Greece’s Great Depression: “Everyone is Going into a Black Hole”

RT interviews University of Athens economics professor Yanis Varoufakis on the latest round of Greek bailout negotiations. While Varoufakis is no doubt right that the impact of a formal default would not be significant, given the fact that private sector bonds have already been restructured with a large economic haircut, he did not address specifically the impact of Greece leaving the Euro. My bet is that if that were to come to pass, the knock-on effects would be significant, since it makes it plausible that Spain or even Italy might exit, and that would worsen the current financial balkanization and silent bank runs.

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  1. CaitlinO

    An ancient Mediterranean democracy is under attack by foreign invaders who have seized control of its institutions, and who are systematically exiling, looting and starving its people.

    When will some sympathetic, powerful, freedom-protecting country send in a few divisions to liberate these poor folks?

    1. CB

      You can’t mean the US. My god, the Greeks worst nightmare. See Afghanistan, Iraq, Yemen, Pakistan……………. Or review the history of the Greek junta of the last century.

    2. MyLessThanPrimeBeef

      If these foreign invaders are like the mysterious sea peoples, all Mediterrean countries are in trouble.

        1. F. Beard

          Yep. What’s the latest? Could it blow at any time or should we get a century or more of warning?

          I wonder sometimes of the identity of Babylon the Great? LA seems to fit the bill.

    3. Richard Kline

      Philippos III, Antiokhos III, and Mithridates Eupator, while all rather fascinating individuals, were _in no way_ paragon’s of democratic resurgence. They sent in more than a few divisions, seldome welcome by the Hellenes and all of them soundly routed by soldiers who knew their work.

      And that ancient Mediterranean ‘democracy’ could, in many analyses, be rated as _worse_ in its treatment of subject peoples and allies than the Coalition of the Tyrants which defeated it. That ‘democracy’ was great for the 1000 or so wealthiest in it, and interesting for perhaps 20000 male citizens, and not so very different or better for anyone else. The parallels between that ancient ‘democray’ and our own tottering socio-polity cry out for another, better Tocqueville to parse the comparison. Coincidence? Structural paralellism? Cyclical principal? Polybius had his view, which as an intellectual construct remains unmatched, and what have we done to improve upon it other than to live it out again?

      1. kevinearick

        so, the rolodex queens of capital and their middle class democracy offering homeland security really have no talent?

        money can’t buy love?

        kissinger amd rogers wrong?

        shocked, shocked I say. round up the usual suspects.

        sounds like another opportunity to buy apples…

        if capital wants robots, and middle class aspires to be robots, why shouldn’t labor provide them?

        1. ambrit

          Dear K;
          We here in the Deep South DIY Boxxstore had a woman come in last Monday and try to buy a bit over $2000 worth of stuff with a fake bank cheque. How did the cashier figure it out? The kite flying wannabe had spelled the name of the purported bank issuing the cheque, “Capitol One.” So, yes, the crooks do have talent, just not quite enough of it to ultimately pull it all off. Oh, the failed kiter, she walked out of the store to “get my credit card out of my car.” Never seem again.
          The ominous bit about it? The trend is clearly on the upswing.
          Like Paul Muni says to the ex girlfriend at the end of “I am a Fugutive from a Chain Gang;”
          Helen: “How do you live?”
          Allan: “I steal.”

          1. kevinearick

            as long as you have a lawful exemption/entitlement from the law…or nature does what it does best, capture stupidity in a black hole with its own energy.

          2. Doug Terpstra

            Trickle-down works one-way. So, the rank corruption, lawlessness, and predatory violence of the elites eventually infects the larger community and risks becoming a contagion. It will take enormous faith and resolve to marshall the coming unrest and focus its target.

          3. ambrit

            Is this how the ancient Roman Stoics felt?
            We may yet find out if a society can fail while the political entity it spawned continues on its’ merry way.
            A semi autonomous collection of crypto feudal statelets would properly be called a Confederacy, no?

  2. Can't Help It

    If the Greeks have no will to fix things themselves, then they deserve everything they are going through right now and whatever is coming. I am hoping aliens will land and fix the world economy too, but it ain’t going to happen.

