thoughts on politics

May 5, 2010

Greece Bailout

Filed under: Uncategorized — Matt @ 3:40 pm

The crisis in Greece, I would say, is the second broad event in the economic meltdown, crash, contraction, whatever it is, that began when the US housing bubble burst in 2007.  The after-effects of that event (which still continue to unfold today — Mish and many others consistently point out that housing prices don’t seem to have finished dropping) were many large financial institutions essentially going bankrupt, and getting bought or bailed out.  Credit contracted, unemployment shot up, tax revenues dropped and local governments everywhere had to cut back.  The problems in Europe have the same essential causes as those here in America, and are perhaps even contiguous — i.e., the Greek crisis is in the same thread or chain of events as the American housing bubble.  Of course the Greek government probably did not own tremendous amounts of Lehman stock, but rather, the false prosperity of all the more or less socialist Western economies has ended, and the real instability of the system has been unmasked.

The question everyone had been wondering about for the past couple of months with regards to Greece was whether the EU would allow the government to default on its debt payments or step in and “bail Greece out.”  The default of a country like Greece would be very unpleasant, to watch as well as to experience, but the short term solution of bailing out a sovereign country raises many moral problems, not to mention sets a dangerous precedent.

The suspense was finally resolved in the past few days when the EU and the IMF announced they had arranged a bailout package for Greece, presumably accepted by all of the Euro countries, including Germany, the largest economy and most significant holdout against the plan.  You can read all the gritty detail in plenty of other places.

This was very predictable; the belief today seems to be that those in trouble should be “helped,” no matter what other consequences there would be, no matter who is hurt in the process, and no matter how much they brought it on themselves.  This goes as much for Greece as it does for unemployed citizens, banks, and car companies.  Oh how much things do resemble the world in Ayn Rand’s Atlas Shrugged.

As I said before, a default by the Greek government would be bad.  However, what the EU has signaled is that no country under its watch will be allowed to default on its debt.  This will be tested when Portugal and Spain, which is much larger, face massive debt problems in the near future.  Honestly, what do these politicians think will happen after this?  The next country to go broke will accept it?

It is funny to read Mish’s commentary on the politician’s “bazooka talk.”

It seems that the debt of the world, or of the west at least, is being called in, and we don’t have a cent to repay.


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