner · April 6, 2012

Propping them up with yet more borrowed money will not prevent a collapse.

Look... theres a reason why countries like Greece and Portugal need different monetary policy and interest rates than countries like Germany and France. These countries have suffered under low interest rates the same way Canada is going to suffer... when interest rates are too low for too long, theres too much consuming and borrowing and not enough production.

Don't consuming and production go hand in hand ? How can there be consumption without production ?

These countries for the most part rely on things like agricultural exports and tourism. These things will boom with a devalued currency, because their exports will be cheaper.

Sure, but they import more than they export don't they ? They don't produce very much and that won't change in the near term.

They will also start making more things for themselves because imports will get more expensive.

Who ? Who will invest money in a country that's on the verge of collapse ?

TimG · April 6, 2012

What the hell are these countries supposed to do when things like wages and personal savings rate get out of wack!

They can adopt flexible labour market policies which allow wages to rise and fall as conditions change. You can argue that such policies are politically difficult but they are not impossible (in fact the private sector does this all of the time as companies go under and new ones are created).

dre · April 6, 2012

Don't consuming and production go hand in hand ? How can there be consumption without production ?

Sure, but they import more than they export don't they ? They don't produce very much and that won't change in the near term.

Who ? Who will invest money in a country that's on the verge of collapse ?

Don't consuming and production go hand in hand ? How can there be consumption without production ?

Nope, and thats why we have all these huge trade imbalances around the world. Easy credit encourages consumption without production. If I can easily borrow to consume, then I dont have to work (produce) as much to get the things that I have... at least in the short term.

Sure, but they import more than they export don't they ? They don't produce very much and that won't change in the near term.

Yes, and thats why they have so much debt. It should be very very easy for you to understand why an entity cannot consume more than it produces for a prolonged ammount of time. Try an experiment with your household finances!

Who ? Who will invest money in a country that's on the verge of collapse ?

The citizens in those countries! Your missing the key reason that economies function. Some people need stuff, and other people know how to make stuff. Money is used as a medium to make exchange easy, but money is NOT what builds a strong economy, and neither are central banks. As foreign investment and imports dry up it will encourage domestic production. When government needs people to save they can raise the rates, and if they want spending they can lower the rates.

Take a look at our own debt crisis a couple of decades ago. We raised the interest rate up to around 8%, and that increased the ammount that people had to produce and save, in relation to how much they consume. Our dollar value got historically very low which made domestic production more competitive, and over the course of a decade or so we rebuilt our economy and our currency.

These countries cannot do that. They have personal and government debt levels that drawf their GDP, yet interest rates are pegged at near record lows by beaurocrats in foreign countries that the Greeks and Spanish DID NOT elect, CANNOT fire, and have no control over.

And whats worse, these scumbags at the central bank are now actively and openly trying to subvert democracy. They are telling these countries that are not allowed to have general elections until they sign onto packages designed to keep the eurozone dream alive. They fight against the right of states in the europe to put any of these questions to a national vote, and the only two countries to hold referendums on the EU, told these beaurocrats to go phuck themselves.

And when people see their democracy being taken from them by unelected beaurocrats the result is violence and nationalism, and its going to get much worse, and it SHOULD get much worse. Citizens in member states vitally need to destroy this so called union. They were NOT asked if they wanted it, they were NOT given a chance to vote on it.

You said this yourself in another thread... You cant assume arbitrarily that vastly different economies need the same monetary policy and rates!

The euro project needs to be destroyed, and luckily beaurocrats in the EU, ECB, and IMF are doing a fantastic job of it.

Edited April 6, 2012 by dre

TimG · April 6, 2012

The citizens in those countries! Your missing the key reason that economies function. Some people need stuff, and other people know how to make stuff.

The key point you are missing is countries like Greece have no ability to produce most of what they need to keep a modern economy running whether we are talking oil or network routers. This means they need to generate revenue to purchase these goods from other countries. Generating revenue requires a competitive advantage and capital investment that can take advantage of it. The trouble is capital mobile - Greeks with capital are free to invest anywhere that gives the best return and many do. It is naive to assume that Greeks with money would invest in their own country if they felt it was a bad investment risk. Edited April 6, 2012 by TimG

Rocky Road · April 7, 2012

It is like a "black hole".

dre · April 7, 2012

The key point you are missing is countries like Greece have no ability to produce most of what they need to keep a modern economy running whether we are talking oil or network routers. This means they need to generate revenue to purchase these goods from other countries. Generating revenue requires a competitive advantage and capital investment that can take advantage of it. The trouble is capital mobile - Greeks with capital are free to invest anywhere that gives the best return and many do. It is naive to assume that Greeks with money would invest in their own country if they felt it was a bad investment risk.

You dont seem to understand what an economy even IS never mind what drives it.

Greeks with capital are free to invest anywhere that gives the best return and many do.

Floating currency exchanges fully address that. Falling curency values encourage them to invest that money at home. That is the whole point of the system.

It is naive to assume that Greeks with money would invest in their own country if they felt it was a bad investment risk

No its not naive at all. Read about what a floating currency exchange is. Holders of greek drachmas are more likely to invest that money at home in a devaluation scenario because real labor costs are falling, and their capital has little value anywhere else.

