Budget Deficit

"The current government debt bubble is the last of all possible bubbles."

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They don't call them PIIGS for nothing!

Der Spiegel's study of the global government debt crisis wins every "If You Only Read One This Year Blah Blah Blah" honor you can think of. It is something our own MSM never seems to pull off: an intelligent, comprehensive and disturbing take on the crisis in the PIIGS countries, the danger to the non-PIIGS countries, and the uncomfortable truth that in the long run, we are all PIIGS:

The financial crisis isn't over by a long shot, but has only entered a new phase. Today, the world is no longer threatened by the debts of banks but by the debts of governments, including debts which were run up rescuing banks just a year ago.

The banking crisis has turned into a crisis of entire nations, and the subprime mortgage bubble into a government debt bubble. This is why precisely the same questions are being asked today, now that entire countries are at risk of collapse, as were being asked in the fall of 2008 when the banks were on the brink: How can the calamity be prevented without laying the ground for an even bigger disaster? Can a crisis based on debt be solved with even more debt? And who will actually rescue the rescuers in the end, the ones who overreached?

The multi-author article doesn't have any easy answers, but it takes in stride many ideas that should be obvious even though they are currently treated as heretical. In response to the absurd notion that ratings agencies and "speculators" are to blame for telling the truth about the Greek bankruptcy, Spiegel brings in a Scottish hedge fund manager to point out that we should be thanking people like him for cutting short what might have been years of further debt accumulation. As expelling Greece, Spain, Portugal and maybe Ireland from the euro zone becomes a clear option in all but name, the authors quote German officials recommending just that, with one suggesting the Greeks sell off their islands to pay down debt and another thumping the tub for the EU to give Greece back "the option to devalue its own currency." And the very high probability that Greece will fail to meet the "austerity" goals its rescuers have imposed gets a full hearing:

If that happened, the rescuers themselves would be at risk. Even Germany, in international terms a country with relatively sound finances, has amassed enormous debts. If it became caught up in the maelstrom of a euro crisis, the consequences would be unforeseeable. The credit rating of Europe's strongest economy would be downgraded and Germany would have to pay higher and higher interest rates for more and more loans. Future generations would shoulder an even greater burden as a result.

But what is the alternative? Should Europe simply allow Greece to go bankrupt instead? In that case, the possible future scenario would happen right away instead.

One might argue that it is better to get things over quickly, even if that is painful, rather than prolonging the agony. But one can also hope that everything will turn out for the best in the end.

Lest this seem like gloating over the fate of the losers on Europe's margins, the article concludes by throwing the United States into its already full drunk tank. In a classic example of here's-why-they-hate-us arrogance, Treasury Secretary Tim Geithner shot off his big, fat, punchable mouth to some German finance officials recently, but in a confidential IMF report on creditworthiness, Germany has apparently outscored the United States by a wide margin:

The US budget deficit has now reached $1.6 trillion, or 10 percent of GDP. The national debt is now over $12 trillion and is forecast to expand to more than $20 trillion by the end of the decade. At that point, Americans will be paying $900 billion a year in interest alone…

Today, only four areas consume almost all government revenues: defense, social programs, health care and interest on debt. Americans must pay for everything else with new debt.

Finally, given how our own mainstream media treat negative interest rates and broken debt ceilings as just normal stuff that happens when the government is busy "rescuing" the economy, it's refreshing to see the Obama Administration's obvious pro-inflation policies described as what they are:

President Barack Obama, in particular, is likely to be very tempted to fire up the money printing presses and, by devaluing the currency, to reduce the real burden of liabilities the United States has accumulated. Because foreign investors in China and Japan hold a large share of America's debts, they would be more adversely affected by depreciation than the Americans themselves.

Despite the worrisome tone, the piece is not really apocalyptic. The prospect of Washington getting a credit downgrade, of the United States losing its "global position," or of our own government having to confront bomb-throwing public sector unions might be scary for Keynesian Klowns and National Greatness idiots. But if your concern is the well-being of actual Americans, these are consummations devoutly to be wished. I just wish our own establishment media were capable of telling the truth this consistently.

