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Howard Marks On Why USA Is Not Greece (Yet)

Tyler Durden's picture





 

Oaktree Capital's Chairman Howard Marks went on a rather more politically-positioned rant in his latest missive (pdf here) but one section caught our eye more than others given the current imbroglio:

 

Via Howard Marks:

The First Order Of Business

What do you think of when you hear the word "Greece"?

  • An uncompetitive, low-growth economy,
  • for years, a higher credit rating than it deserved,
  • the resultant ability to borrow money it shouldn't have been able to, at interest rates that were unjustifiably low,
  • excessive public spending,
  • generous benefit promises that it can't fulfill given the realities and, as a result,
  • soaring debt and deficits.
  • Consequently, the need to cut spending and increase taxes, and
  • mandated austerity and deleveraging, with very negative implications for economic growth.

Now ask yourself what you think of when you hear the words "United States." Certainly the facts aren't the same: our economy is the world's greatest (although not what it used to be), and we can print the world's reserve currency, which Greece certainly can't. But there are similarities. The situation in the U.S. isn't a repeat of Greece's but, as Mark Twain would have said, "it does rhyme."

The truth is that the U.S. has pressing fiscal problems, stretching as far as the eye can see:

  • in the short-term, the 'fiscal cliff,' in which already-mandated tax increases and spending cuts have the potential to take 4% off of GDP if nothing is done about them within the next six weeks,
  • in the medium-term, trillion-dollar deficits unless there's radical improvement, and
  • in the long-term, entitlement promises that absolutely cannot be met. (With millions of Baby Boomers entering their senior years and living longer, we cannot afford the pensions and healthcare benefits that have been promised. The math is inescapable. If these programs are left unchanged, Social Security benefits will grow inexorably, and spending on healthcare has the potential to escalate without limitation.)

The bottom line is that if we don't want to be Greece, we can't act like Greece. Something has to be done... and soon. Every year in which we add another trillion dollars to the national debt (and tens of billions to the annual interest bill) - and every year the excessive entitlement promises are allowed to compound - makes it harder to solve the problem.

 


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Mon, 12/03/2012 - 12:01 | Link to Comment n9lhm
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As long as we don't cut SNAP, EBT cards, and Obamaphones. Those are absolutely off the table :) Oh, and EMTALA.

Mon, 12/03/2012 - 12:18 | Link to Comment Chuck Walla
Chuck Walla's picture

In politics, few talents are as richly rewarded as the ability to convince parasites that they are victims. ... generosity is seen as an admission of guilt, and the reparations as inadequate compensation for injustices – leading to worsening behavior by the recipients.

 

~ Thomas Sowell 

 

FORWARD SOVIET!

Mon, 12/03/2012 - 12:35 | Link to Comment Enslavethechild...
EnslavethechildrenforBen's picture

The United States is the same as Greece, the Bankers are enslaving us all.

Mon, 12/03/2012 - 13:33 | Link to Comment odatruf
odatruf's picture

If people are lining up to be enslaved or at least not bothering to step out of line, then are they really being enslaved at all?

 

Mon, 12/03/2012 - 15:10 | Link to Comment hapless
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It depends on whether or not one believes that the current entitlement promises can be met; and failing that, whether or not one believes it's someone else's problem.

Mon, 12/03/2012 - 11:56 | Link to Comment pain_and_soros
pain_and_soros's picture

He missed another similarity...

US political corruption soon to rival Greece's...

Mon, 12/03/2012 - 12:02 | Link to Comment resurger
resurger's picture

Networth in Billions, Bitchez!

Beat that corruption ...

Mon, 12/03/2012 - 12:04 | Link to Comment Tirpitz
Tirpitz's picture

"soon"?? - Seems you live in times of President Jefferson Davis.

Mon, 12/03/2012 - 12:04 | Link to Comment IridiumRebel
IridiumRebel's picture

American Nazi Party is beginning to price yard signs in bulk..........

Mon, 12/03/2012 - 12:07 | Link to Comment Joe Davola
Joe Davola's picture

Good thing BHO is from Kenya, because I hate Illinois Nazis!