    1. chris

      Most people commenting here make the effort not to appear small-minded but I guess you just can’t help it…

        1. ambrit

          Dear LK;
          That’s what we like in our freedom loving commentators, absolute certainty, coupled with just a dash of the milk of human kindness.

          1. Up the Ante

            .. temper, temper, …

            Absolute certainty, that’s like MERS with ‘We don’t plagiarize, we re-title, we en-title .. ‘.

    2. Jose Guilherme

      The will to fix things themselves?

      I hope you mean “by abandoning the euro”.

      Because otherwise they simply cannot fix anything “by themselves” – they are deprived of fiscal, monetary and exchange rate policies and of a currency issuing central bank.

      In a word, they are – powerless.

  3. Ignacio

    I believe that the only real reason left to go on with the rescue plan and avoid default is that both german and greek politicians share at least one common objective: they don’t want to admit that the rescue plan was an error from the very beginning.

  4. Paul Jonker-Hoffrén

    In fact, a Greek exit from the euro would probably increase the probability that a country like Finland will leave. As the blog Acting Man states ( Finland could afford it. I nonetheless disagree, because as can be seen from data presented in my blog, Finland’s trade balance has been weakening for a long time and an euroexit would do little good for Finland’s exchange rate (unless the Finnish Central bank aims to manipulate that). This might trigger an even bigger bank run, as it might show to others that supposedly healthy countries are leaving a sinking ship.

      1. ambrit

        Mr. Allen;
        First, “Don’t look that grift horse in the math.”
        Second, since the POTUS is supposedly an aficionado of basketball; does he enjoy the occasional game of Trojan Horse?
        Third, kudos, you have beautiful punmanship.

  5. Hugh

    I think Greece would need a revolution before a Greek government decided to leave the euro. On the other hand, I can see Greece being pushed out by the Northern powers and banks even if the present or similar quisling government remains in place.

    What is so hopeless about the situation is that whether Greece stays or goes, neither action will be directed toward actually solving any of the problems or hardships of ordinary Greeks.

    It will be interesting to see if come September 12, the German elites use this as an opportunity to dump Greece and then maintain that the ESM will pre-empt any contagion to the big economies of Spain and Italy. The problem with this of course is that Spain and Italy are already spiraling down. The ESM might slow the rate of descent but it is impossible to see how it can reverse it.

  6. killben

    It seems like enternity since I have waited for Greece exit. Sometimes I wonder whether I will be 6ft under by the time it happens, given the Central Bankers (as$$%%^) intervention.

  7. Earthaly Delights.

    The EU was an appalling idea from the beginning for everyone involved in it. World Government by stealth. It has achieved nothing that benefited the populace in any participatory nation. But it made shyte loads of profits for the Corporatocracy and gave a centralised administration with a hidden agenda a stranglehold on the domestic politics and social policies of every member nation. Globalisation is evil and the people of Greece are among the first Europeans, but far from the last who will pay heavily for the world having fallen for its propaganda.

  8. Gerald Muller

    The euro is one of the stupidest construct of modern times. It will go down in history as one of the many crazy ideas that man has had with a similar catastrophic outcome. It will leave millions of Europeans poorer than they would have been, had not these euro unelected technocrats not played with fire like the sorcerer’s apprentice.

      1. Synopticist

        The idea that countries as diverse as Germany and Greece could share a single currency was doomed from the start without a banking union and massive fiscal transfers.

        Here in the UK, the Eurosceptic right were screaming that fact in the early noughties, and no-one paid any attention.
        It was just the usual suspects up to their old BS.

        Kind of like the anti-globalisation movement, they turned out to have been right as well, and everyone ignored them at the time.

        1. Calgacus

          The Euro as designed was crazy from the beginning. If there was ever a worse monetary system, designed with more phony “learned” ignorance, I’ve never heard of it. The inbuilt unworkability of the Euro was even more important than the diversity of the Euro states, because it increased instabilities, imbalances and diversities, rather than mitigating and accomodating them. The essential missing was some form of fiscal union, at the very least some Eurozone wide, ECB funded program, however disguised, that could control unemployment or sustain incomes.