Whole article. Courtesy of Arts & Letters Daily.

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  1. doom!

    DooooooooM!!!

    DOOOOOOOOOOOOOOOOM!!!!!!!!

    *inspired by Warren*

  2. Instead of cutting their losses, the Eurocrats have decided to double (or is that quintuple?) the bet. This is the same behavior we saw with TARP.

    While there is a chance that they will win the bet, it is far more likely that they will lose. The major difference being that the future losses will be much bigger and create an even worse situation.

    1. I’m no economics whiz when it comes to complex economic theory, but a rudimentary understanding of probability and statistics would suggest that they are going to lose. Big time.

      Gambler’s Fallacy in yet another practical application here.

      I now understand the appeal of anarcho-capitalism and why Episiarch argues so strongly for it.

      I wonder who is making money on the Greek default and the future defaults of other countries?

      1. We need to have an anarcho-capitalism open thread. I’m more of a minarchist. I’ve given loads of thought to an-cap, and I think it’s fascinating, but there are some insurmountable difficulties within.

        1. What about all the insurmountable difficulties with minarchism? You know, like the giant US government. The biggest ever.

          1. And your point is?

  3. It is something our own MSM never seems to pull off: an intelligent, comprehensive and disturbing take on the crisis in the PIIGS countries, the danger to the non-PIIGS countries, and the uncomfortable truth that in the long run, we are all PIIGS:

    I finished watching a recording of The Biggest Loser (my one reality TV weakness — really!!), and flipped it to the NewsHour, and Kru(ugh!)gman was the guest on and he was talking about Greece. I listened for a few minutes before turning it off in disgust. Good gawd, macroeconomic advise from him is exactly like diet and exercise regimen advice from a 370 lb obese man.

  4. Paul Krugman: If you want to get skinny, sit in your chair all evening and eat this plate of donuts.

    No one would be fooled by this advice, but this

    Paul Krugman: If you want to end a crises created by too much debt, you take on a whole shit load of more debt!

    actually confuses people, and they will weigh it as an option to be taken seriously.

    1. That’s because he is a highly paid Nobel-Prize-Winning toady who tells governments what they want to hear while you just use common sense.

      Want to guess who will get blamed if it all goes for shit?

      1. I’m going to take a guess. It is something that before the early moths of 2009 had been talked about only in the historical context of the 1970’s, and then it was quickly retconned into being one of the underlying principles of the Bush Administration — I will guess Deregulation.

        1. I’ll give you half marks.

          It will be speculators and, especially, doomsayers like you who “undermined confidence” in the government and the economy.

          1. doomsayers like you who “undermined confidence” in the government and the economy.

            Occupation: Supervillian, Herald of Galactus

            That’s me! I’m just filling in for Warty though. You can’t stand around a throne all day with a giant spear in your hands if your herpes is acting up. Get well soon, Buddy. Your boss is a pain.

            1. It’s not a spear, cockmaster, it’s the Lance of Consumer Disconfidence. You don’t want to know how I got it.

              1. What!?! It’s not a spear. Oh oh how gross!

                Psss. . . Don’t tell anyone Warty, but I knew all along. Te he he he

          2. Because it’s not really happening if people don’t actually know about it.

            Seriously, “speculators undermine confidence” is one of the biggest crocks of anti-transparent big government horseshit out there today.

            And we would have gotten away with it, too, if it handn’t been for those pesky speculators!

        2. Early moths are what eat holes in your budget.

          1. They ate my ‘n’, Rob.

            1. Now they just took another one! Fuckin’ moths.

      2. oh, who gets the blame.

        Speculators! Those bubble bursters with their manipulations. It could have gone on non stop with the right people overseeing everything, if it had not been for those greedy speculators.

        1. …and those meddling KIDS!

          1. Dammit, you beat my comment by 6 hours!

            [hangs head in shame]

      3. According to all the Eurotrash they interviewed on NPR this AM, it’s all AMERICA’S fault.

        It’s all the rampant unregulated capitalism that makes a few fat cats rich while the regular people are starving and dying in the streets with no health insurance.

