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Greece Enters Its Crack-Up Boom Phase - When Fridges Become Money
Submitted by John Rubino via DollarCollapse.com,
The Austrian School of economics has a concept called a “crack-up boom” in which a critical mass of people conclude that their government is actively trying to devalue its currency.
Consumers respond by front-running the government, spending their paychecks immediately in order to convert their soon-to-be-less-valuable money into real things. Merchants, not happy about the sudden influx of suspect currency (and sensing the panic of their customers) hold out for ever-higher prices, causing inflation to spike. But it’s a special kind of inflation, driven not by a sudden increase in the money supply but by collapsing confidence among holders of the currency.
In a very short time, so goes the theory, the supply of stuff available for purchase dries up, prices hyperinflate, and the economy collapses.
Welcome, in other words, to Greece:
Greeks spend in droves, afraid of losing savings to a bailout
Business has been so brisk in the giant Kotsovolos appliance and electronics store in this upper-middle-class suburb of Athens that you might think a sale was on.
But, no. It is panic buying, those who work here say. Increasingly concerned that greater economic trouble lies ahead of them, and limited in how much cash they can take out of banks, Greeks have been using their debit cards to buy ovens, refrigerators, dishwashers — anything tangible that can hold its value in troubled times.
“We have sold so much,” said Despina Drisi, who has worked in the store for 12 years. “We even sold display models. People have been pulling at my sleeves. We’re spacing things out now to cover the holes on the shelves.To the casual observer, the bustle of everyday life looks unchanged here. Greeks, many of whom long ago traded in their cars for cheaper motor scooters, clog the streets at rush hour on their way to and from work. Tourists pack the Acropolis. Friends meet, greet and sit in cafes, looking for shady spots against the heat.
But beneath the surface, Greeks are struggling with growing fear, the strange ramifications of closed banks and the mounting potential for much worse. They could face the unknown consequences of being pushed out of the eurozone within the next week if Greece and its creditors cannot come to an agreement.
Some are watching television and checking their smartphones constantly. Others refuse to follow what is going on in Brussels at all. But either way, many are doing what they can to protect themselves financially, buying appliances and jewelry or even prepaying their taxes so they will have taken care of one financial obligation if they end up losing some of their savings to a bank failure, as happened to depositors in Cyprusunder a bank rescue plan there in 2013.
“Panicked doesn’t begin to describe how people feel,” said Antonis Mouzakis, an Athens accountant. “I have a huge number of customers wanting to file their taxes right here, right now, to have the tax calculated and paid instantly before a possible haircut. Even if the tax is 40 to 50 thousand euros, they pay it off in one go.”
A Greek jeweler, George Papalexis, said a customer had approached him on Wednesday wanting to buy a million euros — about $1.1 million — worth of merchandise. But Mr. Papalexis, the chief operating officer of Zolotas, said he had refused because he was more comfortable holding on to the jewels than having money in Greek banks.
“I can’t believe that there I was, turning away a million-dollar offer,” he said. “But I had to turn down the deal. It’s a measure of the risk we face.”
Mr. Mouzakis said that many companies were also trying to settle their debts quickly, not wanting to owe money if their deposits are hit in a deal to rescue Greek banks. Others do not want to accept payments for the same reason. When banks in Cyprus had to be bailed out in 2013, depositors with more than €100,000 lost about 40 percent of their money.
A contractor at a Greek energy company, who spoke on the condition of anonymity, said his firm had paid all its taxes for the year last week to whittle down the funds that could be subject to a deposit tax.
“I’m even thinking about buying a car, although I don’t need one, to get my cash balance lower,” he said. “People want their money in physical assets, not in the bank.”
But some who are unlikely to be troubled by losing a percentage of their bank deposits are spending, too. Vassilis Bekiaris, 29, said he knew two brothers who had gone on what was probably an ill-advised spending spree, fearing a cut to their savings. One who had just €1,000 in his account bought an iPhone. The other had €10,000 euros but, thinking he could lose 20 percent, bought €2,000 worth of clothes. “All they managed to do was prop up the economy a bit,” Mr. Bekiaris said.
