excellent summary of the Greek crisis by U of Chicago Professor

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larryswedroe
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excellent summary of the Greek crisis by U of Chicago Professor

Post by larryswedroe »

http://faculty.chicagobooth.edu/anil.ka ... june29.pdf

Now only if his crystal ball was clear

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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by cfs »

Thanks Larry for the document, good reading.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by wolingfeng »

Great info, thumb up!
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by whatusername? »

Very interesting. Thanks!
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by watchnerd »

Thanks, good synopsis (that's Greek!).
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by jimkinny »

larry, I agree, the paper is done very well in presenting the profligacy of Greece's gov post Euro. Krugman's blog and Mathew Yglesias at Vox present a somewhat different take, not on the Greece's bad gov, but Euro power mistakes and perhaps equally bad government of the Union as a whole. Long story of course and not simple, since Euro form to join a diverse group of countries and peoples to prevent what led up to WW1 and 2. Some of Krugman's embedded links are quite interesting.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by dodecahedron »

Very helpful! The Greek situation is no longer "Greek to me," (as Shakespeare would say.)
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by scone »

It's been a lesson in comparative history-- I'm beginning to understand why Alexander Hamilton was so passionate in his views. It has also been a very clear lesson on how the international bond market works, or sometimes, doesn't work. Here's hoping the situation eventually gets resolved without a humanitarian crisis.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

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Last edited by whaleknives on Tue Jun 30, 2015 6:49 pm, edited 1 time in total.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by FelixTheCat »

Interesting article.

How does this relate to the USA? Our debt has grown considerably to 18 trillion. Are we along the same path? Should we consider investing in foreign bonds?
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by lack_ey »

FelixTheCat wrote:Interesting article.

How does this relate to the USA? Our debt has grown considerably to 18 trillion. Are we along the same path? Should we consider investing in foreign bonds?
I'm sure many countries are offended that anybody thinks the US situation is anything comparable to theirs. The numbers and structural problems are worlds apart. Nothing to sneeze at here, but it's not even close.

Greece's debt-to-GDP ratio is almost double, and they pay much, much higher interest rates on that. Their tax rates are higher (admittedly, there are big problems with widespread tax evasion and lack of enforcement), and the unemployment rate is about 25%.

Foreign bonds may be worth investment in the sense that diversification is frequently good, but that needs to be balanced against the extra costs, foreign exchange risk (or cost of hedging), and generally lower rates seen across most developed economies.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Rx 4 investing »

Deflation may be down, but not out. It could still get the upper hand. From The Economist article...

"The global economy still faces all manner of hazards, from the Greek debt saga to China’s shaky markets. Few economies have ever gone as long as a decade without tipping into recession–America’s started growing in 2009. Sod’s law decrees that, sooner or later, policymakers will face another downturn. The danger is that, having used up their arsenal, governments and central banks will not have the ammunition to fight the next recession. …

Europe is deep in debt and dependent on exports. Japan cannot get inflation to take hold. Wage growth could quickly dent corporate earnings and valuations in America. Emerging economies, which accounted for the bulk of growth in the post-crisis years, have seen better days. The economies of both Brazil and Russia are expected to shrink this year. Poor trade data suggest that Chinese growth may be slowing faster than the government wishes.

If any of these worries causes a downturn the world will be in a rotten position to do much about it. Rarely have so many large economies been so ill-equipped to manage a recession … .
"

http://www.economist.com/news/leaders/2 ... eady-watch

Investment implications?


The possible outcomes are numerous, from "muddle through" to unpredictable, non-cyclical economic downturns. As billionaire Ray Dalio of Bridgewater has advised, and Harry Browne proposed many years ago, investors should think about an "All Weather"* approach , and being diversified to avoid over-concentration and catastrophic loss. Here's Mr. Dalio's thoughts...

"..for the average investor, what I would encourage them to do is to understand there's inflation and growth -- they can go higher and lower -- and to have four different portfolios essentially that make up your total portfolio that gets you balanced, because in every generation there is some period of time that will ruin -- there is a ruinous asset class -- and will destroy wealth. And you don't know which one that's going to be in your lifetime. So the best thing you can do is to have a portfolio that is immune, that is well-diversified, that is what we call an all-weather portfolio. That means that you don't have a concentration in that asset class that's going to annihilate you. And you don't know which one it is. "
Ray Dalio, Bridgewater.

