Europe
The absurdity and desperation of Europe with regard to the Greece problem should be readily apparent to all save those mathematically or economically blind. Tyler Durden’s describes it simply:
The math of the European bailout (using the EFSF or otherwise) is so easy even a cave-EUReaucrat can do it: It doesn’t work.
There is no workout to the situation, at least within the context of the current system. Despite what European bureaucrats would have you believe, the current welfare system is not salvageable. It will either be dismantled in an orderly fashion or collapse under its own weight. Either way, there will be civil disorder as evidenced by even the suggestion of reducing benefits.
The posturing that tries to pass for serious problem-solving is nothing more than an elaborate attempt to purchase time. Unfortunately time is not an ally in terms of solving the Greek economic problem or the similar problems of other European countries.
Buying time only exacerbates the economic problem. Delay solves nothing. It only intensifies the economic pain that will inevitably occur.
Mish captures the essence of Europe nicely in the lead in to his article entitled EU Diplomatic Source Says Worst Case Scenario Would Consume Entire EFSF, Haircut of “At Least 50%” Coming or IMF will Not Proceed:
The latest rumor is the EU and IMF are demanding 50% haircuts or they will not proceed. Bear in mind, they released the latest tranche of aid to Greece today even though Greece missed all required targets.
Instead of talking about a Greek recovery in 2012-1013 the timeline is now stretched out to 2020.
The economic problem is much larger than Greece as Mish points out:
Note that the worst case scenario, and we are talking just about Greece (not Italy, not Spain, Portugal), would consume the entire 440 billion euro EFSF.
The problems are immense, however they only grow worse by not confronting them. As intractable or unpalatable as facing up to these problems may be, they will be even worse in the future. From that standpoint, it would be better to take the medicine now rather than subject the patient to more risk.
Yet Mish does not believe that will happen. Instead he sees the following political obfuscations:
Indeed, the only thing one can count on are more rumors, lies, manipulations, and magic proposals. Eventually the market will spit in the face of such proposals but unfortunately I cannot tell you when, nor can anyone else.
The comments above, while directed at Europe, pertain also to the US.
Political Behavior
Politicians around the world have the same primary goal — political survival. Culture, institutions and legal and political systems may differ, but these are merely particularities of time and place. These differences only alter the incentives and constraints within which politicians operate. They don’t alter their personal end goal. They only affect the means available to pursue political self-interest.
To the naive observer, different countries appear to pursue different solutions to different problems. The reality is that all countries have the same underlying problem — too much debt resulting from government living beyond its means and, in some cases, encouraging its citizens to do the same.
The combination of the social welfare state and the pseudo-science of Keynesian economics provided the justification for ever-increasing government. Each enabled politicians to justify increased spending to buy votes. Spending and promises soon outpaced what economies could sustain.
After decades of playing Santa Claus, we need decades of different behavior. Grinch-like behavior from government is required to dismantle the excesses of the welfare state. Continuation in current fashion is unsustainable. We have reached the point where the process must be reversed. It will be, either by government or by markets.
The political psyche knows only giving. Constituents know only receiving. It is doubtful that either can adjust to the world that is ahead. Politicians will be unwilling/unable to reverse the process. Political cowardice will prevent action. Hence, markets will undo what governments have wrought.
Markets are forces of nature that don’t care about need, “fairness” or other political gobbledegook. They are impersonal and powerful, more powerful than all governments combined. To this observer, it is surprising that they have been so tolerant for so long. Man created this monster and man should orderly dismantle it. Because governments won’t, markets are about to take charge.
The power, fury and relentlessness of markets will be shocking. Once they take charge, the ending will be quick, impersonal and merciless.