While pensioners and others in need of cash struggled, some employers who were behind in paying their employees surprised them by digging into their safes and producing cash rather than risk losing money to the terms of a bank bailout.
A few companies, prepared for the bank closings, were ready to pay cash to their grateful employees. The family-owned Petsas group, which manufactures a range of products from biodiesel to cotton clothing, paid all of its workers, about 130 people, in cash.
When Greeks start clamoring to pre-pay their taxes, you know the end is near.
But viewed through a Keynesian rather than Austrian lens, this process actually looks kind of positive, like really effective stimulus. The Greeks appear to have discovered the secret to convincing an over-indebted people to keep borrowing and spending: Just telegraph the destruction of their savings and watch the little folks consume.
In an era when new and wild economic theories are being tested on a weekly basis, Greece is perhaps the most interesting laboratory of all. If this sudden burst of consumption and tax compliance results in “growth” and “a balanced budget” then don’t be surprised if the people running the eurozone, Japan and maybe the US come to the comical but from their point of view logical conclusion that far from screwing up, Germany actually did something right in Greece. And that maybe the rest of the world should pre-announce capital controls and bank bail-ins to get their citizens off their butts and into the mall.
Which, when you think about it, might be exactly what the war on cash is setting up.
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It's gone full Weimar Bitchez!!
Long pots,pans and household stuff.
He really wanted to use the term crackup boom, but what Greece is experiencing is anything but. They are experiencing is a deflationary depression, pretty much the opposite of the boom in economic activity that temporarily occurs when a nation begins creating too much currency (crackup boom), which eventually leads to a loss of confidence in the money and an inflationary depression.
#yellfireincrowdedtheater
The Greeks are not losing faith in the currency, the Euro, they are losing faith in the banking system.
Right.... nothing holds value like an iPhone or HE Washing Machine (average life 4 years)....
Faith in the banking system is only in the eye of the beholder.
"But viewed through a Keynesian rather than Austrian lens, this process actually looks kind of positive, like really effective stimulus."
Don't be fooled (not that I am suggesting the author is fooled). This is not bona fide economic activity. As usual, ZH nails it in the title with "Fridges Become Money." The spending is not economically positive, it is actually a transition to new forms of super-inefficient "money." All things compete as money on various metrics, as well studied by the Austrian school. On one particular metric, "security / store of value," the aptitude of "Euro bank deposits" has fallen so far in the view of the people, that Euro bank deposits are collapsing as a competitive currency in Greece. This is shown beyond a doubt when merchants don't want to accept deposits even as consumers try to devest. How can an economy improve in the long run using these things as money rather than the convenience and- for all its long term unsustainability, yes- relatively stable banking system?
So, just to recap -
Austrian Economics takes observable facts, and describes a system that fits those facts, like science.
Keynesian Economics makes up a system, and then interprets the observable facts to fit that system, like religion.
Actually, Austrian theory is mainly based on logic and deductive reasoning. In order to grasp the concepts involved fully, I recommend: the first 100 pages of Human Action (Mises), Epistemological Problems of Economics (Mises), Economic Science and the Austrian Method (Hoppe) and last but not least, Theory and History (Mises). Depending on your familiarity with economic literature you might find some of these reads challenging, but they are well worth the time. Actually, all these writings are about the philosophical foundation of economic theory, if you will (or to paraphrase Mises: "The logic of deed and human action").
And reason, the Left now tells us, is racist.
Not if you buy quality. Our ASKO (Sweden) washer/dryer are going on their seventeenth year. The washer has never failed and the dryer has blown two fuses.
Buying vintage smaller appliances.. a 40s or 50s toaster on ebay .. that is in perfect condition . works ..mixers.. .coffee grinders .. or coffee pots.. we bought an old 40s wringer machine to do shop rags and really dirty stuff.. its 75 years old and works better than any new machine ... long ago we bought black iron ware just in case.. great for camp cooking or open fire... we even bought an old manual typewriter. so when it hits the fan I can pretend I am making comments on ZeroHedge.