* Bridgewater's Four (4) economic scenario buckets:

1. Growth Rising + Inflation Falling = Prosperity <= The current Wall Street narrative is we are here.

2. Growth Rising + Inflation Rising = Inflation

3. Growth Falling + Inflation Rising = Recession with inflation

4. Growth Falling + Inflation Falling = Recession with deflation <= A mild recession could easily tip us into this scenario.

Sub-categories that fill the buckets... equities, EM bonds, commodities, gold, high yield corporate bonds, nominal bonds, TIPS.

For consideration... commodities and gold prices are down and out in the current economic environment. Might it be a good time to start establishing some positions and "buy low?". Who knows which economic scenario might be around the corner?
“Everyone is a disciplined, long-term investor until the market goes down.” – Steve Forbes
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by ogd »

FelixTheCat wrote:Interesting article.

How does this relate to the USA? Our debt has grown considerably to 18 trillion. Are we along the same path? Should we consider investing in foreign bonds?
No, we're in a very different situation because we control our currency.

It's not just that sovereign currency defaults are exceedingly rare and typically occur in broken countries. It's also that markets are unwilling to pick a fight with a currency issuer and especially not the U.S., i.e. none of the kind of higher rates / harder to pay spiral that doomed Greece in the early part of the decade and without which Greece might have snuck by. Markets are currently viewing U.S. debt as about the safest thing there is, and they're also allowing Japan to pay very low rates despite having a much higher debt to GDP ratio. All because of the sovereign currency aspect.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by crynwr »

Not sure if any one else linked to this, but it's a piece by Joseph Stiglitz on a similar theme:

http://www.theguardian.com/business/201 ... referendum

Cheers,
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Johno »

lack_ey wrote:
FelixTheCat wrote:Interesting article.

How does this relate to the USA? Our debt has grown considerably to 18 trillion. Are we along the same path? Should we consider investing in foreign bonds?
...Nothing to sneeze at here, but it's not even close.

Greece's debt-to-GDP ratio is almost double, and they pay much, much higher interest rates on that. Their tax rates are higher (admittedly, there are big problems with widespread tax evasion and lack of enforcement), and the unemployment rate is about 25%.
Among those reasons the much higher rates lately and unemployment rate are much more symptoms of the crisis than causes so I don't think they are very solid reasons to differentiate Greece from other heavily indebted developed countries including the US. The scale of indebtedness is indeed different and certain characteristics like regulation and tax (and its enforcement) are greater impediments to growth in Greece than most developed countries.

The fact that Greece is in a monetary union is certainly also an important exacerbating factor in its lack of competitiveness relative to the value of the Euro. But one politico-economic mechanism there has been *low* rates, market's relative lack of differentiation among Eurozone sovereign credits until fairly recently, a major disincentive for Greece to have reformed before it was too late. In this respect one might even draw a potential parallel to the US: that the USD's current position as world reserve currency is a disincentive to fiscal and pro-growth reform in the US. And such reform is typically extremely difficult politically even without exogenous disincentives.

Issuance in own currency is indeed also a mechanism to contain, at least, a problem of over indebtedness, but it's not a magic shield against the basic fact that no country can build up debt forever and pay back investors at the real value they expect, which is all they care about. And the fact that markets are so far relaxed about Japanese and US* debt is less comforting IMO when considering how little markets differentiated among Eurozone sovereign credits for a long time in the pre EUR 'convergence' period and early days of EUR, till fairly recently. They didn't, but then they did. The basic problems were always evident, but some years ago it was quite plausible to argue 'markets also see these problems yet appear to believe they'll get sorted out smoothly, why shouldn't I?'

