Below PIMCO's well known guru states essentially that loaning money to Greece was a bad idea.
Loaning money to Greece in the below piece reminds me of how I explained 'Shell corporations' yesterday to my sweet wife Olie as a way to hide who owns an asset or the income from a company.
Who real owns the the money loaned to Greece that will fail this year or next? Who enabled this drunk to drink more?
The answers include the usual suspected such as those with the big bucks: Germany, China, America, etc who stand behind the 'shell corporations' like fronts of the IMF, the ECB, World Bank, etc. All 'kicked the can down the road' with fresh phony money created on FED computers and Japanese Central Bank and Chinese Government banks, etc which make credit, derivatives and fiat money supply. America's FED simply funded the Eurozone with fiat credit under the label of 'currency swaps' of a special variety and recieved similar fiat credit obligations from the ECB as phony collateral.
Conspirators point to the fiat credit computer creations and see 'what they want to see'. Some see coming inflation, some coming deflation. my jeffolie view relies only on that at some point which I SWAG to be 2014 and/or beyond America's 'king has no clothes' fiat credit creations as loans to the likes of Greece, Spain, etc will be a failure. You can chose you particular favorite such as hyperinflation, deflation, wars, anarchy, etc. My jeffolie view is that the fiat credit loans, derivatives, currencies will implode leaving bad borrowers without another 'kick the can down the road' event that will leave a dismantling of bad credit, loans, currencies. Those Americans, Asians, European fiat credit creators on computer accounts such as the FED and ECB will be 'pushing on a string' trying their exist and new tricks to 'kick the can down the road' as always, but the Politics Matters revolts against 'austerity' will elect rulers who create the failed delaying tactics. In Greece, the new elections of June or more such elections will revolt against austerity.
A new 'balanced approach' will be announced as soon as Monday May 21st by th G8 including the opposite of austerity which is called stimulus at the same time as austerity. Sort of like comparing running the air conditioner beside the blazing fireplace. This smoke screen, public relations attempt to fool the masses already can be seen as a failure in Greece and France as those with money withdraw to seek safety from confiscations. French wealthy flee their money and persons to places such as London, etc. Greeks with saving hide their euros physically under their beds, hiding places or other countries as now a run on Greek banks procedes. The Greek stock market has declined 90% from 2007's phony state of well being and under a future collapsing Greek currency may decline 90% more of the remaining 10% as happened when the USSR changed to Russia after the fall of the Berlin Wall.
Who is Responsible for the future American Tragedy?Apply the above thinking to the fiat Dollar and all financial things anchored in Dollars for the collapse of 2014 and/or beyond.
Who keeps money flowing to buy Treasuries as a safe haven, thus 'kicking the can down the road' for America's day of reckoning? The usual suspects plus the investors from the private arenas ranging from senior citizens owning CD at credit unions, banks, etc all the way up the food chain to soveriegns such as China & Japan holding Treasuries. These enablers are like the bartenders continuing to pour drinks to the usual heavy drinkers knowing they represent their main source of income for the bar. Blind faith in the Dollar or Euro or Gold etc continues the flow of fiat currency that make markets for everything...until they fail as in the revolutions or regime change that empires goe through such as the USSR's ruble being converted to Russian rubles. Reissuing a fiat currency with another new fiat currency is the standard operating procedure that often happens and often works. Sometimes not with the result of an imploded financial system where the old debts are not paid or paid at cents on the dollar such as in Argentina's crisis.
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Who is Responsible for the Greek Tragedy?
SEATTLE – Greece is following the road taken by several other crisis-ridden emerging economies over the past 30 years. Indeed, as I argued earlier this year, there are stunning similarities between this once-proud eurozone member and Argentina prior to its default in 2001. With an equally traumatic implosion – economic, financial, political, and social – now taking place, we should expect heated debate about who is to blame for the deepening misery that millions of Greeks now face.
There are four suspects – all of them involved in the spectacular boom that preceded what will unfortunately prove to be an even more remarkable bust.
