Greece Help launch a global campaign for progress MoveOn.Org Democracy In Action
So my good friend Robert Reich at MoveOn.org, recently posted this gem of perspective about Greece....
Greece is all over the news this week—but how come so few people are talking about Wall Street’s role in creating the crisis, or what people like us can do to change the outcome?
The Greek parliament on Friday approved a new plan that Prime Minister Alexis Tsipras proposed, but so far the European parties aren’t offering up the debt restructuring that’s needed for a real solution and instead are demanding even more draconian austerity measures from Greece to even keep talking.
So let's talk about it. First, what is going on in Greece, and how did they get there?
Back up 30 years. In the 1980s, Greece has a very low debt to GDP ratio. Now an FYI, your GDP is a rough estimate of how much wealth the entire country produces in a year. In personal terms, if you earn $20,000 a year like I do, your personal gross domestic product is $20,000. If you owe $20,000 in debt, your debt to personal GDP is 100%. That's a simplistic explanation, to grasp the idea.
In the 80s, Greece had a debt to GDP of about 20%, but throughout the 80s, that raised up to 75%.
In 1993, a left-wing government coalition formed called PASOK.
From 93 to 04, this party ruled Greece.
The left-wing government succeeded in holding debt to around 100% of GDP from 1993 to seemingly 2004. During this time, they joined the EuroZone, and also bid for, and spent hundreds of billions to put on the 2004 Olympic Games, which not only included the venues for the games, but also a massive metro system and European quality airport.
In 2004, the counter party to PASOK, known as New Democracy, which is considered a 'center-right' party, gained control. of the government.
Greece debt crisis How did we get here - CNN.com
When the new government got control, they had a full review of the budget, and discovered that the deficit was not the reported 1.5%, but rather 8.5%.
That's a massive difference in cooked numbers. The new government decided to not freak out the population by sounding the alarms, but instead to try and quietly start reforms, and cuts to the budget.
The policy was actually effective...
From 2004 until 2006, the deficit was declining, but then the global slow down of 2007 hit, and with the decline in the economy, the deficit went up. The cure was too late.
From that point on, the crushing debt left Greece unable to pay it's bills.
Private lenders refused to buy Greek bonds at an interest rate Greece would accept, mainly because all the information that had come out to that point, was now clearly fabricated. The numbers were cooked, and everyone knew it. But without private lenders, Greece was utterly bankrupt.
Insert the European Union, the European Central Bank, and the International Monetary Fund. While the private market realized Greece was a bad borrower, the public governments decided to step in, and loan Greece money, but instead of higher interest rates, they required policy changes. More taxes, and lower spending.
The New Democracy government had one of two choices, default on debts, and end up a failed state, or accept the loans with the accompanying requirements.
They agreed, and started cutting public employees, and pensions.
This caused protest and outcry from the people, which in 2015 elected a far-left-wing Syriza party candidate, who promised to roll back the austerity reforms, buck the bailout, and 'force' creditors to accept a new deal.
Greece has now defaulted on several loan payments to international lenders. After the EU refused to lend money without Greece meeting their requirement, the Greek PM sent a referendum to the public on the bailout, and the public voted it down. Despite claims that this would force the EU to make a better deal, instead it resolved the EU to let Greece exit the EU. So the Greek government now accepted a new deal which some say might have been worse than the original deal. Hard to tell.
Greece may still end up leaving the Eurozone.
Before I get into some of the other details of the Greek crash, I want to knock out the Goldman Sachs complaints by Mr Reich.
http://www.nytimes.com/2015/07/14/b...es-woes-but-maybe-not-goldman-sachs.html?_r=0
Before countries could join the EuroZone, having a single common currency of the Euro, a country must have a Debt-to-GDP ratio of only 60%. If the country had a higher ratio, the treaty required that they show they can reduce their debt.
Greece of course had a debt-to-GDP ratio of 100% or over, as did several other countries. In order to show they could lower debt, countries could sell off state-owned business, or sell derivatives of income, income from tolls, or fees. Lastly, they could purchase currency swaps.
The way this works, is you being Mexico, owe 1 thousand Pesos. So to lower your peso debt, you borrow $1,000 US dollars, and use the borrowed cash to swap for Pesos, thus paying down your peso debt.
Goldman Sachs created the currency swaps, that Greece used, to then enter the EuroZone.
All that being true, Mr Reich is completely wrong in assigning any blame to Goldman Sachs. First, many of the EuroZone countries used this system to reduce debt. Greece was one of many. Further, this transaction was known and accepted by the Eurostat.
Further, the numbers make it clear, that these swaps by Goldman Sachs account for at most a drop in Debt-to-GDP ratio of only 105.3% to 103.7%. A 1.6% change in numbers, wouldn't change anything in Greece's current situation which currently stands at 175%.
Goldman did nothing wrong. They gave Greece a legal, and widely accepted product, that Greece itself asked for. Doesn't mean Goldman Sachs are angels, or demons, just that in this case they didn't do anything wrong, and they certainly can't be blamed for Greece's crash.