Cali is pushing for the low water washers that notoriously breakdown often and have very expensive repair bills. My washer is standard that we have had for more than 15 years. I recently had the capacitor adjusted and the repair guy said never to get rid of it. These models are far easier to repair with fewer parts.
Seeing how sensitive our fancy robots are at work and the cost to keep them running has taught me the beauty of simplicity. Maybe I can use my machine as something to bargain with during an economic crisis. No ticky no washy.
Miffed;-)
Ouzo is a much wiser investment. At least you can drown your troubles during the societal collapse.
Eurozone anagram "ouzo neer"
Drink it cold.
“I can’t believe that there I was, turning away a million-dollar offer,” he said. “But I had to turn down the deal. It’s a measure of the risk we face.”
The original article says "...an offer of one million euro..."
Too bad they cant go the guns and ammo route, like we all will do here.
Captain,
You are exactly right.
A real crack-up boom occurs when people perceive their currency will soon be 'worth less' or 'worthless.'
What's happening in Greece is that people who can't get their Euro's out of the ATM's are using debit/credit cards to acquire anything that they perceive to have more value than their frozen (and worthless) bank deposits.
Indeed; I suspect Euro's are in huge demand right now; Cash is King in Greece.
What's happening is indeed the opposite of a crack-up boom, and is being caused solely by artificial bank holidays, capital controls and the threat of haircuts.
*Cash,... Bonds,... Gold...
[*"Cash" does NOT include bank deposits]
It’s frustrating because we Austrian’s are very critical about incorrect language and term use. The Keynesians are usually the ones who use language to deceive, such as changing the term inflation to mean price increases, and replacing the term panic (directly linked to the fractional reserve banking system in the 19th century) into recession and depression. Essentially we believe that words matter, and to see such an important concept, the crack-up boom, misrepresented is disheartening. It may simply be a lapse of reason, but still disappointing.
I also agree with your clarification of cash.
What Greece is experiencing is a repricing... Products are now priced in after-haircut Euros.
The real petri dish reaction is that the haircuts are assumed and kinda accepted - as if its the government's money and you just have temporary possessory rights.
But are they buying gold and silver? Maybe? No mention of that anywhere. Is it Verbotten?
Maybe they want it, but can't get it?
http://www.zerohedge.com/news/2015-07-03/gold-bullion-dealer-unexpectedl...
https://goo.gl/AgTCFE - Bernie Sanders isn't going to save America, for that matter, neither is Rand, but I'd take Rand's medicine over Bernie's
Up for Rand, down for Bernie.
Vote wisely :)
100 for none of the above.
Voting only encourages them. Don't encourage them.
Unfortunately, not voting is equivalent to accepting the wishes of the FSA, qualified members of the idiocracy, the sheeple, etc. If voting rules were changed wherein a candidate needed to win a majority of eligible voters then not voting would be a wise choice. Until then, it's "damned if you do, damned if you don't."
I'm over it, done with national elections. The next POTUS is going to grant wholesale amnesty to everyone anyway, Hildabeast, Jethro, doesn't matter. They're just waitstaff for TPTB. Do I really need to vote for the next water carrier? Can I get fries with that?
I do not believe, nor do I buy into your two choice paradigm fallacy.
Rand sure ain't his father.
Regardless of your beliefs, someone from the Republicans or Democrats is going to be the next POTUS. You don't have to vote. You can vote outside the big two. But let me be clear, would you prefer Hillary, Bernie, Rand or Bush, because that's what you're getting.
Neither would make any difference
Yea Obumble sounded like a starry eyed socialist when he ran the first time. All we got was a pathalogical corporate liar. Expect the same from Bernie or else a plane crash.
Curiously, I never heard that starry eyed socialist you mention. All I ever perceived was an insufferably arrogant protofascist. And rubbing his nose with his middle finger while debating Hillary was just one such incident.
I don't know, Rand hasn't said one word about the economy or jobs lately, or the Fed. He just keeps talking about legalizing drugs and immigrants.
The light goes on in the US. If we threaten to steal everyone's savings, they will go out and buy shit they don't need.
Yes. And it'll work great. For a couple quarters.
