[FoRK] World stocks dive on Greece turmoil

mdw at martinwills.com mdw at martinwills.com
Thu May 17 06:03:45 PDT 2012

You've nearly hit the nail on the head....  The problem with the EU is
each country that is part of the Euro is not responsible to the EU. 
Greece decided they wanted full socialism and with the other members of EU
willing to buy their bonds to finance it. It was only possible to the
extreme it was done, because they are part of the same union (EU).

 A near perfect example is California.  They have spent themselves to
bankruptcy. They will be required to be bailed out by the Feds/banks in
the near future.  In the US system, California can be punished by the
Feds through direct intervention, federalizing portions of the state
government, and force them to balance their budget.  The Fed can withhold
future federal funds or spend them directly, rather than by the state, if
they don't get their budget act together (e.g. the Feds can punish
California for their spending habits). The result is California's
creditors will get their money, and California will have to grow up and
quit raiding their treasury.

 In Greece's situation, the EU lacks the power by treaty to punish them
and force them to balance their budget. The only power that is being
exerted now is financially by the IMF and the ECB (with Germany/France
financially backing the ECB).  The EU cannot force Greece to do anything.
Greece basically told the rest of the EU with their last election, "we
don't care we owe you money, we will simply leave the Euro/EU, default on
paying you off, and float the drachma again". The problem with their
solution is their bonds are being held by banks/lenders that do it for a
profit.  When Greece defaults, it causes a domino effect. The default
hits the profits of the individual bond holders, they go to their
respective government for bail outs. These same governments are currently
deficit spending in the middle of a recession.  In order to save the Euro
system, these individual governments will have to institute the same
fiscally responsible measures they are forcing Greece to do, and these
individual governments in the end do a "Greece"... so wash, rinse, repeat
until the entire system collapses.

  This is why a country who's entire budget is LESS than what Wal-Mart
makes in a year, can destroy the EU which is a larger economy than the
US, thereby roiling the economy on both sides of the Atlantic (lest we
forget, China is coming in for a VERY HARD economic landing and their
nearly TRILLION  dollars (US) of bad real estate related investments
that are just now beginning to be uncovered).


> Thanks Owen.  But the same thing applies to all of the countries on the
> brink.  The austerity measures will kill their economies as surely as
> continuing on their present paths

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