        I’m not exactly sure what’s worse, the fact that some people have these cartoonish views (and get taken seriously enough to be given airtime) or the fact that they can say with a straight face that this alleged conduct caused their problems.

        1. In a way, they’re right. Capitalism creates so much wealth that the plundering looters that infest government everywhere can’t help but plunder it in exchange for electoral sugar. But the flow of sugar isn’t dependent on the amount of plunder flowing to the parasitic class, but the rate of increase of said flow. When there’s nothing more to pillage, the game is up.

      4. Saboteurs! Hoarders!! Wreckers!!!

    2. Well, it won’t make you skinny, but you will lose weight.

      Think of it this way:

      -Your weight is equal to your volume times your average density.
      -Donuts are less dense than you are, so eating them reduces your average density.
      -It takes time for your volume to increase.
      -So, if you eat the donuts fast enough, your average density will decrease, resulting in you losing weight.

      1. Good point!
        I didn’t think of that.

  5. “As expelling Greece, Spain, Portugal and maybe Ireland from the euro zone becomes a clear option in all but name, the authors quote German officials recommending just that, with one suggesting the Greeks sell off their islands to pay down debt and another thumping the tub for the EU to give Greece back “the option to devalue its own currency.”

    You’d think suggesting they sell some islands would be absurd, considering they’ve been fighting over some of those islands for 2,500 years, but I’m not sure it’s any more absurd than the suggestion that any German official should recommend that Germany effectively inflate its currency for the benefit of Greece– and then gouge German taxpayers for the bill?

    We all know what happened with our bailouts–can you imagine how bad the reaction would have been if we’d been bailing out Mexico’s banks instead of our own? The idiot masses only tend to look at these things strategically in retrospect, but this defies common sense–why would the Germans bail out a country if everybody’s pretty sure ahead of time that they’re going to kick the Greeks out of the Euro anyway?

    If you ask me for money, and I know ahead of time that you’re leavin’ the country and never comin’ back, and I then turn around to my countrymen and get them to lend you the money anyway, doesn’t that make me a traitorous bastard? It was bad enough when Bush and Obama made us do it for our own countrymen, can you imagine if we’d had to do it for the Greeks?

    Bailing out Wall Street investors wasn’t in the best interests the American taxpayer or consumer, and this couldn’t possibly be in the best interests of the German taxpayer or consumer either. …the Greeks shouldn’t be rioting–they should be celebrating the stupidity of the German government.

    1. Not quite an accurate comparison. Europe is bailing out one of its member states, like the US federal government would do if a particular state was in trouble.

      The Germans just happen to be the ones in charge of the EU’s money. Unfortunately.

      Keep your eyes peeled, they *will* take over and buy out all of Europe when the rest of the world isn’t looking.

      1. “Europe is bailing out one of its member states, like the US federal government would do if a particular state was in trouble.”

        God I hope not. That might give the Californian Kleptocracy hope.

      2. “Not quite an accurate comparison. Europe is bailing out one of its member states, like the US federal government would do if a particular state was in trouble.”

        Unless you’re comparing something to itself, no comparison is completely accurate.

        Having said that, California, for example, is part of the United States. Greece is not part of Germany. …neither are Spain nor Portugal, and we may see them in the same boat with Greece in the coming days and weeks.

        Merkel and Sarkozy can whistle past the graveyard all they like, German and French voters won’t stand for being used to bail out the government largess of some foreign country for long.

        Their constituents will only tolerate so much largess from their own governments, just like every other electorate in the world–and it seems entirely reasonable to me to expect they’ll have a much lower tolerance for bailing out some other nations’ bloat.

        Governments are voted out of office for squandering too much on their constituents–why wouldn’t they be voted out for squandering their constituents’ earnings on someone else?

    2. If Greece abandons the Euro, or is “kicked out” all of its banks will fail. There’ll be a run on Greek banks, the likes of which have never been seen. Everybody knows it. It ain’t gonna happen.