"If we threaten to steal everyone's savings, they will go out and buy shit they don't need."
Been doing that for 102 years.
But...but...buying shit we don't need is what makes the economy tick! Are you suggesting we restrict purchases to what we need? Are you some kind of anarchist or terrorist or tea partier?
Where's all the Gold and Silver?
the first paragraph doesn't jive with the rest of the article
It's all the fault of that pesky value thing. Patriotic Greeks should bend over take take the full Zimbabwe instead of trying to defend their assets.......
Maybe. If all they had was newly printed Drachmas. The only things they're going to "buy" with these hypothetical Drachams will be Euros.
or dollars.....
If this sudden burst of consumption and tax compliance results in “growth” and “a balanced budget”...
Tsipras plan all along...
"game theory"
But who's being played? Answer in 3... 2... 1...
I hope none of the Greeks are buying gold Apple Watches as an investment.
I am an Austrian adherent thru and thru.
But I call it the "Crack-up guillotine."
Liberty is a demand. Tyranny is submission..
I'm going to have the banksters, pols, and crats play Hangman while they're waiting in line for their ride on my guillotine.
Hi kchrisc
Any coincidence that you and GW are back on the same day?
The place just was not the same without you.
You can have my dish-washer for free!
If only Tsipras knew what he was doing he could relay this to the public. If he doesn't know and awaits decisions from Gestapoland then more the fool him.
PS The Chinese have got plenty STUFF at knock-down you timorous sheep.
"You can have my dish-washer for free!"
Can she iron shirts?
Stack. Stack. Stack. ......... Bourbon.
The small airplane bottles... could be currency someday!
Russian did the same thing last fall, and now they stuck with less money and all kinds of vaccum cleaners, refrigerators, etc... amazing how some people think.
The new Greek economy: long goats, sheep, chickens, olive groves, and NATO 7.62. All that other stuff they're wasting their money on will depreciate quickly and ultimately wind up in thrift stores or the landfill. So if they're going long consumer goods, it's really only post-poning an inevitable haircut. The jewelry store guy was smart, best to hold onto the physical until this plays out. I'm sure all this "velocity" in the Greek economy can only make a man like Paul Krugman proud.
7.62 NATO is 7.62x51; better to get the 39mm.
I know that the situation & circumstances in Greece are dire, but after reading as much as I have about the situation this quote made me laugh at loud...
Those who can make you believe absurdities can make you commit atrocities - Voltaire
---------
On the One-Year Anniversary of Israel’s Attack on Gaza: An Interview with Max Blumenthal
https://firstlook.org/theintercept/2015/07/08/israel-gaza-anniversary-in...
Top Ten Myths about the Israeli-Palestinian Conflict
http://www.foreignpolicyjournal.com/2010/06/17/top-ten-myths-about-the-i...
Israel, Genocide, and the ‘Logic’ of Zionism
http://original.antiwar.com/justin/2014/08/03/israel-genocide-and-the-lo...
Be gentle. He's delicate.
AS long as PMs are available I will not be stimulating car or appliance manufacturers.
Go long skills and tools to produce things on your own.
You are correct . we have been buying OLD machines and tools for several years.. just bought an old 1950s metal saw for 75 bucks .. drill press and even for some unknown reason found an old railroad planer in a junk yard in perfect condition . that was in Nevada. .one reason it was in perfect condition .. old belt tools . any kind of tool really that can be operated with or without electricity would be helpful .. anyone with a skill set that requires hands on . will have an edge in future world . that is if we are not all in camps beating rocks into sand.
Just picked up some great deals. Mill, lathe, compresser, generator, foot shear and some real industrial shelves.
After this thing thats comming if I make it thru. I should be fine.
In 1922-23 Germany, one of the complaints from the French was that everything was clearly prosperous, despite the hyperinflation. Cafes were full, the streets and shops packed with people. Similarly to Greece, people were spending money as soon as they got it - rushing to get it first, before it depreciated and waiting in line to spend it - and there were constant calls for more specie. There was little available cash, since people were turning it over as soon as they got it. Similarly, again, shops preferred to hold merchandise because the money they received on the sale was inadequate for restocking.