Mon, 12/03/2012 - 12:55 | Link to Comment James-Morrison
James-Morrison's picture

"Low-hanging fruit" Note to WB7:  imagine a photo of Henry Gibson (Head Nazi) from the BLUES BROTHERS movie with Gibson's face replaced by Obama.

Mon, 12/03/2012 - 12:09 | Link to Comment prains
prains's picture

Another article blaming the welfare class for all the problems but NO MENTION of G paps mother sitting on $700 million dollars.

IF you can't list THEFT BY THE 1% AS PART OF THE PROBLEM WHAT FUCKING GOOD IS THE ARTICLE

Mon, 12/03/2012 - 13:28 | Link to Comment blunderdog
blunderdog's picture

    blaming the welfare class for all the problems

It's always easiest to blame the least powerful and least responsible members of any society for all its problems.  It doesn't risk making any "good people" uncomfortable with their own past decisions.

http://editorialcartoonists.com/cartoon/display.cfm/91299/

It makes for good comedy, at least.  Who can take that stuff seriously?

Mon, 12/03/2012 - 13:50 | Link to Comment Commander Cody
Commander Cody's picture

Social Security = Welfare Class?  I missed your point.

Welfare?  What about the real welfare queens in this country: MIC, AIG, TBTFs, GM, green technology, big oil, and all the other subsidized, pork-stuffed, kickback-resulting redistribution of wealth system.  Bring back the offshore jobs, take away the tax loopholes, eliminate unnecessary corporate subsidies and then lets talk about taking away granny's SS check.

Mon, 12/03/2012 - 12:51 | Link to Comment Nehweh Gahnin
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Soon?

Mon, 12/03/2012 - 11:58 | Link to Comment smlbizman
smlbizman's picture

while they have you looking at tax rates....they are hurridly preparing the stuffing that goes into this bird, like the 1099 fiasco that was weeded out.....so when this 20,000 page piece of shit fiscal cliff bill it will be packed with things like mandatory employer ira's. so than in the next bill they can confiscate these 401ks and ira's and replace them with the good stuff..t bills....i could be wrong...nah i'm not wrong...

Mon, 12/03/2012 - 12:21 | Link to Comment Chuck Walla
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.....so when this 20,000 page piece of shit fiscal cliff bill it will be packed with things like mandatory employer ira's. so than in the next bill they can confiscate these 401ks and ira's and replace them with the good stuff..t bills....i could be wrong...nah i'm not wrong...

 

You are clairvoyant, if anything. No doubt the last few rags worn by the hoi poloi are on the block behind closed doors.

FORWARD SOVIET!

Mon, 12/03/2012 - 11:58 | Link to Comment darteaus
darteaus's picture

STOP WORRYING!

As long as we have linen, cotton and ink we will have money.

Mon, 12/03/2012 - 12:04 | Link to Comment Sudden Debt
Sudden Debt's picture

But will you have olives with your martini when the shit hits the fan?!

Mon, 12/03/2012 - 12:06 | Link to Comment Tirpitz
Tirpitz's picture

We just need a few digital zeros, so Shalom can mark up the Black White House overdraft account by another trillion or two.

Mon, 12/03/2012 - 12:08 | Link to Comment Monedas
Monedas's picture

The government probably loses money minting zinc pennies and copper nickle coins .... probably loses money on US Mint PM coins .... probably loses money on $1 and $5 FRN .... the profit they make on $100 FRNs pays for everything !  What a way to run a country ?

Mon, 12/03/2012 - 11:58 | Link to Comment Sudden Debt
Sudden Debt's picture

at least the weather is nice in greece...

 

Mon, 12/03/2012 - 12:08 | Link to Comment resurger
resurger's picture

I have couple of islands to sell if you would to buy!

 

Mon, 12/03/2012 - 11:59 | Link to Comment doomandbloom
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Obamas grandmom does not have a Swiss account?

Mon, 12/03/2012 - 12:03 | Link to Comment Monedas
Monedas's picture

Would that be Frank Marshall Davis' mom .... or Mrs. Stanley Dunham ?

Mon, 12/03/2012 - 12:00 | Link to Comment Monedas
Monedas's picture

Does Maynard Keynes have a following as large as Ludwig von Mises ?