Well if Goldman Sachs isn't to blame, then who is?
The short answer is.... the Greeks. They did this. Their people, their politicians, their policies, their spending. The only people to blame, are the people in Greek mirrors. And the whole reason I'm making this discussion, is because we are following in the foot steps of Greece, lock step.
And all of the arguments that resulted in Greece being where they are, is exactly the same arguments we're having here.
Which leads to one of my pet peeves with the left. It's amazing how quickly those on the left flipflop on a position, depending on the discussion. I can't count the number of times where I've been told "there is nothing special about America". Someone said this to me. They were tired of people on the right claiming that there was anything special about America. We're not better than any other country.
Yet when we say that the US is following the same patterns that led Greece to failure..... "we're not Greece".... suddenly we're special. It's different this time, because we're America. Therefore we don't have to worry about the fundamentals of economics. Math doesn't apply to America. Ironically there's a book called "this time is different", by Carmen Reinhart, which specifically documents that before every major governmental default, there is always someone there saying "we're different. It's different this time. We're special", and shockingly time proves them wrong.
How many times have we seen this? Argentina? Venezuela? We don't have to worry about economics, because we voted for it... and then they are proven wrong. This is exactly why democracy doesn't work. Because people think because they voted it for it, that makes it true. Wrong. Greece just found this out. They had an up or down vote on Austerity and the Bailout. They voted it down. Guess what? They still have Austerity. They still have a bailout. They still have to cut spending. Nothing changed. Voting for something doesn't change it.
I was talking to this one chick several years back about Greece, and she said "you just don't understand what they have suffered! You don't understand how hard it's been. You don't know what it's like to live in Greece!".... and I said.... You are right. I don't know. But the problem is... it's doesn't matter. 1 + 1 = 2 whether your life is hard or not. Whether you think you deserve it or not. Math doesn't change, to magically pay for everything you want, just because "you don't know what it's like".
And the scary part is that we're doing the exact same thing here.....
Take Social Security. In Greece, it's called public pensions. Everyone pays into the pension system, and when you retire, you collect from it, just like Social Security. Both systems, you pay taxes to government, which and then used to pay existing pensioners. In both, surplus is used to buy government bonds.
In Greece the pension was absolutely unsustainable. In 2008, the Greek pension system consumed 25% of the total Greek Federal Budget.
http://www.minfin.gr/sites/default/files/financial_files/pb_2008.pdf
This is written in shockingly..... Greek. So unless you use Google Translate (as I did) you won't be able to read it. Guess how much of the US budget is Social Security? 26%.
US Federal Budget Actual Spending Breakdown 2009-2014 - Pie Chart
The BBC, recently interviewed a journalist and book author in Greece, who has covered the Greek pension system for years. See if anything sounds familiar.
From the BBC world update: Daily Commute with Dan Damon 6/27/15 Starting at 5 Minutes:
Federal Employees have been able to extract large benefits from the government, exceeding the general public pensions. Sound familiar?
Benefits for ex-federal workers explode USATODAY.com
Retirement programs for former federal workers — civilian and military — are growing so fast they now face a multitrillion-dollar shortfall nearly as big as Social Security's, a USA TODAY analysis shows.
Shocking..... or not. Every attempt at pension reform was destroyed by Unions and strikes. Sound familiar?
Up to 100 000 protest Wisconsin law curbing unions Reuters
The Wisconsin Union protests were exactly the same thing, and for exactly the same reason. The state couldn't afford the benefits, and tried to reform. The Unions went nuts.
At this point I always hear that, well we just need to raise taxes! Let's tax the rich, and then we can afford all this stuff!
Greece Income Taxes and Tax Laws - WorldWide-Tax.com
Greece has drastically higher tax rates than the US. By a massive amount. It's shocking to even me.
The Pension tax in Greece.... not including 'income' tax.... is 28% on EMPLOYERS, and 16.5% on Employees.
To understand what that means, if you earn $50,000 a year, it's costing your employer $64,000, even though you only take home $41,750.
Compared to the US, we only pay 15.3% of our wages in Social Security, compared to their 44.5% of their wages.... yet their broke. By the way, their payouts from their pensions are LOWER than ours, even though their tax rate is higher, and still broke.
What about income tax?
Income taxes in Greece are drastically higher than in the US. The lowest income tax rate is 22%. That's for people earning less than $25,000 a year. But the real kicker is the highest tax rate, which 42% on income over $42,000. Not only is the highest marginal rate, higher than the top marginal rate in the US, but it hits people only making $42K a year, unlike the US $430K+.
And yet, with all these high tax rates, the economy is struggling, and the government is broke. What a shock? I'm shocked... aren't you? After all, were we not told that all we need to do is tax the rich, and we'll be awash with the money for all this?
http://www.economist.com/blogs/freeexchange/2015/06/greek-pensions
http://www.economist.com/news/finan...ks-pay-more-tax-not-just-hard-risky-treasures
Economists also found that some people after reaching the minimum number of years to collect full benefits was reached, found workers dropped out of the official work force to work in the black market, since once you reach the maximum payout, there was no benefit to paying more in, and working the black market allowed you to keep all of your income.