Also of course the question needn't assume 'Greece's problem today, bigger developed country (ies) literally tomorrow'. The Eurozone sovereign credit problem has been brewing a long time, and a major debt crisis involving a larger developed country or countries, not absolutely excluding the US, could be many years away if it ever comes yet still a current consideration for investors. Today's 30 yr bonds will still have 20 yrs to go in 10 yrs, still a lot of price volatility if the market adds on a few % yield for even somewhat elevated concern about credit, and 10 yrs is a very long time for market perception to change.

*Japan's govt debt is much larger as a % of Japan's GDP than US, though OTOH around 90% of it is held by Japanese entities, institutions over which the Japanese govt has major influence, and investors with a strong home country bias, whereas nearly half the US 'debt held by the public' is held by foreign entities. That's the smaller 'real' debt number, ~3/4 of US GDP, not the $18tril which includes US govt debt the US govt itself holds.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by yukonjack »

Very good piece on a complicated issue. The author did a good job writing this to the general population. It will make following this crisis a bit easier to understand.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by robert88 »

FelixTheCat wrote:Interesting article.

How does this relate to the USA? Our debt has grown considerably to 18 trillion. Are we along the same path? Should we consider investing in foreign bonds?
18 trillion sounds large, but net interest payments are only 1.3% of gdp, so the existing debt is easily sustainable.
Could future deficits be much larger than historical deficits and unsustainable? it's possible
Is that discussion outside the scope of the forum? probably
Assuming the US did default, would foreign bonds be a good solution? Since countries that default often implement capital controls, you would probably want a foreign custodian for your bonds. Good luck finding that post-FATCA.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by WhyNotUs »

Good piece from the freshwater perspective. Definitely need to read something from DeLong or Krugman to round out the picture with saltwater perspective.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

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FelixTheCat wrote:Interesting article.

How does this relate to the USA? Our debt has grown considerably to 18 trillion. Are we along the same path? Should we consider investing in foreign bonds?
Greece is unusual. Its private sector has very low debt (compared to say the US or UK) but its public sector debt is unsupportable.

The USA is almost the opposite. Public debt is supportable, has been higher for long periods. It has the sovereign right to issue debt in its own currency (a privilege of only c. 20 countries) and so a devaluation of its currency doesn't hurt it (so it's not an Emerging Market country in other words).

However private sector debt is large-- hence the credit crunch. To be fair, Americans have been deleveraging-- it's not as high as it was.

For most countries, to find the next financial crash, you look at the private sector debt to GDP. That's what happened in Thailand (devaluation meant the Thai companies that had borrowed abroad couldn't repay their debts). And to Argentina (the peg against the USD meant heavy borrowing in USD, then the currency was devalued).

Consider that Ireland, Spain, UK, Iceland all looked pretty good on a debt/ GDP ratio (public sector debt) and deficit before the crash.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by steve roy »

Terrific summary of the falling dominoes. Thanks, Larry. Much appreciated.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Grt2bOutdoors »

Thanks for posting this Larry. I agree, I don't think anyone could have done a better job of summarizing the situation in legible layman's terms.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Valuethinker »

lack_ey wrote:
FelixTheCat wrote:Interesting article.

How does this relate to the USA? Our debt has grown considerably to 18 trillion. Are we along the same path? Should we consider investing in foreign bonds?
I'm sure many countries are offended that anybody thinks the US situation is anything comparable to theirs. The numbers and structural problems are worlds apart. Nothing to sneeze at here, but it's not even close.

Greece's debt-to-GDP ratio is almost double, and they pay much, much higher interest rates on that. Their tax rates are higher (admittedly, there are big problems with widespread tax evasion and lack of enforcement), and the unemployment rate is about 25%.

Foreign bonds may be worth investment in the sense that diversification is frequently good, but that needs to be balanced against the extra costs, foreign exchange risk (or cost of hedging), and generally lower rates seen across most developed economies.
And the US borrows in its own currency. Which means devaluation does not create its own crisis. Greece, in effect, does not borrow in its own currency, hence the Bank of Greece cannot stop the liquidity crisis-- only the Euorpean Central Bank can provide those funds. Greece is, in effect, an Emerging Market within the Eurozone. The orthodox IMF prescription (capital controls, swingeing cuts in government spending, devaluation) doesn't work because Greece cannot achieve a devaluation (since wages and prices are sticky, the government cannot just force everyone to accept 25% lower pay and thus force a devaluation (an internal one in the Eurozone) against Germany).