          Fiscal transfer is the wrong phrase. Fiscal yes, but transfer no, because the transfers would just accomodate and sustain the existing “fiscal transfers” to the center and allow the periphery to sustain some semblance of an economy, and which would benefit both the center and periphery. Without them, there is nothing in the Eurozone design that would prevent even mass starvation, as Godley said decades ago.

  9. financial matters

    I’m not sure what Yanis wants here. He seems to be saying that further bailouts won’t really help as they are just kicking the can down the road. On the other hand he is saying that leaving the euro is too drastic.

    It seems that Greece needs to leave the euro and work on its own fiscal problems with its own currency. Spain does not seem far behind. If the euro can survive those two exits it may have a chance. If not it may need to continue to unwind but at least it is dealing with reality.

    1. Ignacio

      Default is whan Yanis want. A massive writedown would give Greece the opportunity to grow again. But creditors seem to believe that debt forgiveness, although unavoidable, could be misinterpreted by other debtors. For that reason they want to inflict as much pain as Greece can withstand, an epic economic collapse, before debt writedowns are allowed to occur. This week, a german high ranking official explicitly said that “Spain should take notice of what is occuring in Greece”. I think that he is rigth: Spain should notice that an euro exit could be a better outcome compared to the effects of the troika rules.

      1. financial matters

        Thanks Ignacio. So a default but still allowed to stay with the euro. The possible cds problem reminds me of Lehman. Burn the other person’s house down and collect on the insurance.. And since there is not enough to go around you better act fast. I would like to see an unwinding of speculative cds bets before the sovereign defaults. Would be a challenging way to keep the euro together but planned defaults could have a better outcome than a ‘lehman/minsky/taleb moment’ euro break-up.

      2. Jim

        Ignacio, Greece can write-off 95% of its loans/bonds, but if it can’t grow, it will continue to need external financing to plug its fiscal deficit.

        And it can’t grow with the Euro as its currency.

        1. Ignacio

          Once Gey Greece writes down 95% of private debt, then the country can start growing again via private leverage again, even within the euro. Then,it would be wise for the troika to force the Greek gov. to use income increases to reduce their deficit.

    2. Robert Dudek

      Yanis’ position has been that Greece should say no to further loans/extentions, cancel all purchases of German military equipment, and default on its debt. And then say: “kick us out of the euro if you can”.

      In other words, default within the eurozone.

      I’m not sure if he has changed his stance on that, but I still say that given the existing political realities, Greece would be better off leaving the eurozone and rebuilding the economy on the basis of a cheap currency.

      No matter what there will be great hardship over the next few years, but with the drachma in place they will have a chance at a robust recovery afterwards.

  10. kevinearick

    when I was 5, pop caught us all smoking his camel shorts, and gave us cigars, which was the remedy at the time. the other boys vomited as expected.

    at least in Canada I could get a cuban for $2 at the convenience store, real food from the mennonites, and the farmers markets were really farmers markets, instead of overpriced organics grown on human excrement by self-medicating yuppies. Too bad Harper outlawed tobacco farming with taxes and regulation to prop up sickcare, and believes that kidnapping children is justifiable.

    of all the cults out there kidnapping children, Assembly of God is the worst, and I mean to have their heads on a pole before this is done.

    1. F. Beard

      of all the cults out there kidnapping children, Assembly of God is the worst, and I mean to have their heads on a pole before this is done. kevinearick

      Huh? Link or further explanation? Kidnapping is illegal. Of what do you speak?

        1. F. Beard

          Uh yea and if you want to get even pickier it would be “pikes” since it’s generally one to a head.

      1. kevinearick

        slowly, but surely, we are coming to the end of this drama…

        it’s the Fed’s turn, CA just went into the pot, and Apple is next…

  11. dejavuagain

    The problem
    Just booked a small apt in Greece for a few days.
    Deposit by Paypal.
    Balance to be paid in Euros on arrival.

    First, never could have done this transaction if Greece were not in the Euro.
    Second, perhaps so. The transaction totally avoids the banking system.
    Third, I would be surprised if any taxes paid to Greek govt. or any other govt.

    Owners are Germans or Brits, am pretty sure.

    Oh well.