Mon, 12/03/2012 - 12:00 | Link to Comment mrktwtch2
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im just glad im healthy and have a good woman to take care of me..(my lady friend earns almost 3x what i do)..

Mon, 12/03/2012 - 12:01 | Link to Comment resurger
resurger's picture

No problem as long as we can print at Zero Cost!

Consequnces be damned, unleash the beast within you BUY BUY BUY !@#$!@#%!@#$! 

Black Friday, Every Friday!!

Best Regards,

Ben Bernanke - American-Jewish Economist.

 

Mon, 12/03/2012 - 12:02 | Link to Comment Marco
Marco's picture

Why can't the healthcare benefits be met? Ignoring the massive corruption in the US for a moment, the predominant cost factor in healthcare is human labour ... there is an opportunity cost having more doctors and less engineers/etc, but it will not result in the country becoming unable to support itself.

It's simply a choice, obviously a choice which will have a large impact on standards of living as far as consumption is concerned ... so more flatscreen tvs and more cars per capita, or better healthcare.

Mon, 12/03/2012 - 12:12 | Link to Comment Tirpitz
Tirpitz's picture

The problem is the privatization of the entire lucrative sickness industry. As long as internatinal pharmaceutical corporations reap the billions from the sick, there ain't no interest in trying to heal them.

Roughly a million head are diagnosed with cancer each year, each new patient costing some 50,000 bucks. That's a $50 bn in growth, guaranteed, as long as no cure is permitted to be marketed.

Got to watch 'Cancer - the Forbidden Cures' to get an idea about how deeply entrenched the oligopoly has become:

http://www.youtube.com/watch?v=gWLrfNJICeM

Mon, 12/03/2012 - 15:53 | Link to Comment lyras
lyras's picture

No, no, no, the predominant cost in healthcare is pharamaceuticals, medical equipment and the vast supplies of other "consumables".  The human labour component is laughably small in comparison.  Crony capitalist opportunities here would rival defense.  Obama is helping his mates in this industry and they will help him back.  That is how it works my frined.  Human labour......LOL

Mon, 12/03/2012 - 12:02 | Link to Comment IridiumRebel
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Long Souvlaki

Mon, 12/03/2012 - 12:02 | Link to Comment Tirpitz
Tirpitz's picture

"the U.S. has pressing fiscal problems [...] the 'fiscal cliff,' in which already-mandated tax increases and spending cuts"

Now, do we want to do something about the balooning deficit, or are tax hikes only bad when the super-rich are affected? Steer steady right over it, and see what will happen: nothing. Scaremongering at its best.

"we cannot afford the pensions and healthcare benefits that have been promised"

So we can't keep our end of a contract as long as the population in general is concerned? All the while fat cat CEOs can suck the last million of bonus money from the companies they bankrupted, making any further operations unlikely if not impossible. Why do I see hypocrites written all over this?

"if we don;t want to be Greece, we can't act like Greece."

True. Let the Fed 'buy' the debt with fake money and write it off. An easier solution won't come along during this century.

Mon, 12/03/2012 - 13:35 | Link to Comment odatruf
odatruf's picture

Tirpitz - I agree that no action is the best outcome from this so called fiscal cliff.  Lower spending + higher taxes = closer to balance.  I'll take the GDP hit willingly in exchange.

Mon, 12/03/2012 - 12:03 | Link to Comment Dr. Engali
Dr. Engali's picture

I have a solution...let's print a few trillion dollars and give it to the banks so they can trickle down on us and stimulate our economy. That way we can grow our way out of this mess.

Mon, 12/03/2012 - 12:10 | Link to Comment forwardho
forwardho's picture

Dr, there is a strange feeling of deja-vu.

Mon, 12/03/2012 - 12:03 | Link to Comment azzhatter
azzhatter's picture

When I think of greek, I think of taking it up the ass. We are Greece

Mon, 12/03/2012 - 12:03 | Link to Comment Winston Churchill
Winston Churchill's picture

No, we are not Greece.

Greece has the option to default without destroying the paper wealth of the world.

