The Weeping In The Counting House

Via Mark J. Grant, author of Out of the Box,

The Counted and Not Counted


Sing a song of sixpence,
A pocket full of rye.
Four and twenty blackbirds,
Baked in a pie.


One of the constant and consistent themes found in Europe is the lack of acknowledgement of what is there and not there. It is a pervasive infection that has gripped the Continent as tightly as some vice grasps a horseshoe. This manner of doing business clouds the reality of what is at hand and pushes consequences out to some date in the future. Sometimes it is as simple as the tax in Greece on swimming pools. “It is not a swimming pool it is a Jacuzzi, a sacred bath for religious observations, a bird bath, a medicinal spa to cleanse the feet, a playground for my son’s toy boat, a home for any dolphins that might drop by, a rectangular drainage ditch or perhaps a second source of drinking water for the house.” The swimming pool is defined as anything and everything so the tax does not have to be paid.


When the pie was opened,
The birds began to sing;
Wasn't that a dainty dish,
To set before the king?


In other cases it is deceit by definition. Yes there are seven fig trees but we only count three because one is just a sapling and the other doesn’t produce enough figs to really make a difference and the other was planted by grandfather Pathos as a tribute to the gods and the fourth is not a Greek fig tree but an Arabian fig tree and so is not really the same species. This is the basic methodology of European invention but denial does not change the fact of all seven of the fig tree’s existence.


The king was in his counting house,
Counting out his money;
The queen was in the parlor,
Eating bread and honey.


In the case of the ECB, the debt to GDP ratios, each nation’s obligations to the European construct et al., Europe counts only what it wishes to count. Some people defend this on the basis of some god given right, like the kings of old, to only count what they wish to count and that it is up to each nation and up to the European Union to include what they think is right and proper. In my mind, this is a very destructive argument because not only is the truth masked by charade but because, in the end, you face the consequences of owning seven fig trees and not three of them. The denial of reality is often a dangerous game because Father Time eventually drags you kicking and screaming to the truth and since it is not expected; reactions can be devastating.


After the first Greek bailout both the IMF and the EU informed us, in no uncertain terms, that the new measures would bring the debt to GDP ratio of Greece to 120% by 2020. That was their statement, that was their assurance and I was taken to task for saying the correct number was more than 400%. There was no magic to my conclusion; I merely added up ALL of the debts that the government of Greece was responsible for, I counted everything including bank guaranteed debt, regional government guaranteed debt, derivative contracts and corporate debt guaranteed by the country. Then I divided it by their GDP and presented the facts. What was obvious then, what should be obvious now, is that the refusal to count what is owed does nothing to change the eventual outcome as the debts pile up and become due.


The maid was in the garden,
Hanging out the clothes;
When down came a blackbird
And pecked off her nose.


So today we hear a new, new number that the debt to GDP ratio for Greece is 190% and that the country will have a primary surplus in the next few years. These statements have all of the truth to them as Lithuania is part of the United States or that penguins can be found in the Amazon. The problem then, in believing this kind of nonsense is also exactly what we are facing now; Greece cannot pay her bills, the PSI card has already been played and someone is going to have to pay the piper and no one wants to pay him. Whatever remains of some coalition between the EU and the IMF is now in tatters as neither entity wants to take the hit. In fact, neither entity can afford the hit without devastating consequences and yet the hit is going to be taken, of that much I can assure you, because there is nothing left to do. Even in the distant possibility of debt forgiveness a hit gets taken and the only question that remains is by whom. More money could be given, more debt could be added again but Austria and the Netherlands have already said “No” and so the final act is underway.


The same misguided mentality is also directing the play in Spain. The Oliver Wyman stress tests put the penguins in the Amazon and Lithuania next to Alabama. Moodys was relatively kind and offered the possibility that Oliver Wyman had confused the penguins with flamingoes but I have no such inclination as one bird flies and the other doesn’t and so kindness should not be used to cover up the obviousness of a bird that has no possibility of winging into the air.


You see, in the end, no matter what you wish to count; there are still seven fig trees. The roots of seven trees, not three, grow this way and that way, the figs of seven trees must be plucked, the leaves of seven trees will fall to the ground and seven trees must be watered to bear fruit.

The Kings are in the Counting House. They purposely mis-counted what was in the vault. The Secretary of the Treasury has presented the bill for Greece and Spain. There is weeping in the Kingdom.


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