    1. josep

      Same thing in Italy.
      Rented apartments for vacation. Cash in Euros only at arrival. Very sure no taxes paid for the apartment rented in Rome or Venice.

    2. Synopticist

      The owners may be foreign, but thats a 100% Greeks style deal.

      If there’s one single problem in Greece, (there isn’t only one, but bear with me), it’s middle class tax evasion. Everywhere else, the rich evade and dodge taxes.
      In Greece, you do it as soon as you have the money or connections to bribe a tax inspector.

      Roughly speaking, it works like this. You earn up to 40,000 euros, you pay normal tax on that amount. Between 40k and , say, 120k, you pay tax as if you earn about 40-50 thousand, you keep your declared income as close to 40k as you can.

      Once you start making north of about 120,000 euros, you’ll have the money and the friends to avoid tax altogether. So, maybe declare 10,000 as an income, despite your swimming pool and rental properties, and the fact you’re a lawyer or doctor.

      It’s a screwed up system, but there are enough people that benefit from it to prevent meaningful reform.

    3. LeonovaBalletRusse

      d, “avoids the banking system.” So how can Pay Pal get away with “holding” funds until they feel like paying the party you sent the funds to via Pay Pal? Another skirting of law? Is Pay Pal a “bank” or not? Western Union can’t get away with this, can it? Pay Pal is sitting on “float” – by what right? No one challenges Pay Pal except those whose funds are being capriciously withheld. Why is this?

  12. mee

    fourth: when you arrive, there will only be a derelict industrial building at the address you were directed to.

    fifth: the telephone number/email address you did business with will disappear overnight.

  13. kevinearick

    the buyers of those islands may want to measure twice; the natives are a bit agitated witj the law. funny, how governments leverage tax receipts on the back of the umborn, until they can’t, and implode.

    and the latest experiment in incremental “representative” democracy, South Africa, isn’t going so well. at least the central bankers are holding the gun, gold, to their head

    easy to get into a black hole, hard to get out, as the hedge fund managers are learning. we pay people to shoot themselves in the head, with their own currency. it’s just a hole lot easier, and less disruptive to the work at hand.

    1. F. Beard

      I believe I read the ECB is providing liquidity support to banks in Spain making it much more clear that the banks are a pure counterfeiting cartel which does not at all depend on customer deposits so long as the central bank is accommodating.

    1. Hugh

      The 99% have been indoctrinated and propagandized for the last 30 to 40 years. They are then allowed to vote in an election where their main choices are between kleptocrat-enabling party A and kleptocrat-enabling party B. Actually I am talking here about the US and us but the principle works just as well for Greece. The fault, and blame, lies not with the duped but with those who duped them.

  14. kevinearick

    money is just a feedback signal. debt leverage on the backs of the unborn, a positive feedback signal, until it isn’t, is the problem, and the only way not to lose is not to play, but don’t you dare teach your children that, or the middle class participants will dissolve, and leave nonperforming capital naked.

    gold doesn’t work. people do.

  15. Alex Morfesis

    Greece is the punching bag to keep everyone else in line in europe…in spain and italy, there has always been tension among the old principalities…just because someone no longer held a title after WW2, does not mean they gave up economic control of the region they used to run as the nobles…it was not that long ago…there continues to be the notion, almost a prayer, by some local hegemons of a break up of spain and italy, thus, the problem is to keep those baby principalities in check…throwing out greece will open up that door…but, the problem in greece is the greeks…or more like a mixture of syria and zimbabwe…a few hundred families who refuse to cede power over the economy in greece, and would rather watch their slaves…I mean serfs…oh..sorry…fellow citizens, suffer than open up the economy and have to spend less times on their “Koterah”..greek slang for kingpins on megayachts…the country is held back by the most basic faulty basel silly walk…there is no proper real estate ownership directory…why…because the 500 major families want no competition…and the best way to prevent that is to muck up the works…the great myth is that the govt paperwork kills off growth…nonsense…it is just a bunch of greek dinosaurs wanting to hold on like chinese princlings…the greek church has enough disputed land on various islands that it could contribute half of it to a new drachma…250 underpopulated islands 20 thousand plots of land at 1/4 acre…sold off at 50 thousand per plot…financed with 10k down…would uncork a huge amount of capital(for the size of greec) and if they handed residency rights with those purchases…they would sell like hot cakes…not that the european union would be too happy about a few million people legally entering greece…marsaille is just a small drive away…more or less…greece is the least populated european nation…it has more undeveloped land…it could hold another ten million people and it would not be felt…but she wont leave…or be forced out…she is just a punching bag to keep the restives of spain and italy in line…there might be a phony crash in december and january to feed everyone fear…but by april…it will be make up kissing and hugging and etc…this aint 1937 and this is a recession of the lazy…who is really complaining…folks who lived off the HELOC crack pipe…??? this is an age of transition…make some choices and make some money…you will look back in 2017 and cry why you did not act in 2013…the only thing we have to fear is stupidity itself…