The threat in the Anglo-Saxon economies is not government debt. No one is anywhere near Greece-- debt and interest rates are much lower, tax systems work, there's no long term history of government consistently living beyond its means (you do get some distortions at the state level in the USA due to public sector pension plans-- AFAIK no Canadian province nor Australian state has anything as bad a problem, UK regional governments are inconsequential and don't backstop pension schemes, the central government does). Debt to GDP ratios (public debt) have been higher for long periods, and they have been lower.

The problem in the A-S world is private sector leverage, which was at historic highs pre 2008. For Canada and Australia, it's higher now (have to check Oz, but definitely so for Canada). That created the risk to the financial system and in the US and British cases (and Irish, counting them as A-S which would annoy them ;-)) it eventually came home to roost. There has been deleveraging since then but the numbers are still high.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Valuethinker »

Johno wrote:
lack_ey wrote:
FelixTheCat wrote:Interesting article.

How does this relate to the USA? Our debt has grown considerably to 18 trillion. Are we along the same path? Should we consider investing in foreign bonds?
...Nothing to sneeze at here, but it's not even close.

Greece's debt-to-GDP ratio is almost double, and they pay much, much higher interest rates on that. Their tax rates are higher (admittedly, there are big problems with widespread tax evasion and lack of enforcement), and the unemployment rate is about 25%.
Among those reasons the much higher rates lately and unemployment rate are much more symptoms of the crisis than causes so I don't think they are very solid reasons to differentiate Greece from other heavily indebted developed countries including the US. The scale of indebtedness is indeed different and certain characteristics like regulation and tax (and its enforcement) are greater impediments to growth in Greece than most developed countries.
Actually I wouldn't make that separation re unemployment rate.

Greece has 2 reasons for its very high debt to GDP ratio:

- a consistent (and hidden for a long time) pattern of the government spending more than it took in in revenues. Even at full employment Greece was running a deficit (although that was well hidden, at times). That's different from countries in the full wind of the financial crisis (Spain Italy Ireland in particular in the Eurozone) which were all running surpluses or near surpluses pre 2008.

- the failure of any post crash recovery. There are strong fiscal multipliers at work. As the Greek government cut back spending and transfers, Greek GDP fell. So debt to GDP rose, and government revenues fell. And thus a downward spiral. The IMF warned of this effect in its own research papers, and has in fact admitted that its 2010 recovery forecasts and plan for Greece were unrealistic.

So the recovery plan implemented by the troika (ECB, EU, IMF) in 2010 was never going to lead to recovery and this crisis became inevitable-- eventually the lenders will have to write off a significant chunk of their principal.

The US is not 'heavily indebted' in any real sense on the public side. Not given it has some of the lowest tax rates in the western world (measured as taxes as a percentage of GDP), and no VAT (every other western country has a VAT, including Japan and Australia and Canada). Although the health care system is a massive self inflicted wound (but the recent cost growth numbers have surprised almost every analyst in how good they have been), the demographics are pretty much the best of any western country (up there with France and Sweden, maybe even better).

The US does have a very high level of private leverage compared to say, Greece (or Italy). But not compared to UK, Canada, Australia.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by kenner »

VT,

You are starting to sound a bit like Paul Krugman of the New York Times.

And, yes, that is a compliment (as evidenced by Krugman's Nobel prize in economics).
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by likegarden »

I read that Greece was admitted to the Euro only because it was hiding their large government deficits.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Johno »

Valuethinker wrote:
Johno wrote:
lack_ey wrote:
FelixTheCat wrote:Interesting article.

How does this relate to the USA? Our debt has grown considerably to 18 trillion. Are we along the same path? Should we consider investing in foreign bonds?
...Nothing to sneeze at here, but it's not even close.