Many will be quick to blame successive Greek governments led by what used to be the two dominant political parties, New Democracy on the right and PASOK on the left. Eager to borrow their country to prosperity, they racked up enormous debts while presiding over a dramatic loss of competitiveness and, thus, growth potential. Some even sought to be highly economical with the truth, failing to disclose the true extent of their budgetary slippages and indebtedness.
Having borrowed far too much after joining the eurozone in 2001, New Democracy and PASOK let their citizens down when adjustments and reforms were needed after the 2008 global financial crisis. An initial phase of denial was followed by commitments that could not be met (indeed, that some argued should not be met, owing to faulty program design). The resulting erosion in Greece’s international standing amplified the hardship that citizens were starting to feel.
Hold on, I hear you say. For every debt incurred there is a credit extended. You are right.
Greece’s private creditors were more than happy to pour money into the country, only to shirk their burden-sharing responsibilities when the artificial boom could no longer be sustained. The over-lending was so widespread that at one point it drove down the yield differential between Greek and German bonds to just six basis points – a ridiculously low level for two countries that differ so fundamentally in terms of economic management and financial conditions.
Overeager creditors willingly underwrote this absurd risk premium. Yet, when it became abundantly clear that Greece’s debt burden had been taken to insolvency levels, creditors delayed the moment of truth. They dragged their feet when it came to the critical agreement on orderly burden-sharing (that is, acceptance of a “haircut” on private-sector claims on Greece). And the longer they did that, the more money left Greece without any intention of returning.
But neither the Greek government nor its private creditors acted in a vacuum. Both took comfort from the political cover provided by the European unification effort – an historic initiative aimed at securing the continent’s well-being through closer economic and political integration on the basis of credible rules and effective institutions.
On both counts – rules and institutions – the eurozone fell short of what was required. Remember, the large core economies (France and Germany) were among the first members to breach the budgetary rules that were established when the euro was launched. And European institutions proved toothless when it came to enforcing compliance. All of this served to sustain the fantasy world that both Greece and its creditors happily inhabited for far too long.
Europe also failed to react properly when it became obvious that Greece was starting to teeter. European government counterparts failed to converge on a common assessment of the country’s problems, let alone cooperate on a proper response. While they grudgingly loosened their purse strings to support Greece, the underlying motives were too shortsighted, and the resulting approach was strategically flawed and abysmally coordinated.
Finally, there was the International Monetary Fund, the institution charged with safeguarding global financial stability and being a trusted adviser to individual countries. It appears that the IMF succumbed too easily to political pressures during both the boom and the bust. Political expediency seems to have trumped analytical robustness, undermining both the Fund’s direct beneficial role and its function as a policy and financial catalyst.
On the surface, each of the four suspects has an individual case for arguing that the finger of blame should be pointed elsewhere. They could even argue that, at worst, they were uninformed accomplices. But that is not really right.
None of the four can avoid the reality that Greece’s collapse would not have occurred had they not been complacent during the boom and, subsequently, fulfilled their responsibilities during the bust so poorly. They sucked each other into a sense of false prosperity, only to trip each other up during the inevitable downturn. Now, one hopes, all four will be held properly accountable by their stakeholders and undertake serious self-evaluation.
Most likely, they will end up getting off too easy, especially compared to the real victims of this historic tragedy – the most vulnerable segments of the Greek population, who will become much worse off, today and for many years to come, as jobs disappear, savings evaporate, and livelihoods are destroyed. And they may not be alone. Millions of others may experience collateral damage, as financial contagion risks spreading to other European countries and to the global economy as a whole.
In a fairer world, these vulnerable citizens would be entitled to claw back the salaries, official privileges, and bonuses that the four parties to blame enjoyed for too long. In the world as it is, they are a compelling lesson for the future.
www.project-syndicate.org/commentary/who-is-responsible-for-the-greek-tragedy-Mohamed A. El-Erian
Mohamed A. El-Erian is CEO and co-Chief Investment Officer of the global investment compamy PIMCO, with approximately $1.4 trillion in assets under management. He previously worked at the Internati Full profilehttp://www.project-syndicate.org/contributor/mohamed-a--el-erian