      1. European banks (France, Germany) hold most of the Greek debt. Bailing Greece out is a lot like the AIG Goldman thing.

      2. “If Greece abandons the Euro, or is “kicked out” all of its banks will fail. There’ll be a run on Greek banks, the likes of which have never been seen. Everybody knows it. It ain’t gonna happen.”

        If they start their own currency and peg it to the Euro, I don’t see why that would necessarily mean bank failures. …at least not because of they have their own currency.

        Lots of countries have currencies that aren’t the Euro.

  6. Geithner’s punchable mouth? That sounds a little brown shirt. Scratch a right-wing libertarian and you get a fucking Nazi.

    1. I think a Nazi’s more like someone who forces people to make personal sacrifices for the good of the fatherland generally–kinda like what Geithner did?

      Yeah, that kind of Nazi has a really punchable mouth–have you ever seen Raiders of the Lost Ark? I’d have loved to sock one of those Nazis!

      1. Or

        1. well that didn’t work….I just mentioned the nice, punchable mouths of Illinois Nazis in “The Blues Brothers.”

    2. The domain of your stupidity: -? < x < ?

    3. The primary difference between the Nazis and those who fought against them being their relative levels of civility, of course. So the comparison is quite apt when you ain’t got nothing else to contribute to the discussion.

  7. “President Barack Obama, in particular, is likely to be very tempted to fire up the money printing presses and, by devaluing the currency, to reduce the real burden of liabilities the United States has accumulated.”

    Over the coming days and weeks, I think it will be really important to see what happens with the CRB index.

    It’s time to revisit the lessons of The Contagion–the Asian Flu. It wasn’t about the dollar, the dollar’s just another commodity. And when Asia was circling the drain, that was one of the best things that could have happened for the dollar. People fighting like mad for the privilege of sucking up all the debt you’re throwing off at low interest rates isn’t a bad thing. …especially if you have a lot of debt to throw off.

    And remember, if the European governments squander the future earnings of their consumers on bad investments and government bloat, then there’s going to be a lot less European discretionary income to buy things from Asia. …and doesn’t that mean a lot less inflationary pressure on commodities?

    The Asian Flu was a net plus for the US economy, ’cause the flight to US Dollar denominated debt drove our interest rates down even as subdued consumption kept a lid on the price of commodities. Cheaper oil, anyone? In fact, without the Euro to compete with the US Dollar, I don’t see why we shouldn’t expect that effect to be even greater this time around if it comes to that.

  8. Why should Europe care if Greece does go bankrupt? Their economy is so small it won’t really affect anything. It’s like us worrying if Rhode Island goes bankrupt.

    1. If it were Greece alone, yes, but Greece is just the first in a long line with similar problems. So it’s not so much whether Greece goes under, it’s speculation [gasp] that whatever happens to Greece is going to happen to Spain and Italy, among others, and those problems are going to be a lot bigger and a lot more interconnected to the rest of Europe.

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  10. I’m having a hard time understanding why rescuing Greece is even seen as such a big deal. What do they need, 100 billion. That’s chicken feed. The US government doles out 100 billion for some stupid reason everyday. Just for TARP they tossed out a trillion like it was nothing. I wish our economy could be saved with just 100 billion.

    1. They only have 11 million people and a GDP of US$350 billion.

      This would be about 3 trillion (or almost 4 times TARP) scaled up to US terms.

    2. at least TARP is being paid back, what about the other trillion of “stimulus” spending shovelled to democratic party supporters? that money is gone baby gone, and we’ll be paying the interest on it for generations

      but i am, of course, a racist for pointing this out

      1. Most of TARP will also end up gone, baby, gone 🙂

        BB&T, responsible for a good chunk of the payback, neither asked for nor wanted the TARP money.

  11. Pretty scary stuff isnt it?

    Lou
    http://www.anonymous-web-surfing.cz.tc

  12. Shut up, grow up, and enjoy your new taxes!

    There is no other way out.