Greece's debt-to-GDP ratio is almost double, and they pay much, much higher interest rates on that. Their tax rates are higher (admittedly, there are big problems with widespread tax evasion and lack of enforcement), and the unemployment rate is about 25%.
Among those reasons the much higher rates lately and unemployment rate are much more symptoms of the crisis than causes so I don't think they are very solid reasons to differentiate Greece from other heavily indebted developed countries including the US. The scale of indebtedness is indeed different and certain characteristics like regulation and tax (and its enforcement) are greater impediments to growth in Greece than most developed countries.
The US is not 'heavily indebted' in any real sense on the public side. Not given it has some of the lowest tax rates in the western world (measured as taxes as a percentage of GDP), and no VAT (every other western country has a VAT, including Japan and Australia and Canada). Although the health care system is a massive self inflicted wound (but the recent cost growth numbers have surprised almost every analyst in how good they have been), the demographics are pretty much the best of any western country (up there with France and Sweden, maybe even better).
It takes different opinions to make a market, but mine differs there. For one major thing it leaves out the fact that the US has a good deal of spending, and taxation, at lower levels of govt than federal. On this basis the US isn't nearly as comparatively low a taxer/spender as it looks just considering the federal govt. And in any case as stated the basic issue, partly parallel to that in Greece, is the political difficulty of making fiscal reforms which don't choke off growth, and the even greater difficulty when exogenous factors tend to signal that things are OK when perhaps they aren't, low Eurozone borrowing rates in Greece's case until fairly recently, 'world reserve currency' status of the USD in US case. The market changed its mind in the Greece case. It's simply bogus IMO to imply the market correctly assessed the Greece problem as manageable and only 'excessive austerity' made it not manageable, even if a 'Nobel Laureate' political columnist says so. :D That to me is cause for doubt about the argument that the US, or developed world debt in general, situation is OK in the long run because markets are relaxed about it now.

Also the response tends to assume somebody said the US has a problem much of the rest of the developed world doesn't also, but that wasn't stated nor intended. Japan has a much higher public debt/GDP ratio (than any country that could be called developed basically, Greece included) albeit largely domestically held, so it's naturally specifically mentioned. The US is the largest economy and a credit US investors tend to be very heavily exposed to, and they appear to comprise the bulk of the active membership of this forum, so it's also naturally specifically mentioned. It's in no way intended to imply for example that the UK isn't heavily indebted, and comparably large developed economies have more serious problems, like Italy and France, they tax plenty, but that's apparently not a simple solution: almost no growth and more clearly worrisome public debt outlooks than the US. Past debt levels have been as high in the US but in different growth/demographic outlook situations plus simply, one past episode of gradually drawing down heavy indebtedness without a lot of trouble (and there was trouble in UK case post WWII, though not a default) doesn't mean there's no risk the next time even if the circumstances were the same which they never are.

And again the issue here in a reasonable discussion IMO is the deviation from 'risklessness', not 'the sky is falling right now'. IMO the Greece situation is is in part, not carbon copy but in part, a lens by which to view developed country debt, including the US though not just the US or just the US and Japan, as perhaps falling farther short of riskless than investors might like to assume.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by danieljquirk »

12) Why not just bring back the drachma?

The public will have little confidence in the IOUs that the government issues. Probably even less confidence if Greece opts to officially introduce a new currency. Reintroducing the drachma would be totally illegal under European law and form the basis for a law suit to force Greece out of the European Union (EU). As part of the EU, Greek citizens can travel freely and work anywhere within Europe. Greek goods are also allowed to be sold without being subject to tariffs. Expulsion from the EU would be devastating.

Issuing IOUs which are not officially touted as a currency is a better option for Greece for now.


There are several countries that are part of the EU that have separate currencies. It doesn't seem logical to force Greece out of the EU. It seems like bringing back the Drachma and creating a cheap tourist destination is a good way to go.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by pantsmachine »

I have been travelling around The Med for 30+ years and decided a couple of years ago to hop across from my Summer place in Turkey to Rhodes for a few days with my family. We had an absolutely wonderful time in Rhodes town but were absolutely gobsmacked at the prices being charged. i think we were paying aroung 6 euro for a coffee (£4) where we would pay (£1) in Turkey and receive better service. Lunch for three would be in excess of 60 Euro which was frankly insane.

