The machinery of massive fiscal and financial mismanagement of nations is a brick thrown at the fragile finances of the world. Greece is only the start. The ferocious demolition of the Greek parties
is likely to be echoed around the world. Austerity has become a synonym for irrationality. The idea seems to be “To pay for our gambling habits, we’ll simply stop people breathing and eating.” It’s not going to work and never could. Europe has been driving austerity as the answer to all its woes, and the French and Greek elections have automatically kicked out anyone seen as responsible for austerity.
Europe has always had an unhealthy reputation in some regards. The cosy relationship between the faceless financiers and government was well in the background when the Eurozone was booming. The price was always going to have to be paid. The financial and political interests involved in the Third World-type loans to Greece and other European countries have followed Wall Street’s precedent in dismantling whole economies.
Greece, Spain, Italy, Ireland and Portugal are also very shaky in terms of debt, local economy conditions, unemployment, austerity options and in real terms their ability to manage these issues. If enough political backlash against austerity happens, the Eurozone’s packages will fail. It also means that the European funding for rescues will be almost immediately exhausted, and probably ineffectually. The best result is more likely to be cosmetic than to actually solve the problems.
The current situation is basically this, slightly simplified:
1. The initial result is that global markets are now back where they were months ago, in fear of a default by Greece or any other Euro nation, which would instantly set off a cascade of hits on finance. Lenders will get severe burns.
2. Those hits on lenders will in turn hit credit. Banks have been increasing their charges for lending to each other for some time, and that’s reduced the cost effectiveness of commercial lending.
3. Reduced credit ultimately means reduced economic activity, including possible shrinkage of already iffy national economies. That will hit revenue.
4. The demands on revenue could lead to more bond auctions, but it’d be very much a buyer’s market. Auctions failures could be a massive own goal, destroying investor confidence and starting market stampedes.
5. The reduced ability to raise funds through bonds, you guessed it, will also trigger more cuts to services by governments, i.e., more austerity. The difference is that this type of austerity is based on real lack of money.
6. The employment markets will be hit with the effects of a cutback in government spending, meaning higher unemployment and reduced volumes of government contracts. (Capitalists seem to always forget this huge component of all economies and how much money it pumps into the private sector.)
7. Points 1-6 will happen in conjunction with another big fall on markets and further hits to investment capital. 2008 again, but this time against a global market which is still in very fragile condition rather than the inflated values of a boom market.
8. At this point the house of cards really is falling down. This is basically economic implosion. Massive inflation, whereby money becomes progressively less valuable, is quite possible. No bets on finding fixes or even rational debate.
What’s not being done about this waterslide of global liquidity is equally interesting:
A. Governments generally are doing absolutely nothing about the trillions of dollars in tax havens
which could provide them with massive amounts of desperately needed money. The theories about this situation, which has been a very well-known fact for decades, vary. The inference is obviously that the tax havens are effectively being protected by the world’s politicians. If so, the long time belief that politicians are simply employees of Big Money can be considered proven beyond any doubt.
B. Lenders are not being held responsible for their own actions. For some reason lenders who make ridiculous loans like the Third World loans, which could never be paid off, are also being protected. Why? If you lend money to a corpse, when do you expect to be paid? Why do you put these absurd loans on your books as assets? Is that fraud, or merely the usual self-delusion which allows corporate lenders to pay themselves large amounts of money and call it “performance”?
Private capital has set itself up for a colossal hit with this situation. The poor can’t buy goods, can’t stimulate business and can’t pay taxes. Main Street has been gutted and is getting hit with a range of situations ranging from price hikes to shrinking workforces. In both cases the amount of money available for economic activity is reduced. The only people with real money are the super-capitalists and organised crime. (If you can tell the difference, congratulations. Big money spends as much time breaking every law it can find as organised crime.)
The choke chain of economic realities is slipping steadily up the windpipe of big money. If major banks crash, it’ll make the Lehmann Bros. crash look like a college food fight. In a big crash there won’t be any assets to be thrown around, just big holes where big money used to be.
Politicians are about as useful as a spine made of tissue paper in this set of circumstances. They go soft when anything to do with money is mentioned and collapse in a wet heap. They also find it hard to tunnel their way out of their donors’ pockets. The political realities are likely to throw out the trash, but they’re also quite capable of bringing in more politicians who are equally unable to stop the rot.
Good intentions are not enough for incoming political governments. There needs to be a clear operational plan to deal with the local issues in each case. There’s no sign of that, anywhere on Earth at the moment.
Don’t hold your breath waiting for productive initiatives. The old form of capitalism isn’t famous for being quick on the uptake. With any luck private equity and debt retirement will make more sense than pretending this mess is fixable. Quarantining bad debts and reducing theexposure of the healthy parts of the market to them will do more good more quickly than trying to fix a whole methodology that never worked properly in the first place.
Readers- Sorry, this final paragraph got tangled up in the earlier version.