Mon, 12/03/2012 - 12:05 | Link to Comment Bay of Pigs
Bay of Pigs's picture

Bottom line?  Yes, the math is inescapable. There is no "solving" this problem.

Only can kicking until it all collapses in a heap of rubble.

Mon, 12/03/2012 - 12:09 | Link to Comment JustObserving
JustObserving's picture

Every year in which we add another trillion dollars to the national debt

 

We will add $6.47 trillion to the debt in four years at current rates.

And $27.3 trillion to unfunded liabilities.

That works out to be $8.44 trillion in yesr increase in debt and unfunded liabilities at current rates.

 

 

Mon, 12/03/2012 - 13:29 | Link to Comment odatruf
odatruf's picture

Hard to imagine, but the paper the "unfunded liabilities" are written on are worth less than the paper actual debt (and money) is printed on.  These unfunded liabilities can be undone by any future law.  In other words, don't count your chickens yet. Focus on the real ball in front of you.

Mon, 12/03/2012 - 12:09 | Link to Comment SheepDog-One
SheepDog-One's picture

It's cute to see guys like Howard who still actually think the 'problem' can be 'solved'....yea right.

Mon, 12/03/2012 - 12:13 | Link to Comment Flounder
Flounder's picture

So the EURUSD is making one of its largest moves up since Sep and the SPX is DOWN?

Luke: "Are you all right? What's wrong?"

Obi-Wan: "I felt a great disturbance in the Force... as if millions of voices suddenly cried out in terror and were suddenly silenced. I fear something terrible has happened.

Mon, 12/03/2012 - 12:41 | Link to Comment Ghordius
Ghordius's picture

EURUSD? what's that?

Mon, 12/03/2012 - 13:05 | Link to Comment Ghordius
Ghordius's picture

ehm... /s? ok, let's put it this way: don't mention the EURUSD, here, it's ZH's open secret weak point

Mon, 12/03/2012 - 12:16 | Link to Comment Nels
Nels's picture

Why can't the healthcare benefits be met?

Because the folks in charge don't know anything.  They think that by reducing the number of doctors, the overall cost of medical care will go down, and yet we can still add 10 or 20 million new folks into the system and we'll all still get the same level of care that we've had.  They think that we can greatly reduce the pay to doctors, and still retain the best in the field.

Your suggestion is short-sighted.  If we have engineers sufficient to make us rich, we can afford more healthcare.  If we divert too many  of our brains and too much of our money into healthcare, we end up less rich and can afford less healthcare.   There's a balance that must be found, and markets work for that.  Government planning does not.

Mon, 12/03/2012 - 12:16 | Link to Comment SKY85hawk
SKY85hawk's picture

Howard ignores the obvious. 

With millions of Baby Boomers entering their senior years and living longer, we cannot afford the pensions and healthcare benefits that have been promised

The benefit programs w/b ok if the gummint followed the investment rules that most other investment advisors are held to.

1- Don't commingle funds;

2- Don't steal from your depositors;

3- Invest the money conservatively.

Unfortunately FICA (Federal Insurance Contribution Act) means something different!

And none of us want to pay the tax levels needed to support these benefits.

Mon, 12/03/2012 - 12:24 | Link to Comment SheepDog-One
SheepDog-One's picture

What we can't afford is the rampant corruption thruout it all. When you visit the doctor and get 2 aspirin, 5 stitches and a bandaid and the bill is $2,000, something is very very wrong, it's not just 'cost' its a totaly bullshit system from the top down.

Mon, 12/03/2012 - 12:16 | Link to Comment alfred b.
alfred b.'s picture

 

       Sometime down a very short road, being Greece might be an unattainable goal for the US!

     Buy physical gold and silver!

 

Mon, 12/03/2012 - 12:20 | Link to Comment SheepDog-One
SheepDog-One's picture

Yep, the U.S. would be LUCKY to be Greece...all bankrupt but coddled by countries around them throwing life preservers every time theyre about to go under. 

Mon, 12/03/2012 - 12:26 | Link to Comment Tirpitz
Tirpitz's picture

"...throwing life preservers every time theyre about to go under."

Or rather a rope to finally hang herself??