I try hard to feel sympathy for Greece but tbh i have read articles in the past regarding the population seeing waitering as beneath them and that seems to come across in a higher number of places than you would expect. The amount of buildings that have not had their top floor finished to avoid paying building tax on the islands is something to see. Don't know about any of you but i would be happy to replace broken live sewer pipes if it kept money coming into my family never mind waitering and i have never spent more money than i earned.

Not only should they go back to the drachma and devalue it massively to attract the 'indusrty without chimmneys' they should take a long hard look at who they are and give themselves a massive slap to waken up and get on with it.

We could not get on that ferry back to Turkey fast enough! In Turkey they truly appreciate the fact that you are boosting their economy and make you feel incredibly welcome, they are open for business in a way i never see in Greece in all my time there over the decades. I know this is a massive touristic oversimplification but tbh how complicated is 'don't spend more than you earn'.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by robert88 »

Johno wrote:The market changed its mind in the Greece case. It's simply bogus IMO to imply the market correctly assessed the Greece problem as manageable and only 'excessive austerity' made it not manageable, even if a 'Nobel Laureate' political columnist says so. :D That to me is cause for doubt about the argument that the US, or developed world debt in general, situation is OK in the long run because markets are relaxed about it now.
.
Krugman says the Euro, at least for Greece, was a mistake from day 1. Krugman argues that if you're not going to have fiscal integration and labor mobility throughout the Eurozone, then a country needs the ability to devalue its currency.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by whaleknives »

Anil Kashyap wrote:". . . First, and probably most importantly, countries such as Italy, Portugal, Spain, and Ireland, had all had to undertake similar types of adjustment as in Greece. None of them saw their economies collapse to the extent of Greece, but unemployment especially among the young is also high in all these countries. Hence, if there are substantial concessions to Greece, then these countries will insist upon getting similar treatment. The existing governments in these countries all realize that if electing a radical government in Greece is seen as being rewarded, then voters elsewhere will do the same. . ." A Primer on the Greek Crisis: the things you need to know from the start until now (emphasis added)
Were the reforms in Italy, Portugal, Spain, and Ireland really more successful than in Greece? Not according to this data:

Image
http://krugman.blogs.nytimes.com/2015/0 ... austerity/

There is growing evidence that Germany is more interested in ejecting Greece, or at least their current government, than in reaching a negotiated settlement:
  • "On an occasion six years ago, at a semi-official Anglo-German meeting with financial and business figures in London, I asked a senior German banker how he would react if Greece ever voiced the wish to leave the euro. This was an open question-and-answer session, during a brief period of pre-Greek complacency, in front of about 50 people. “I would act like Clint Eastwood,” my banker friend said. “I would say, ‘Go ahead, make my day.”’
    http://www.marketwatch.com/story/why-eu ... 2015-06-29
And further negotiation is not favored by German voters:
  • "Out of 1,230 randomly selected voters, 627 people (51%) would prefer Greece out of the euro, while 41% think Greece should stay. On the other hand, 70% of voters said they wanted no more concessions in the ongoing bailout talks."
    http://www.businessinsider.com/51-of-ge ... ens-2015-6
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Noobvestor »

Over 1 million Euros raised so far for the Greek bailout on a crowdfunding site :D

http://www.theguardian.com/commentisfre ... ros-people

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Johno
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Johno »