Edited April 7, 2012 by dre

Rocky Road · April 7, 2012

I agree diversifying will only benefit troubled economies.

TimG · April 7, 2012

Floating currency exchanges fully address that. Falling curency values encourage them to invest that money at home. That is the whole point of the system.

It depends on the industry. If you want to develop industry that requires a lot of capital equipment then falling currencies hurt - they do not help. The problem for Greece is they need a competitive advantage and that is not going to come from resources or cheap manufacturing (too much competition out there). Tourism seems to be the best bet but the industry is shackled by byzantine regulations. If those cultural problems are not fixed then all Greece would get from a new currency is hyperinflation.

Holders of greek drachmas are more likely to invest that money at home in a devaluation scenario because real labor costs are falling, and their capital has little value anywhere else.

What is needed are sane government policies. i.e. balanced budgets and government that seeks to encourage private enterprise rather than tax and regulate it to death. A floating exchange rate does nothing without those policies in place. If Greece showed any willingness to address its governance problems then a separate currency would likely help. Without those changes it would simply add hyperinflation to the misery.

Rocky Road · April 10, 2012

Hyperinflation is going to happen to the US dollar, its already happening.

bush_cheney2004 · April 10, 2012

Hyperinflation is going to happen to the US dollar, its already happening.

Make up your mind...is it going to happen or is it already happening? If so, cite some examples of existing "hyperinflation" for the US dollar. Contrast this with a purposeful weak dollar policy to monetize debt. Compare to Greece and failure of the EU to stabilize their debt crisis.

dre · April 10, 2012

It depends on the industry. If you want to develop industry that requires a lot of capital equipment then falling currencies hurt - they do not help. The problem for Greece is they need a competitive advantage and that is not going to come from resources or cheap manufacturing (too much competition out there). Tourism seems to be the best bet but the industry is shackled by byzantine regulations. If those cultural problems are not fixed then all Greece would get from a new currency is hyperinflation.

What is needed are sane government policies. i.e. balanced budgets and government that seeks to encourage private enterprise rather than tax and regulate it to death. A floating exchange rate does nothing without those policies in place. If Greece showed any willingness to address its governance problems then a separate currency would likely help. Without those changes it would simply add hyperinflation to the misery.

Devaluation is the actual means by which those problems are solved. THe Greek public service costs too much, and is more than 50% of GDP. If you fire all those workers, or strip them of their pensions they set fire to the capitol and bring down the government. But you can roll their wages and pensions and all the other costs associated with them back significant using devaluation without causing the same kind of problem.

There probably WILL be something close to hyperinflation, and the reality is there WILL be "misery" as well. Theres no painless way to fix this. If they re-instroduced the drachma its value definately would fall rather quickly, and Greece will have an impossible time selling any bonds. The government wont be able to borrow anymore. But thats the right prescription for someone that has borrowed themselves into the shit abyss.

Stay in the eurozone with all that easy credit and rock bottom rates, and the borrowing will not stop. In fact the whole solution the ECB/IMF are proposing is that Greece borrow a whole shitload more money.

This is the market mechanism for fixing this behavior. If you borrow too much then it gets harder to sell bonds, and you are forced to raise the rates to control devaluation and ward off inflation. The government and people change their behavior not because they suddenly got more "competent" but because they simply have no choice. The market downgrades you credit, no different than if you had so much credit card debt you can no longer make the payments. Its a HEALTHY thing for your credit to get cut off, even though it hurts for a while.

dre · April 10, 2012

Make up your mind...is it going to happen or is it already happening? If so, cite some examples of existing "hyperinflation" for the US dollar. Contrast this with a purposeful weak dollar policy to monetize debt. Compare to Greece and failure of the EU to stabilize their debt crisis.

Inflation is a personal economic measure. The cost of things like food and energy are rising, but the costs of other things like textiles and consumer electronics and non durable imports are coming down. So at the macro level those things balance each other out.

In any case things like energy and food are inflating at about 7 or 8% already. This has already caused a lot of problems in the economy, and it will cause more. Whether or not you are going to see a massive collapse of the dollar in a very short ammount of time depends entirely on how strong demand for US bonds is.

Oddly enough as much as the US government and central banks seems intent on destroying the dollar, theres a lot of people around the world trying to FIX the dollar as well. China for example wants a strong dollar so they buy a lot of bonds. Same goes for oil exporting nations. Same goes for Japan. These countries obviously dont want the the dollar to drop because Americans would reduce consumption of these imports.

I can see this continuing for quite some time. These countries will continue to prop up the greenback until the US consumer market is no longer such an elephant in the room. They will continue to push back against the US governments attempts to devalue.

But even IF the US dollar collapsed that would be a good thing for Americans in the long term. The government would be out of debt, and all that productive capacity would start returning to the US.

Rocky Road · April 10, 2012

Make up your mind...is it going to happen or is it already happening? If so, cite some examples of existing "hyperinflation" for the US dollar. Contrast this with a purposeful weak dollar policy to monetize debt. Compare to Greece and failure of the EU to stabilize their debt crisis.

I mean it is starting to happen, it is in the early stages.

Have you ever listened to Chris Martenson?? He details the problem quite well.

http://www.chrismartenson.com - See his Crash Course.

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