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Guest Post: The Fabled Greek Mega-Bailout
Submitted by John Aziz of Azizonomics
The Fabled Greek Mega-Bailout
In a truly eyebrow-raising CNBC interview, Matthew Lynn alleges that Europe shall be saved! (As if by the grace of God!).
With Europe on the brink yet again Germany will act.
The Greeks can’t carry on with the austerity being imposed on them. No country can be expected to endure annualized falls in GDP of 7 percent or more,” he said, “and 50 percent youth unemployment for years on end.
On Tuesday we learned that the Greek economy shrank by another 6.2 percent in the latest quarter. It simply isn’t acceptable” Lynn said.
But Germany and the rest of the EU could come up with a Marshall Aid-style package for Greece. Very little of the bail-out money so far has gone to the Greeks. It has all gone to the bankers.
Forget talk of a ‘Grexit’. There will be a mega-bail-out—a ‘Grashall Plan’—instead.
And when it happens, the markets will rally on the news.
Who else would publish this? (That’s a redundant question — who else, besides J.P. Morgan and maybe a few government agencies, wouldn’t have fired Jim Cramer after what he said about Bear Stearns?)
At various stages in the last two years everyone from China, to Germany, to the Fed to the IMF, to Martians, to the Imperial Death Star has been fingered as the latest saviour of the status quo. And so far — in spite of a few multi-billion-dollar half-hearted efforts like the €440 billion EFSF — nobody has really shown up.
Perhaps that’s because nobody thus far fancies funnelling the money down a black hole. After Greece comes Portugal, and Spain and Ireland and Italy, all of whom together have on the face of things at least €780 billion outstanding (which of course has been securitised and hypothecated up throughout the European financial system into a far larger amount of shadow liabilities, for a critical figure of at least €3 trillion) and no real viable route (other than perhaps fire sales of state property? Sell the Parthenon to Goldman Sachs?) to paying this back (austerity has just led to falling tax revenues, meaning even more money has had to be borrowed), not to mention the trillions owed by the now-jobless citizens of these countries, which is now also imperilled. What’s the incentive in throwing more time, effort, energy and resources into a solution that will likely ultimately prove as futile as the EFSF?
The trouble is that this is playing chicken with an eighteen-wheeler. While Draghi might be making noises about “continuing to comply with the mandate of keeping price stability over the medium term in line with treaty provisions and preserving the integrity of our balance sheet” (in other words, not proceeding with the fabled “mega-bailout” even if it fractures the Euro), we may well see a full-blown financial meltdown (and of course, the ramifications of that on anyone who is exposed to the European banking system) unless someone — whether it is the ECB, or the Fed, or the IMF — prints the money to keep the banks going.
There are really two layers to bailing out the insolvent nations: the real bailout is of the banks who bought the debt, and the insolvent nations are just an intermediary. Should the insolvent nations become highly uncooperative, it seems more likely that the insolvent nations will just be cut out of the loop (throwing their citizens into experiencing a forced currency redenomination, bank runs, and even more chaos) while policymakers continue to channel money into “stabilising” the totally broken global financial system — because we know for sure that a big disorderly default will likely cause some kind of default cascade, and that is something I am sure that (based on past form) policymakers will seek to avoid.
How close to the collapse we will come before the money gets printed is another matter.
Given that it is predominantly Germans who are in charge of Europe for the moment — with their unusual (at least in the West) post-Weimar distaste for Keynesianism — it seems to me like we will see quite a lot of chaos (read: Euro exits) before the money printing begins in earnest. And the money printing may be far more ad hoc and decentralised than 2008 (read: The Fed may be on the hook for American exposure). Just as we have seen so far, the money will come at the last minute, and will just keep things ticking over rather than actually solving anything.
And ultimately, I think it is the social conditions — particularly unemployment levels — that matter more than whether or not the financial system survives. If the attendant cost of ad hoc bailouts (in the name of pretending to stick to the ECB mandate) is a continued depression, and continued massive unemployment and youth unemployment then politicians are focusing on the wrong thing.
The problem is that as conditions continue to fester and as solutions seem distant and improbable that Europe’s problems may become increasingly political. As the established (dis)order in Europe continues to leave huge swathes of people jobless and angry, their rage and discomfort will be channelled toward dislodging the establishment. As we have seen in Greece and France, that has already produced big lifts for both the Far Left and Far Right.