robert88 wrote:
Johno wrote:The market changed its mind in the Greece case. It's simply bogus IMO to imply the market correctly assessed the Greece problem as manageable and only 'excessive austerity' made it not manageable, even if a 'Nobel Laureate' political columnist says so. :D That to me is cause for doubt about the argument that the US, or developed world debt in general, situation is OK in the long run because markets are relaxed about it now.
.
Krugman says the Euro, at least for Greece, was a mistake from day 1. Krugman argues that if you're not going to have fiscal integration and labor mobility throughout the Eurozone, then a country needs the ability to devalue its currency.
Well then it seems he has a command of the obvious in hindsight in this case, something he doesn't always have. :D But seriously folks, the relevant question looking forward is the market's changed opinion. Everybody can now easily say Greece's adoption of the Euro was a mistake, and that lack of fiscal integration and full labor mobility is a serious problem not just a theoretical one for the Euro project in general. The issue is not that hindsight observation but whether the Greece crisis was a correctable mistake in the absence of 'austerity' as the attempted solution, supposed misguided 'austerity' being a Krugman hobbyhorse generally. In that case the market simply reacted to a change in the facts: it thought smart solutions from smart guys like Krugman would be employed to counter the Greece crisis, but instead 'austerity' was. If OTOH Greece's adoption of the Euro was always bound to lead to disaster, then the market just didn't see this for quite a awhile and it's thus relevant to the argument that heavy public indebtedness in the rich world more generally isn't a problem because markets are relaxed about it now.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Maverick3320 »

Great post, but if we are going to keep throwing around Paul Krugman's opinions as facts, we should probably at least acknowledge that he hasn't done serious economic work in 20 years, and writes a column titled "The Conscience of a Liberal." He's not exactly unbiased.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by powermega »

Maverick3320 wrote:Great post, but if we are going to keep throwing around Paul Krugman's opinions as facts, we should probably at least acknowledge that he hasn't done serious economic work in 20 years, and writes a column titled "The Conscience of a Liberal." He's not exactly unbiased.
I couldn't agree more. How anyone can still look at Krugman as a reputable economist is beyond me. JMHO.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by TravelGeek »

Well, he probably still knows more about economics than the average anonymous poster on an Internet board :). That said, I do take his *opinion* with the same grain of salt as anyone else's.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by diceman3 »

A full analysis of what has transpired since 2010.
Bottom line.... German and French Banks bailed out in 2010.
Sound familiar.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by MarkBarb »

Maverick3320 wrote:Great post, but if we are going to keep throwing around Paul Krugman's opinions as facts, we should probably at least acknowledge that he hasn't done serious economic work in 20 years, and writes a column titled "The Conscience of a Liberal." He's not exactly unbiased.
I lost any faith in his prognostications after he was certain that 2013 would be a disaster because of "austerity". We had the "austerity" and growth improved. His response...essentially nothing.

I don't know how well anyone can predict the future, but after following Professor Krugman's for a while, I'm certain that he can't.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by nedsaid »

It is a classic case of many people being reality challenged. The Greeks have the ability to help themselves a lot here but first they have to accept reality. They have overspent and lived beyond their means. They have to understand that retiring in your fifties is not sustainable for the country.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by dore »

MarkBarb wrote:
Maverick3320 wrote:Great post, but if we are going to keep throwing around Paul Krugman's opinions as facts, we should probably at least acknowledge that he hasn't done serious economic work in 20 years, and writes a column titled "The Conscience of a Liberal." He's not exactly unbiased.
I lost any faith in his prognostications after he was certain that 2013 would be a disaster because of "austerity". We had the "austerity" and growth improved. His response...essentially nothing.

I don't know how well anyone can predict the future, but after following Professor Krugman's for a while, I'm certain that he can't.
Here is a response from Krugman on this very topic http://krugman.blogs.nytimes.com/2015/0 ... &seid=auto

Krugman has extensively addressed this issue on his blog.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by nedsaid »

I lost respect for Paul Krugman years ago. He was a fine economist but he became a political partisan and he lost all objectivity. He wrote the same column over and over about our former President, pulling out his thesaurus, using a different word each week to describe him, and then congratulating himself for his brilliance. He has also been caught making sloppy use of facts. He was a great economist but he seems to have reduced himself to not so carefully disguised political rants. It is a sad thing to witness. I rarely if ever read him anymore, he has gotten so predictable that I know what he will write even before I read down to the end of the column. He needs to tone down the politics and maybe more people will respect him again. There was some thought that Princeton fired him for this reason.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Oicuryy »

Is a euro in the hand worth two in the bank?