  13. Their refusal to accept that Obama is leading us to a financial land of milk and honey just shows their racism.

    Do you know who else was German? Hitler.

    1. Actually he was Austrian. You know who else is Austrian and in charge of an overwhelming debt problem?

      1. And Beethoven was German. What’s up with that?

  14. But one can also hope that everything will turn out for the best in the end.

    Hope is not a plan.

    1. Let me clear….there are those who say hope is not a plan and change is not achievable. To those folks, I say that it’s time to reign in Wall Street: the days of easy money and cowboy economics are behind us. And we must work to spread the wealth around so all of the world’s citizens can enjoy the American Dream(tm). To all the naysayers I answer with this: hope is indeed a plan and change will happen without raising, I repeat, without raising your taxes one thin dime…if you make less than $250,000. The hope of the less fortunate all over the world is in the change of the most fortunate. And folks, that’s a lot of change.

      (arrogant smug grin)

      1. Y’all need to back the fuck off the dear leader. Get your facts straight – if you make less than $250k your taxes WILL NOT GO UP!

        Take this example:

        A couple who previously made $150k annually pays, let’s say $40k in taxes. Under the new economic plan, that couple will only be able to make $75k, assuming they even have jobs. At $75k, they’ll only pay, let’s say $20k in taxes. That, my friends, amounts to a $20k tax cut.

        If you weren’t so blinded by racism and clinging to your guns and whatnot, you might have understood that already.

    2. Let me clear….there are those who say hope is not a plan and change is not achievable. To those folks, I say that it’s time to reign in Wall Street: the days of easy money and cowboy economics are behind us. And we must work to spread the wealth around so all of the world’s citizens can enjoy the American Dream(tm). To all the naysayers I answer with this: hope is indeed a plan and change will happen without raising, I repeat, without raising your taxes one thin dime…if you make less than $250,000. The hope of the less fortunate all over the world is in the change of the most fortunate. And folks, that’s a lot of change.

      (arrogant smug grin)

      1. Damn! That was so good, it was worth repeating! Right Gibbs? (yuk yuk yuk)

        1. That’ll show those teabaggers.

        2. That was one big fucking deal!

  15. The prospect of Washington getting a credit downgrade,

    These of course are the same rating agencies that were saying in 2008 that everything was A-OK until *after* things actually imploded.

    (and both this year’s events and 2008’s have caused a run *to* not away from the dollar and US sovereign debt.)

    1. And there’s even more political pressure not to downgrade Big Government debt.

  16. I like this article because it tells the story the way it really is. But I am glad not to be involved in trying to find a solution to the problems they have in Europe. It is not easy to time things perfectly for one thing and whatever action planned is very precarious and appears to be impossible to execute.

    Evelyn Guzman
    http://www.debtchallenges.com (If you want to visit, just click but if it doesn’t work, copy and paste it onto your browser.)

  17. As the Euro crashes, it will drive up the dollar and the Yen. BOJ just pumped in $22 billion (USD equiv) today. Bernanke will have none of that. The ball is in your court Ben Ben.

    I think I can hear the helicopter now.

  18. It isn’t fair that all this is happening just when we finally seized power. We had such big ideas!

  19. President Nigger 2012! More change we can believe in!

    1. Deletion bait.

  20. It is absolutely unfathomable to me that we’re still expanding spending and ballooning the deficit, almost guaranteeing a significant economic collapse in coming years.

    U.S. debt instruments have been considered golden for a long time, as no one on the planet expected us to ever default. Now that possibility is crossing more than a few minds.

    What we should be doing–and I mean in emergency mode–is drastically cutting spending and getting our fiscal house in order. Repeal of the healthcare nonsense would be a nice start, but there’s a lot more to do. The fact that this government doesn’t give a shit about the potential devastation it’s helping to bring about is maddening.

    1. The fact that this government doesn’t give a shit about the potential devastation it’s helping to bring about is maddening.

      We must also consider that the population at large is either willfully blind or doesn’t give a shit about the devastation to come. It is the greedy* electorate that give these spendmonkeys their power.