We already know, I think, that in Greece’s upcoming election the outsider parties will crush the establishment, with SYRIZA most likely emerging on top. A key metric for me in the next few weeks will be Golden Dawn‘s proportion of the vote.
Let’s not forget history:
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Mega-Bullshit.
Like I said earlier,
Like I said yesterday,
"Economic and social extremes beget political extremes."
Greece is out of the EU and done with the euro.
Why? Because the only way to buy Greece off is to put them back where they were five years ago - and doing that would set the rest of Europe on fire.
And the odds are very good the rest of Europe is going to burn ... one country at a time.
If you want to worry about fringe political parties in Greece, go ahead.
Just don't try to sell us bailouts on the back of them, we are done with that here.
barliman
The germans I know think it is comPlete nonsense to worry about greece leaving the eurozone. They unanimously say the ECB will do whatever it takes to save greece
Do most germans think that way?
You know, the only reason the Imperial Death Star was pooh-poohed was because nobody was creative enough to figure out how to lift the resources needed into space, but now that someone has come up with the idea of mining asteroids, this makes an Imperial Death Star a piece of cake.
Now that is American Ingenuity, brought to you by Boeing and Lockheed Martin.
forget socialism, the Greeks are headed for communism or military dictatorship soon.
Mega-Bullshit.
Really? Had I told you in 07 that the Fed would print trillions to "save the world" would you have called it the story mega bullshit? Nothing is off the table any more
This is what happens when you smoke crack.......
Never trust a Junkie
http://www.youtube.com/watch?v=wbXciBKcfQ8
Lol even if the junkie swears this time he is serious about quitting and promises to pay you back the hundred bucks he needs to borrow right now for xy and/or z, dont believe him
http://www.youtube.com/watch?v=gvorUuUZrSg
Forget about a Rehab!!!
They always promise too much
http://www.youtube.com/watch?v=y-2QIcUEaSY
going for broke and broker
Grashall Plan doesn't mean "Greek Marshall Plan." It means "Greek Crash All" plan.
Sounds about right.
I read on CNBS that Greece could be the Lehman moment of 2012.
Wasn't Greece the Lehman of 2010, 2011, and 2012?????
The farce is a farce, of course, of course,
And no one can print to a farce of course,
That is, of course, unless the farce is the famous Mr. Ben.
Nice limerick.
Microsolutions to megaproblems.
http://www.youtube.com/watch?v=duHbZ0Euly4
The problem with your line of thinking is precisely that, it's linear in a historical sense. Secondly, you put way too much stock into what pundits on corporate media say which is at odds with actual events exactly 100% of the time.
You forget that Greece currently has no majority government. The incoming one will be dysfunctional at best, yet an imminent return of the drachma is continually regurgitated as some kind of beginning of the solution if not panacea.
Volos might be the Greek future, communal economy, local currency, bartering, depression era frugality for all those without political connections and resources all whilst the Euro remains for stability sake.
Literally, the only time I listen to the corporate media is to laugh at the hideous rubbish that pundits say about mega-bailouts, etc.
I don't know what will happen in Greece, but I would be very surprised if the thing you're accusing me of saying — which is, I think, that Greece will leave the Euro and redenominate in a coordinated way — happens.
I partially agree with your last line. I mean, that's what's happening already — society is reorganising along self-organising lines. On the other hand, chaos may overwhelm. Collapsing big governments are very chaotic, and sometimes chaos overwhelms the ability of societies to self-organise. We're already in the middle of a bank jog/run. I think (and it's a point Tyler has made too) that to some degree this is a ripe opening for fascists and people promising a linear solution.
No accusations, just wish to prevent people from tunneling and expecting too much from a source(tv journalism, pundits, bureaucrats) that will never say anything close to the truth.
Focusing on the Euro is in my opinion way myopic. Even so, I think you are correct about Greece withdrawing at some point. The when and the consequences -- for the EZ -- are an unknown.
Well, its collapse is one danger, one of the many that me and this segment of the econ/finance world are drawing from. The thing I get from the mainstream media that really screws my head up is that given all these dangers that we can point to, that somehow there is some reason to be bullish about America/Europe/the West/the future/equities/Facebook/etc.