Plus ca change, plus c'est la meme chose.
Bullish for Apple
Greeks should be buying silver while the price is still low.
The Austrian Narrative is always: 1: Evil government spend money and cause inflation 2) People rush out to buy things with their diminishing value 3) Everything crash
But, cause and effect are reversed. Virtually all hyperinflations are caused by exchange rate problems. These problems further are caused by debts held overseas, usually denominated in a foreign currency.
Short sellers (bear raiders) sense weakness and short the currency driving down value in inflation. This mechanism has happened so many times, it is nonsense to keep painting government as the main bad guy. Let’s all just ignore actually history to then push a false narrative.
Virtually all hyperinflations are a mechanism within the private banking system. In Weimar’s hyperinflation, the Reichsbank had to take over to stop the financial games. Playing rent games in order to steal has examples going back to the original stock exchange in Amsterdam. Who is to restrain the rentiers? The market? One has to be a practical retard to think that free markets will magically restrain rent seeking, when in fact the evidence is clear that in-groups will band together to take rents.
Zimbabwe, a notable exception in inflation, which was a black takeover of Rhodesia, hardly qualifies as a “Western” example of government printing. It was black African printing - and black Africans are not noted for Western pluralism.
Sometimes “western” governments work with private bankers, sometimes governments put their foot down if enough popular pressure; but usually – he who has the gold rules. Typically, governments are subordinate to the money powers.
Western Governments are subordinate to pressure groups, and the highest pressure group is private money power. These very same money powers that Austrians shill as bringing relief from “government” are the same ones that usurp government.
Austrianism is a reality distortion field. Also, where do they get all their money to push their narrative? Somebody somewhere wants this reality distortion funded.
Real lawful money, in hands of the people is the proper balance; in this position Government becomes subordinate, and so do the damn bankers.
www.sovereignmoney.eu
Greeks should be hoarding physical cash euros (in addition to productive capital, obviously).
When Grexit comes, anyone holding euros in hand is rich overnight, and richer still each day, even if the euro hits parity with the dollar.
I'm pretty sure almost anyone will take dollars too.
Actually, Austrian theory is mainly based on logic and deductive reasoning. In order to grasp the concepts involved fully, I recommend: the first 100 pages of Human Action (Mises), Epistemological Problems of Economics (Mises), Economic Science and the Austrian Method (Hoppe) and last but not least, Theory and History (Mises).
I cannot recommend that honorable people, who are seeking truth, get snared in a trap.
A group of black africans will have different human action than a tribe of Han's.
In a money economy, price signals and money volume will DIRECT human behavior.
For example, the housing bubble was human behavior, as humans RESPONDED to the false pricing signals.
Cause and Effect should not be reversed.
In a non-money economy, evolution amongst CERTAIN PEOPLE GROUPS can have a fairly predictable outcome. This evolution is a function of survival through the ice ages. Trading goods and services with a person, not your immediate family, was a function of this ice age ENVIRONMENT.
There is no such thing as human action as humans are variable, nor are there free markets. An economy of all women would be different than one of all men, and so on.
All money is law. All money is spent into the commons, therefore it is of the commons. This point is so obvious that it is beyond debate.
I agree with Austrians on this one thing: True money settles debts and credits, but is not itself credit. Real money is currency, but to shill for Gold as the currency medium is not advanced thinking.
The source point of Austrian Theory converges with Chicago (Jewish) Monetarism. Something smells fishy and is not passing the sniff test.
Here is a pretty good analysis of latest Austrian a-priori theorizing, and of course its attendant logical fallacies;
http://www.sovereignmoney.eu/notes-on-huerta-de-soto-and-neo-austrian-sc...
HDS's book is neo austrianism and is the latest thinking, advancing beyond Mises:
Quote from Huber:
The book is an attempt to lay the theoretical foundations of a monetary and banking reform aimed at free bankingwithout central banks, though subject to the requirement of a100% reserve on deposits or full gold reserve, respectively. In this respect the Neo-Austrian position appears to be an odd combination of elements of Banking School teachings (free banking) and Currency School teachings (control of the money supply, in this case through a new gold standard). Most readers will see this combination as an oxymoron?which in fact it remains in spite of the author's far-flung analyses and explanations.