Which by the way, is why you read stories about how people in Europe work less hours than Americans. Yeah.... because they work under the table, to avoid the horrendous taxes. Back to the example above, not only would it cost the employer $64K to pay you $50K, and not only would you only take home only $41,750 of your $50,000 pay check, but after income taxes would only be roughly $30,000 or so.
Yeah, they work less officially recorded hours, and then work in the black market. Again, any claim that just raising tax rates is going to fix everything, is a joke. Their tax rates are much higher, and they are broke.
What other comparisons can we make? How about infrastructure?
Take for example the massive money poured into the Greek Rail system.
Is it cheaper to put Greek train passengers in taxis - BBC News
From the down turn in 2007 to 2013 when this article was written, the Greek government poured over 13 Billion Euros into the Greek rail system. A large figure for a small economy like Greece. Yet the rail system lost money year over year, is steeped in debt.
The system cost so much, and yet so few ride the metro system, that rough calculations showed that the Greek government could theoretically hire individual taxis for each rider, and save money, over paying for the rail system.
And what of the ubiquitous claim of massive economic benefits? Billions of Euros poured into mass transit and infrastructure, and yet their economy is in free fall decline? Where was the supposed economic boost?
Well perhaps they just need to boost their economy with the minimum wage?
Greece had, in the prior decade, a minimum wage that was indexed to inflation. This is why you see the minimum wage going up, year over year. So why did unemployment skyrocket, and where was the economic benefit loudly proclaimed by the 'fight for 15' people?
Instead unemployment increased year over year, right along with the minimum wage, until they cut the minimum wage in 2012. With the minimum wage lower, more people could be employed profitably, and thus were.
And lastly, Health care.
The Deadly Cost Of Austerity On Greece s Health Care System
Without needing to detail every aspect here, the Huffington Post has a in depth article showing lack of staff, lack of medicine, lack of funding. Hospitals all but abandoned. People left with no place to go.
However the most amazing part of this entire discussion is how the left tends to spin things around to justify their own dogma.
My favorite recently, was a post where someone talking about the referendum on the bailout and austerity, proclaimed "The Greek people 'stuck it' to the banking cartels!".... oh really?
See all that green? Those are all tax payer money. Not private banks. ECB (European Central Bank) is funded by tax payers, and run by the government. IMF is the same. All the rest is money from other governments. Of the remaining, €4.3 Billion is to the Bank of Greece.... their own citizens. €11 Billion is to other private Greek banks.... their own citizens. €48.8 Billion is in bonds.... which are generally purchased by pensions, and retirement funds. Most of which are usually... their own citizens.
Only €12.9 Billion of the €323 Billion in Greek debt is going to foriegn banks. Who are they "sticking it to" exactly? Themselves, and international tax payers? Not the banks. The banks sold their bonds, and refused to buy more. That's what led to the crash to begin with.
Then they say, well they voted to reject austerity... as if austerity was an option.
I've laughed when I read someone saying "See austerity doesn't work!", as if it was just a bad choice in multiple options.
No one wakes up and says "you know, I think I'll try austerity from here on. That seems like a good plan". Of course not. And certainly no politician says "we should try austerity. That'll get me re-elected for sure".
Don't be ridiculous. Austerity isn't simply a policy 'option'. Austerity is what happens when you have no other choice.
I have always wanted a Mazada RX-8. Always wanted one. But when you earn $20K a year, you can't afford a luxury sports car. Now I could go to the dealership and take out a car note, and drive one off the lot. I could even take out a bunch of credit cards, and buy a new computer, and new big screen TV, and new everything else. I could live pretty well for awhile. But even eventually the bill would come due, and I wouldn't be able to pay it.
Then.... I would end up in 'austerity'. The car would be repo'd. The house would be foreclosed. All my stuff would be sold. I'd end up living on even less than I am now, with all spare money going to pay the debts.
Without the bailout, Greece would have to cut pensions far more than they have. They would have to cut health care even more than they have. The metro system would have to be shut down. Greek owned companies would have to be sold. Moreover they would likely be kicked from the Eurozone, and removed from the EU. Inflation would go rampant, and what little industry they still have, would move out of Greece, to get back into the European Union.
And this is why Greece is such a vital lesson to the US. We have got to get back to this idea of Fiscal responsibility, and cut our spending, reform social security and medicare, or everything Greece is going through right now, will without a doubt be our future.
Democracy doesn't trump math. I don't care how many times you vote to get everything you want. If there isn't money for it, then we can't afford it.
In the 60 Minutes show, Jan 25th 2015, they interviewed the GOP House majority and Senate Majority leader Mitch McConnell, and House Speaker John Boehner. The interviewer asked over and over "Free college tuition?" No money. "Infrastructure spending?" No money. "Health care spending?" No money. The interviewer portrayed that has 'they won't let us have anything'.
Yet, this is the reality. If we don't stop playing the "government credit card game", the international repo man will show up, just like it did for Greece. We can change our direction, but it had better happen soon.