It is a solution sort of. For all of Europe (excluding the Greeks) it is a solution. No more funnelling good hard currency down a rat hole. For the Greeks it is a semi-solution; they get to continue their spendthrift ways without anyone telling them what to do, provided they do it in Drachmas.
The fact that the Drachma will lose value rapidly is not the current Greek citizen's problem. That's tomorrow's problem.
Bullish! A rapidly devaluating Drachma will do wonders for velocity, as everyone demands payment at end of each day and spends it all before they get home.
If minimum wage does not get increased to accomodate the rate of inflation, or if things really devolve to heavy reliance on System D, unemployment will drop as it becomes cheaper and cheaper to employ people.
So, what useful good or service could be produced in Greece to take advantage of this opportunity?
The 18 wheeler does not want you splattered and gore/guts hanging all over the frames and brake rigging. It's tough to clean off in the hot summer sun once it's dried on.
Trust me, I know.
Greece is a charity case and should be treated as one.
It would be better propoganda for the EU then the constant hand wringing and they could concentrate on the real problems of the EU.
Any money you give Greece under the current conditions is gone or goes to the wrong parties in need.
Like food to the DNK.
Could it be that Greece is nothing more than a distraction?
From the Wall Street Crash of 1929 to the Global Financial Crisis of 2007
It all started with the big crisis of 1929. The American economy reached a deadlock because of its social "pathogenesis"; a deadlock that led it to economic crisis in a different - faster- pace than the rest of the industrial forces of that time. Important decisions had to be made - mostly social - and the Whites didn't like that, especially the Whites' rulers, the Anglo-Saxons. The USA society had to either be homogenized and "forget" about racism against black people or find itself in a permanent deadlock that would threaten it with social uprising. If they didn't equate the black working people with their white colleagues so that there wouldn’t be an issue with the salaries that threatened the national currency, they couldn't avoid reactions and all that goes with it.
The problem which began as social but was turning into economic was simple. As long as the economy functioned adequately and the Blacks worked and asserted what they deserved for their work, the white employers had to "fund" the white working force with extra money because of their skin color. To avoid complaints from a white worker who received the same salary with his black colleague, the employers had no choice but to give them more money. The demands of the Blacks were used as an excuse by the Whites to demand more and everything ended up in the same pocket, since they were under the same employ. The problem that arose from this "strange" tactic was that the increased takings of the "superior" White employers were seeking outlet in investments and that threatened the capital. Having higher salaries, they bought more houses; they bought stocks and so on.
www.eamb-ydrohoos.blogspot.com/2010/02/ten-plagues-of-pharaoh.html
Authored by Panagiotis Traianou
K A O S
The guy almost has a point, in a weird sort of sense. The big question, the million dollar question is when do the central banks stop coming to the rescue of the soveriegns? Or, when do the rescues become non-market ramping and net positive albeit it's been smaller and smaller time frames, before the liquidity push wears off?
Certainly all seasoned ZH readers fully expect another bailout.....
When does this stop?
The bailouts stop when people lose faith in the paper bailout currency.
J6P is not there yet. When that day comes, the H-bomb - Hyperinflation - will go off. Got gold?
Everyone in power wants another bailout. However, there is absolutely no collateral left. You could try to sell islands and other property but the citizens of Greece riot all of the time against their own government. Try being a foreigh entity kicking Greeks off the land you just took from them.
Watching Kudlow tonight (no idea why) and these people are saying how fucking tough it will be to bring back the drachma. Tough? You just print a bunch and put them into circulation with whatever exchange rate the market dictates. I just answered my own question. The central planners can't get past the fact that the market will determine the exchange rate. They have spent the last 10 years controlling the EURUSD and they know it will be hell to control drachma, lire, dubloons, tokens, etc.
"With Europe on the brink yet again Germany will act"
As in returning the to D-mark?
The price of money from nothing is not too high of a price to pay to create the NWO. Beats blowing them to smitherines. No. If I have it correct the idea is not to subsidize the banks but to take away the peoples respective governments. They will use NATO if necessary but are trying to avoid it. WWII had its associated costs as well.
Can't we see that the real fascists are the bankers and current politicians that created the problem not incoming so called fascist governments