Seems to me the answer is Goldmoney.com. There's no layer of fiat money that needs to be backed up by any reserves. Gold is the money and the electronic payment mechanism fits well into our current society. Not sure why some country (or maybe Texas) hasn't adopted Goldmoney.com as its payment mechanism...
I don't see why Greeks are buying up stuff because of the euro. If anything they fear the government taking their euros and/or inflation from Drachma. Taking their euros through further confiscation, so they rather have stuff than money, because the government has their target on their money. If you spent it before the the government takes the money, you retain something for yourself than the government taking it. In a way it behaves like inflation of money, but the premise is the same, people losing purchasing power, the ability to buy. In Zimbabwe, they ran supplies dry because of losing value of currency, same for Venezuela. Hyper consumption ensues which deplete capital stock, which reduces economic production, which reduces supply even further, and if hyper consumption continues, prices can rise, with a dwindling stock of newly produced goods.
This is an explanation why Greeks are converting their money to goods:
The Drachma will be at least 30% depreciated relative to Euro, then this new money will pay off old Euro debts. Euro’s converted to hard assets, in the meantime is a way to protect against the coming 30% drop. Converting to other currencies is another way to protect.
http://michael-hudson.com/2015/06/resisting-financial-conquest/
The basic tactic in such tensions between creditors and debtors is clear: once debt repayments exceed new loans, stop paying.
So when The Institutions made it clear that no more credit would be forthcoming without Syriza adopting the old Pasok/New Democracy capitulation to Troika demands, Tsipras and Varoufakis decided it was time to call a referendum eight days hence, on Sunday, July 5.
Late Friday night and into the early Saturday morning hours, Greeks ran to the ATM machines to convert their checking and savings deposits into euro notes, expecting that the end game would involve a likely 30% depreciation of the drachma – and that indeed, the ECB would stop lending to support Greek banks (the only role the ECB wanted to play).
Syriza had no love for the banks. They were the vehicles through which the oligarchs controlled the Greek economy, after all. For a month, they had been discussing how to separate the banks into “good bank” and “bad bank,” either nationalizing them (wiping out stockholders) or creating a Public Option alternative.
Most important, once out of the eurozone, Greece could create its own Treasury to monetize its spending. The Institutions called this “scrip,” but the Greeks could establish it as their national currency. They would escape from euro-austerity – except, of course, to the extent that the ECB waged economic war on Greece by imposing its own capital controls.
By going through the sham negotiations with The Institutions, Syriza gave Greeks enough time to protect what savings and cash they had – by converting these bank deposits into euro notes, automobiles and “hard assets” (even boats).
Businesses borrowed from local banks where they could, and moved their money into eurozone banks or even better, into dollar and sterling assets. Their intention is to pay back the banks in depreciated drachma, pocketing a 30% capital gain.
"...there is no spoon."
That's hyper-inflation. It could never happen with a sound currency.
The article below paints a picture of how and why the same thing could happen here in America. It contends the primary reason that inflation has not raised its ugly head or become a major economic issue is because we are pouring such a large percentage of wealth into intangible products or goods. This includes currencies.
If faith drops in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation will soar. The massive debt being accumulated by governments and the rate that central banks have expanded the money supply could come back to haunt us. It is important to remember that debts can go unpaid and promises be left unfilled. If this happens where does it leave us? Chaos and major disruption would result from such a scenario.
http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos....
I don't get all of these people rushing to buy cars they don't need, appliances they don't need, electronics they don't need, all these items that naturally depreciate. Granted, in a hyper inflation scenario they would hold their value better. But really, wouldn't it be a better idea to just buy gold instead or I guess buy some crypto currency.
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My thoughts exactly: Why not buy gold or silver?
Has this somehow been outlawed in Grease?
Have the banks closed the gate behind the people on this one?
Otherwise, why the obvious contradiction?
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