Monday, July 13, 2015


Well, it looks like shooting almost has wrapped up for the new comedy, My Big Fat Greek Stupidity starring Alex Tsipras and Angie Merkel, co-starring Yanny Varoufakis, Wolfie Schäuble, Donnie Tusk, Mario Draghi and many more!

First, if you are shocked by the outcome between Alexis Tsipras, the prime minister of Greece and the Eurogroup ministers, who are the finance ministers of the Euro zone, you should not be. Had you been a consistent reader of mine, you would have known all along what was happening between the Greeks and the leaders of the Euro zone, the EU and the IMF.

In these works, I shared with you reckless spending of Greek law givers compared to other countries with alike economies — the Czech Republic and Portugal. I shared with you what the Greeks needed to do — cut per capita spending a paltry 4.4% down to $3,913.33 so Greek law givers could pay a mere €6.36 billion a year of debt, roughly 1.9% of total debt owed and 2.6% of GDP, without GDP growth. I shared with you that Greek law givers had to pay €63.58 billion worth of debt over ten years  that Greek law givers borrowed to pay generously, for salaries and pensions of government workers and not €330 billion falsely cited by the ill-informed in effort to reduce total debt-to-GDP to 110%.

I shared with you why Greeks held no cards — Greece GDP is a rounding error — 1.84% of the total Euro zone GDP less the Greek GDP. That is like throwing two cents on the ground for every Euro in your pocket.

I shared with you that Greek law givers lost any leverage when the ECB shuttered ECB-aligned banks. Since Greek banks have much of their reserves tied to bonds of Greek law givers, the acts of Tsipras and Varoufakis-led SYRIZA impaired those reserves. Impaired reserves required emergency liquidity assistance (ELA) from the European Central Bank (ECB).

When the ECB cut off ELA to Greek banks, Greek bankers were forced to close. Closing the banks effectively cut off the metaphorical water supply to Greeks.  Litiming ATM withdrawals to €60 a day with no other banking services seized up the machinery known as commerce.

As well, I shared with you the big bomb that is going to drop on July 20. Greek law givers owe €3.5 billion (US$3.9 billion) to the ECB. That date marks the final call in this poker game.

Many have called for the Greeks to stiff their European partners and have their banking system return to the drachma.  In effect, many wanted to see the Greeks betray the European project. 

Why would the Greeks seek to exit the Euro zone and return to the drachma? If the Greeks have their own banking system with its own cash, how would that change anything for the Greeks? Greeks make very little their trade partners want to buy. 

The top export for Greeks consists of refined petroleum products. For the latest year (2012) available, Greeks exported $11.812 billion worth of refined petroleum products, which comprised 34.9% of all Greek exports.
The top importers of Greek products are near-penniless Italians (7.96%), penniless Cypriots (4.75%), penniless Spaniards (2.65%), near-penniless Frenchmen (2.56%) and penniless Russians (1.93%). 

Yet fools believe it is the Eurogroup ministers who are betraying the European project. In spite of what neither politician nor businessman but lifetime academician Paul Krugman has claimed, the Greeks have been the ones betraying Europeans.

In a show of generous unity by those leading the European project, the Greeks were bailed out not once, but twice, in 2010 and 2012. The socialist-communist SYRIZA came to power and reneged on those bailout deals. As well, since 2010, Greek law givers have failed to meet conditions they agreed upon to get Greeks and their economy in line with the European project.

Greeks have been living under the delusion of a massive credit bubble, one fostered not by bankers in Greece, but by Greek legislators. That bubble needs to be popped, permanently.

For years, since socialist party leader, Andreas Papandreou, the Greeks had been betraying the European project. Papandreou engaged in despotic-like spending, hiring supporters to government jobs. In so doing, Papandreou created a massive spoils system built around government using funds from the EU to pay for this system. And when the opposition party came to power, they grew the system even bigger.

This is why are the Greeks in trouble. For decades, Greek law givers created a bubble economy. Instead of the bubble economy being blown ever bigger by private-sector inflation — bankers' credit — Greek law givers created their bubble economy through public-sector credit.

By creating government jobs that ought not to exist and by overpaying for those jobs, Greek law givers kept their credit bubble inflated.

Varoufakis along with Tsipras and the rest of the jokers from SYRIZA are like all other law givers. They seized power by promises of more spending — ending austerity.

Varoufakis, Tsipras and all of the SYRIZA jokers wanted to spend beyond their will to tax. That is why they have been begging for five months to get more bailout cash and not pay on debt already accrued for law givers' spending largess.

Tsipras lost. Tsipras and his game-playing, cycle-riding sidekick lacked leverage. The ascension of SYRIZA to power was the first referendum and only one that should have been held. 

Tsipras worst move was holding and encouraging a No-Vote referendum to reject a new deal being offered by Eurogroup ministers. A yes-vote win would have forced Tsipras to cave into demands. 

The actual no-vote win forced Tsipras to present his plan. The Eurogroup ministers called him on it. In short, the no-vote meant no more delay tactics could be played.

The fix for Greeks is deflation. Greek law givers need to stop trying to create a phony economy through borrowing. 

Greeks need to devalue. They have needed to devalue for a long time. 

Their prices are too high. Their prices are too high because law givers borrow to spend on wages and pensions for government workers. All should know that wage rates are prices.

The Euro isn't going to fall much relative to the cash of other banking systems such as the U.S. dollar, the British pound, the Norwegian krone or the Swiss Franc. So to devalue, prices need to fall. Prices won't fall until Greek law givers cut the sum of credit they introduce into the Greek economy.

And so, to remain part of the European project, Greek law givers must give up their spoils system and bring Greeks into the 21st century.

Part of the new deal, Greek law givers must do these acts by Wednesday:
  • make standard their VAT tax rates
  • increase the retirement age for law-givers provided pensions to 67 by 2022
  • legalize automatic spending cuts of Greek law givers try to abandon budget targets
  • end the spoils system
If Greek law givers can do these acts, then formal talks can begin between Tsipras and the Eurogroup ministers for a new, permanent bailout deal of €86 billion.

Greek law givers must cut their per capita spending. That is what they have been asked to do. If Greek law givers do so, they will get their deal reworked. 

If Greek law givers agree, Greece will strengthen and the Euro gets better. If Greek law givers reject, Greece will exit and the Euro will strengthen. Either outcome is good for the Euro. Only one outcome is good for the Greeks — staying in the Euro, cutting Greek law givers' power.

The problem for Greeks is the same problem everyone suffers the earth over. Over many years bad law givers have leveraged doling welfare to gain power and keep it. With power, law givers have then created a horrible culture — codified law — of bad design, which unsurprisingly has led them to their final destination of failure. 

Greek law givers let their debt grow beyond their ability to service the interest payments. Their poor decisions led to exponential growth of debt. Per capita spending by Greek law givers is well beyond the size of Greek economy compared to other EU states of alike-sized economies as measured by GDP.

And in spite of what Krugman and others like him wrongly claim, the Eurogroup ministers strive to keep the European project going. They are trying to come up with a plan for short-term financing to help Greek law givers over the next few weeks.

Even if SYRIZA Greek law givers reject this final deal, Greek law givers are on the hook for all kinds of bonds floated in jurisdiction that is not Greece. No matter what, Greeks will be paying taxes to their law givers for those bonds. Greek law givers will pay on those foreign bonds.

In life, when adults have the power to decide, they don't get what they want always, but always, they get what they deserve.

For an up-to-the minute timeline for the SYRIZA-caused crisis, check out the Guardian UK. Be wary about what you believe published there.

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