The Devalued Greek Currency Has Already Arrived. It's the Euro

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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by LadyGeek »

As stated in Re: The next Lehman - this week? [Greek default]
Alex Frakt wrote:Replies must stick to the investing consequences of this issue (a factual account of ongoing events is also acceptable). If this turns into a general economics or political policy thread, it will be locked or removed.
Please stay on-topic, which is Investing related comments on Anil K Kashyap's paper.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by bobcat2 »

robert88 wrote:Krugman says the Euro, at least for Greece, was a mistake from day 1. Krugman argues that if you're not going to have fiscal integration and labor mobility throughout the Eurozone, then a country needs the ability to devalue its currency.
Now several posters on this thread have apparently taken vociferous objection to this point by Krugman. One person that completely agreed with Krugman on the above point was the late Milton Friedman. Here's Friedman writing in 1997 about the Euro Project.
The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe. I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent (economic ) shocks that could have been readily accommodated by exchange rate changes into divisive political issues. Political unity can pave the way for monetary unity. Monetary unity imposed under unfavorable conditions will prove a barrier to the achievement of political unity.

Link to 1997 Milton Friedman article.
http://www.project-syndicate.org/commen ... l-disunity
The article is short and well worth reading in its entirety, but it's certainly consistent with what Krugman is saying.

BTW I have a copy of the 2006 7th edition of Krugman's undergrad text, International Economics, co-authored with Obstfeld and obviously written before the economic problems in Greece that followed the great recession of 2008. In the text Krugman and Obstfeld make the same points about the Eurozone being far from an optimal currency area.

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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by Johno »

bobcat2 wrote:
robert88 wrote:Krugman says the Euro, at least for Greece, was a mistake from day 1. Krugman argues that if you're not going to have fiscal integration and labor mobility throughout the Eurozone, then a country needs the ability to devalue its currency.
Now several posters on this thread have apparently taken vociferous objection to this point by Krugman. One person that completely agreed with Krugman on the above point was the late Milton Friedman. Here's Friedman writing in 1997 about the Euro Project.
Surprised by this comment, I thought it must have referred to some later post than mine, but reviewing all since I see none, and certainly including mine, which disagree that *in hindsight* it was a mistake for Greece to adopt the Euro, or that is was possible to see in advance the *possible* serious problems a currency union among fairly dissimilar countries with incomplete economic, and very little fiscal, integration might cause. IOW Krugman is stating the obvious here, rather than anyone disagreeing with him.

That wasn't the point. The point is how to interpret markets' relaxed attitude toward Greek indebtedness for many years, both while it was clear the Euro would be set up and Greece would join, and later after the currency was actually launched and until pretty recently. Was this because the market expected Greece's debt habits and the weaknesses of the Euro to be worked out, and only bad policy reactions by the EU and Greece changed these facts and caused a crisis? Or did the market just focus too short term and not see coming an inevitable crisis it should have? The original reference to Krugman is just a semi-humorous reference to his tendency to be a one-note-Johnny on about the perils of 'austerity', but he's really not the point so let's forget him for now.

I think it's pretty obvious the market simply didn't include much if any probability of a very serious problem with Greece for quite awhile. It often tends to ignore possible downside scenario's which won't come to fruition in a few years at most, because a lot of the 'smart money' is controlled by people incentivized to have a short term view. It's fair to analyze the facts and longer term trends and still disagree about the likelihood of a serious credit problem in big developed countries (not excluding the US), and nobody is saying it's 100% or necessarily anywhere near. But the fact that the market seems to rule it out such a problem now is IMO not a strong argument for the optimistic view of future developed world govt bond credit quality, that they are 'near riskless'. That's what I think the history of the market's attitude toward Greece tends to show.
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Re: excellent summary of the Greek crisis by U of Chicago Professor

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We're now trending to a discussion of economic policy, which is getting a bit contentious and off-topic. This thread has run its course and is locked. See: Board rules
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Re: excellent summary of the Greek crisis by U of Chicago Professor

Post by LadyGeek »

Via PM, I was informed that the Washington Post Wonkblog has updated Anil Kashyap's primer based on what has happened this week.

See: 18 key facts about Greece that will leave you totally up to date about a huge crisis (July 3, 2015)

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