Why can't the so-called helper nations simply write off the meager billion amount in question, instead of saddling a bankrupt country with ever more unrepayable debt?

Mon, 12/03/2012 - 12:25 | Link to Comment Quinvarius
Quinvarius's picture

We really don't pay interest on the debt that the Fed buys.  By law, they pay almost all of it back to the Treasury.  So we are not really taking out debt.  We are straight up printing money.  This whole raising taxes/fiscal cliff issue is a joke.  The Fed will keep printing the money to buy the debt in the giant game of obsfucation, and then paying back the interest to the Treasury, no matter what.  Enjoy the theater and buy gold.  

Mon, 12/03/2012 - 12:21 | Link to Comment TuPhat
TuPhat's picture

I haven't read anything yet that mentions the "fiscal cliff" that makes sense.  I don't understand why we have to increase the debt ceiling so that we can keep spending like a drunken sailor or else the large amount of debt will sink the ship.  Autmatic spending cuts seems like the best solution to our problem.  Big brother doesn't have the balls or the brains to do what is necessary.  They will increase the ceiling as soon as they have used up all the media attention that they can get.  Would anyone out there like to loan me a couple hundred thousand so I can get out of debt?  A million would be nice.  Oh well, I didn't think so (not on ZH anyway).

Mon, 12/03/2012 - 13:33 | Link to Comment odatruf
odatruf's picture

I hear you, TuPhat, but I don't the failure to have the balls or brains is Big Brother's.  Look in the mirror* for the actual culprit (assuming you are in the US). The politicians and other elites are the only ones acting fully rationally here.

* I mean all us of course, not only you.

Mon, 12/03/2012 - 12:23 | Link to Comment pragmatic hobo
pragmatic hobo's picture

the problem is that it's not the USA in danger of becoming Greece but rather the EU and ECB is clubbing the likes of Greece to the mould set by the USA. Furthermore it is laughable to assert that the USA have "generous benefit promises". Aren't the social security paid for by the workers? Don't we already pay tax to cover medicare and medicaid? The problem with healthcare is not the cost of social welfare program but the middle-man industry, the healthcare and pharma, that steal trillions out of the economy to provide these vital services. The fact that obummer wants to handover the national healthcare policy to these very parasites is really no better than bush's idea of putting social-security fund into tech stocks. Continuing privitization of public services such as education, healthcare, and likely social-security, is clear indication the USA is fast approaching point of no return into fascist capitalist dictatorship.

Mon, 12/03/2012 - 13:07 | Link to Comment Volaille de Bresse
Volaille de Bresse's picture

"at least the weather is nice in greece..."

Wyoming's nice too... if you're Swedish!

Mon, 12/03/2012 - 13:39 | Link to Comment pods
pods's picture

Funny no mention of the little nugget that this expanding debt supply also functions as our money supply.

That is a big reason why the national debt will never be paid off.

pods

Mon, 12/03/2012 - 13:54 | Link to Comment NEOSERF
NEOSERF's picture

I have to say I am increasingly in the camp of screw it, play the game as hard and well as any Greece or Japan...extend, print, pretend, whatever...just get me through retirement.  The rub is that I have already started drilling it into my teenage kids to avoid debt at all costs, save a good portion of your money in PMs and make sure you have a "financial tornado" bunker...when the crap comes it will come hard and you will have hours to react.

This is not fixable.  Show me someone who wants to hit the debt issue hard in the next 10 years and i will show you a multi-millionaire...the rest of us simply can't survive a 4-6 year Depression...you lose your home, likely your spouse, your job and and most of your hope...ask a young Greek, Spaniard or Italian and they will tell you what I said above...difference is that the US can dictate the rules of the game better than those Euro countries.

Mon, 12/03/2012 - 14:03 | Link to Comment blunderdog
blunderdog's picture

It's "fixable."  Someone eventually just decides to float a new currency. 

This has happened many times before.

Mon, 12/03/2012 - 15:33 | Link to Comment AgShaman
AgShaman's picture

Howard Marks almost murdered his wife.

Tom Cruise stopped him with only a second to spare.

"Pre-crime....It works!"

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