  16. Alex Morfesis

    just in case the math above confuses…20 thousand plots per island at 250 underpopulated islands…5 million parcels…at 50k each with 10k down payment…over ten years would keep greece humming if there was a 15 year MUST BUILD or reverts back clause in the sales…

    1. LeonovaBalletRusse

      AM, Michael Hudson has the remedy in his back pocket. Great idea. But those “Nobility” property hoarders, esp. the “church.” Oh well.

    2. Ms G

      This is the sort of development scheme that a Kleptocratic Government Person would “delegate” to a Kleptocratic Private Entity (PE Fund? JV between PE Fund and RE Developer? you name it) and the only humming we’d hear are the euros gushing into the pockets of the Kleptos, while the land is developed to the specifications of the Kleptos, which include participation by the 99% only as servants, maids, gardners, and helipad sweepers.

      Also, haven’t we just witnessed what happens when you try to “jumpstart” a dead economy with a “real estate boom”?

      Sorry to sound snarky, but I’m not hearing a lot of solutions out there that aren’t Klepto-friendly schemes.

  17. hannibal

    “Everyone is going into a black hole…..”

    That’s because you (and others) are writing about: the platonic, the abstract, fabricated visions in one’s head, also called (human invented) social constructs which are not real. Oceans, glaciers, fish in rivers, air, water, mountains, our natural biosphere etc. are real.

    “Stocks, bonds, fiat currencies, cdo’s, debt, the market, numbers on a computer screen, believe systems, religion, the future etc.,” are all platonic abstracts, socially constructed and fabricated images in one’s head.

    Hence we all need to see the obvious as being the obvious, to be able to distinguish as to what is “real” and what is merely “imaginary”

    1. craazyman

      that is not at all easy.

      but yes, the hardest part is to conceive of concepts that offer productive points of traction for cogent analysis. This is a somewhat “artistic” challenge since it demands both perception of formal structures that may be both subtle and unfamiliar as well as a the ability to intuit and present their energies and inherent relationships.

      the prevailing ensemble is undeniably incomplete and, frankly, sloppily imprecise.

      But all we can do is draw it and paint it, we can’t control it since the snakes are in charge, more and more. I’ve noticed the vibe is getting thicker and thicker, almost like the air itself is getting dense and increasingly opaque. This must of been what St. Paul had in mind when he wrote “through a glass darkly”. What is needed is a face to face perception, a direct perception of the essential energetic structures that animate the reality of the phenomenon, but that won’t come with the present ensemble of concepts.

      You have to channel that. hahahah

  18. kevinearick

    labor makes the impossible probable, routinely. don’t begin your journey following others, assuming failure. all the money in the world can’t buy love, though the majority never fails to try. parenting is an impossible job, and a thankless one in the empire. that’s the hole focal point.

    if you work for money, in a job, instead of liberty, as an example to your children, you have fallen for the oldest bait and switch in the Book. money is a function of prosperity, which is a function of family, over time, not the other way around, as the moneychangers would have you believe, from forced conception if necessary.

  19. Minyak atsiri

    Our society should start thinking about how to care for themselves and run the economic activity in a community without relying on government , industry, the creditor, and the bankers intervention, ranging from the need for food, clothing, shelter, education, medicine. Utilizing the natural materials around us, such as essential oils, etc. to be a better choice.

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