the Eurozone might be short a star soon. Image from Reuters.
As I type this, the results have come in and the Greek electorate has voted against the austerity measures demanded by the EU (primarily Germany) that would allow them to pay off the debt they owe. I’m thinking that maybe it would be a good idea for all us mere mortals in the US to keep some cash aside and hold onto some gold. Greece ‘owes’ the world some $370 billion, though surely much of that is the vigorish thrown on top of their non-performing loans by the international loan sharks. Markets are falling all over Europe and Asia, because the better part of the international banking system is held aloft by expectations of said repayment–and if Greece walks away from its debt, what’s to prevent Spain, Italy or Portugal from doing the same? Meanwhile, the derivatives markets and their credit default swaps (the instruments that caused so much economic pain in the US housing meltdown in 2008) are apt to have some interesting payouts in the coming days–perhaps more than the banks themselves can cover.
Last week’s column by James Howard Kunstler sums it up pretty well. The punditry has all been agog over the economy (allegedly) roaring back in recent weeks, and the Hillary 2016 campaign is depending on that as a talking point, people’s personal experiences to the contrary. Kunstler cites an interesting dynamic, one which the peak oil crowd is taking up. Oil prices above $70 a barrel kill the economy; oil prices below $70 a barrel are unprofitable for the people doing the drilling. You might check out a post I had on this earlier this year. We’re dependent on unconventional fuels to make up the delta between what the world economy needs to continue the status quo and what the world’s conventional (and aging) oilfields can provide. But once you demand a ‘conventional’ rate of return on investments in oil, you push the price too high for the rest of the economy to thrive. James Rickards, a writer whose books lay out the case for the end of the petro-dollar and coming currency wars, had this to say about the current problems: “The problem with the post-2007 world is that we are not in a cyclical recovery; we are in a structural depression defined as a sustained period of below-trend growth with no end in sight. The U.S. has caught the Japanese disease. Structural depressions are not amenable to monetary solutions, they require structural solutions.” In all the shouting about our ‘recovered’ economy, nobody is mentioning that a very significant number of the jobs coming back in the US (at least 48%) do not pay wages that will support a middle class. And as I’ve stated before, a nation of Walmart greeters and waitresses cannot pay the tax burden necessary to keep our military on standby 24/7 and make sure our Social Security recipients get their monthly checks*.
For what it’s worth, Greece should never have qualified for EU membership in the first place. It was Goldman Sachs that helped the plutocrats re-engineer their debt into manageable tranches through the help of highly creative derivative swaps (explained here). Greece also has a problem endemic to the developed world–the plutocrats don’t pay taxes (at least to the extent needed to keep the system going). The bankers who set Greece up in the first place then helped melt down the economy and impose huge interest charges on the government–charges that weren’t sustainable by any economy.Short of leaving their people destitute, the voters decided that the debt didn’t belong to them or to the government–they voted to walk away. And there’s a model for walking away from debt–Argentina’s Raul Alfonsin refused to recognize the debts run up by the Junta that ran the government during the years of La Guerra Sucia. That’s an interesting subject. If you’re a bank and you loan money to people who you know are stealing, are you as culpable as the inheritors of that debt? Some people thought so.
The unwinding of events is not going to be pretty. Remember that there has been talk at the Fed of changing the banking rules that protect savers whose banks go belly-up. The FDIC has been arranging shotgun weddings for nearly a decade, and it’s only a matter of time before stronger action might be needed. Was the meltdown in Cyprus a model?
*Yes, I know SS is funded by FICA, not the feds. However, FICA owns over a trillion dollars in US T-Bills to cover money loaned to cover holes in the US discretionary budget. The people in charge of our system probably don’t want to burn China on its T-bill holdings; but burning grandma and grandpa might be good business.
Postscript: A meltdown of the larger economy has dire implications for climate collapse. As Guy McPherson and others have pointed out, a collapse of the industrial economy (no food, no electricity, no paychecks) might ward off climate collapse for a short time, but would almost guarantee that the 445+ nuclear reactors worldwide would go into meltdown (the cooling systems shutting down on reactors and their spent-fuel pools would lead to meltdowns in a matter of days).