      Kind of related:
      I have been watching the political ads lately, and every single one promises that they will “bring jobs to Pennsylvania”. Now I say to these aspiring politicians, the only way to create jobs in Pennsylvania is if you stop campaigning and start a successful business, therefore hiring new workers. Then I realized,to them jobs aren’t created by free enterprise but rather federal spending, ala Jack Murtha. I was saddened to conclude that this is how people get elected. They promise to saddle up to that federal teat and, as your proxy, drink freely from that infinite store of milk.

      *By greedy, I don’t mean people who want, by their own labor, to have more than they essentially need. Nothing wrong with that.

      I meant those that want what they need and more provided by the backs of others. In the form of entitlements and “bridge to nowhere” type federal spending.

  21. Given Greece’s economy, there’s just no way that its debt, even if refinanced with a bailout package, will ever be paid off.

    The only question is what form the default will take.

    (1) Greece leaves the Euro, redenominates its debt in drastically devalued Greekbucks.

    (2) Greece just says fuck it, we’re not paying this shit. Which would theoretically get it kicked out of the Euro, but hell, Greece has been in violation of the Euro covenants since the day it joined.

    (3) Greek debt is bought up by some sucker nation or institution (IMF, I’m looking at you), and written down or off, like Greek is some sub-tropical kleptocracy.

    I’m thinking (3), myself, which is just a way of spreading the Greek leverage to other countries and kicking the can down the road.

    1. The ECB may use its emergency powers to start buying member gov’t debt.

    2. One of the problems with 3) is that it isn’t just Greece.

      It’s probably going to be Portugal and Spain as well. …and maybe others.

      And you have to look at the this from the French and German voter’s perspective… Would they rather their tax dollars were squandered on countries that aren’t likely to change their ways, even once this crisis passes?

      Or would they rather Greece, Spain, Portugal went the way of Iceland?

      When Iceland’s krona hit hard times, yeah, there were some problems, but it didn’t hurt German and French taxpayers like this Greek package will…

      So let Greece and Spain and Portugal float their own currency and peg it to the Euro, if that’s what they want to do. Politically, I don’t see why German and French voters wouldn’t demand that kind of insulation after being put on the hook for this bill.

      Then Greece can run its fiscal policy any way it wants, and the French and the German taxpayer doesn’t have to cover the bills.

      I’m not promoting this as a policy prescription, by the way… I’m saying this is the way gravity’s working right now, so this is the way it’s probably going to trend.

      What they should do is one question; what’s probably gonna happen is another.

      1. “I’m not promoting this as a policy prescription, by the way… I’m saying this is the way gravity’s working right now, so this is the way it’s probably going to trend.”

        I meant to say that if things go from push to shove, this is probably the way it’s going to trend. DEMAN KURV! could still save us all, it’s happened before, but if trends continue, and Portugal and Spain go the way of Greece, my money would be on black.

      2. The article and the image point out something that The Economist also pointed to this week: Greece’s biggest creditors are German banks.

        In a sense, then, the bailout is saving the German banks (in the interim).

        If Greece defaults anyways (and I’d bet 4 to 1 that Greece will), the Germans banks are still going to bounce, but the German government is going to have an additional pile of debt as well.

  22. Keynesian Klowns and National Greatness idiots

    We need to make this Cavanaugh-ism into common parlance. One amendment, though: I’d like to call them “National Greatness morons” if I can score Timmeh’s permission…

  23. All yours, slim. Although “Keynesian clowns” was initially Mish Shedlock’s formation, I doubled the K, because that spells Komedy.

    1. “All yours, slim. Although “Keynesian clowns” was initially Mish Shedlock’s formation, I doubled the K, because that spells Komedy.”

      we can count cavanaugh, that’s 3 K’s. we are on to your dog whistles to the teabagger racists!

  24. If Europe can kick out Greece, does that mean we can kick out California?

    1. Let the San Andreas fault do that.

      1. It’s had its chance.

    2. It seems like it would be more useful as a giant prison colony for debtors.

      1. Couldn’t you use South Dakota for that instead?

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