Today the news is all about Greece, not because they are getting it done, but because they are now less than 24 hours away from a 450 million euro invoice and whilst Prime Minister Tsipras stated that they have the cash to make the next payment (at http://www.bloomberg.com/news/articles/2015-04-04/greece-has-cash-to-make-imf-payment-next-week-minister-says), of course, that statement is now an issue as we wonder why Tsipras took the fast plane to Moscow.
In other news (at http://www.theguardian.com/world/2015/apr/06/varoufakis-extends-washington-charm-offensive-after-talks-with-lagarde), where ‘rock star’ Varoufakis is smiling all over the place. the quote “The hope is he will gain the support of Treasury officials in persuading lenders to cut Greece some slack” seems highly misplaced as the Greek elected officials have been sitting on their hands in feigned acts of ‘activity’. Yet the article shows two interesting quotes. The first one is “it has been openly critical of a German-dominated Europe pushing the country too hard on austerity and fearful of the effects that might have on European unity. A Grexit would spin the markets out of control. It is the last thing Washington wants“. It seems that the US might have issues with the German approach of reducing debt. You see, that hits the bottom dollar, the US can only partially recover if THEIR banks get the slice of the multi trillion dollar debt Europe has, once the debt goes down, their income slows down by a large margin.
The second part here is the market response to Grexit. Yes, the US has a fair point trying to limit that event, but this implies the following:
- I had been correct for well over a year in my statements that a tumble of the Euro would massively hit the Dollar and the market.
- The fact that the Greek exit, with 500 billion in debt has SUCH an impact, whilst the Greek economy makes up for less than 2% of the European economy implies that the European nations at large are borrowed up to the max and this first stone falling, gives us a domino effect that will wound the market for a longer time, which means the US holier-than-thou DOW will also feel the massive impact one way or another.
If economies at large are THIS dependent on that Dow Jones Index, then what failures are we going to see in addition to Greece?
The second quote that is interesting is: “Varoufakis, was scheduled to meet Nathan Sheets, US Treasury undersecretary for international affairs, two days before Tsipras heads to Moscow for talks with the Russian president, Vladimir Putin, on Wednesday“. This is interesting for the simple reason which is found in the question: Why?
You see, when we look at Nathan Sheets, the treasury page (at http://www.treasury.gov/press-center/press-releases/Pages/jl2640.aspx) gives us: “Sheets will lead Treasury’s Office of International Affairs, which protects and supports U.S. economic prosperity by strengthening the external environment for U.S. growth, preventing and mitigating global financial instability, and managing key global challenges“, so why was Varoufakis meeting Nathan Sheets? Is he not all up in arms to protect Greece from collapsing? Which might be the same goal both have, but that gives extra weight to second implication I mentioned, the Greek debt has far fetching consequences, so why would a flight to Russia have any positive result for Greece, it would suit Russia just fine to see the DOW tumble. So unless Greece is making a deal that includes the option of a Russian base on Greek grounds, we should consider the possibility of watching a linked smoke screen we see here.
That conclusion (the smoke screen) is given weight by the following quote we see in another Guardian article: “Mrs Lagarde … stressed that, in Greece’s case, the Fund is willing to show utmost flexibility in the way in which the government’s reforms and fiscal proposals will be evaluated“, as well as “It added that in separate meetings, US Treasury officials who also met Varoufakis expressed the willingness of the US government to play the role of an ‘honest broker’ in helping Greece to strike a deal with its lenders“.
The question becomes, flexibility in which direction? That question follows the ‘honest broker‘ offer from US treasury officials. If this was (very likely), the Nathan Sheets meeting, then we get a new issue, not just who gets the brokered deal and at which percentage, we now see a second instance where IMF and US needs meet hand in hand. Did we not see a similar evolution with Argentina? If that is so, then who is catering whom and how much will it cost the Greeks, when the actual full invoice is revealed after a massive black out through smoke screens, miscommunications and incomplete data. Yes, those are presumptions on my side, but when you recall the Argentinian debacle, where they were pushed towards vulture funds, after IMF help was denied through a request by the US, many press members did not properly follow up that part and no clear information was ever published, so are my assumptions that far out of bounds?
Now we get to the interesting part. You see, he Guardian has another piece by Phillip Inman titled ‘IMF needs to see the bigger picture – that debt can choke off growth‘ (at http://www.theguardian.com/business/2015/apr/07/imf-needs-to-see-the-bigger-picture-that-debt-can-choke-off-growth). Here we see the following parts that are a decent chunk of sizzling debate that we can charcoal grill in an instant. “Yet the remedies outlined by the IMF to counter the threat of persistent low growth in Britain and other developed world economies, as documented in that report, show that debt influences growth and in extremis can choke it off” as well as “the IMF says the world’s major economies risk a long period of low growth unless governments do more to overcome the after-effects of the financial crisis and the longer-term problem of ageing populations“.
I do not deny the correctness of the statements, but the statements are all extremely short sighted, especially when you consider that the people making the statements are on high 6-7 figure incomes. Let us not forget that these governments decided to get themselves in debt and that for well over a decade, no proper budget has been pushed through. It was Germany and Germany alone, that tightened their own belt by a lot and as such they have been enjoying lessened interest payments, which is now saving them billions each year. The second part is that ‘overcome the after-effects of the financial crisis’ is all about proper budgeting, which has gone amiss all over Europe (not just in Greece), in addition ‘longer-term problem of ageing populations‘ is not completely a valid concern as this had been known for well over a decade, which means that plans should have been in place for a long time.
Now we get to the interesting part. As governments on a global scale were so eager to be the bitch of large corporations, the involved governments painted themselves in a corner. Yet, the IMF is not innocent here either, I had a go on their numbers in 2013, when they had published ‘World Economic Outlook April 2013‘ (at http://www.imf.org/external/pubs/ft/weo/2013/01/pdf/text.pdf), where they stated that advanced economies would be performing at 1.2% in 2013 and 2.2% in 2014. I pretty much labelled the group behind that piece of ….paper ‘bonkers’, now we see “Looking forward, the IMF said potential growth in advanced economies was expected to increase slightly from an average of about 1.3% a year in the last six years to 1.6% until 2020, but not reach the 2.25% average seen between 2001 and 2007“, So this means I was right, my simple use of an abacus got me numbers more precise than they did with their ‘economists’ that they bunched like grapes in an analytics department. I did expect numbers to be a lot better in 2016, but that was based on the limited information I had, irresponsible elected officials did skew my numbers more in a negative way, silly me for having hope that elected officials would keep a level head in all this. Serves me right!
Yet, behind all this is a little more. It is the quote “But growth is not the only way to diminish or pay back debts. Cancelling them is another. Banks do it with their worst performing customers. Unfortunately for Greece, the IMF refuses to use the same criteria as Lloyds or RBS would when confronted by a failed business” that gets to me. As an assumed speculation this path is not a bad option, and any Journalist has my blessing to entertain such a thought in the proper context. But this article does not do that, it is left in the air at the end of an opinion piece, without proper merit. This makes me wonder why Phillip Inman economics correspondent added this. Just to give visibility to his book? I seriously doubt that, the statement in the air is the issue in this, perhaps like me he is postulating that the ‘forgiving’ of debts is what certain banks are hoping for, because it puts them in the clear and leaves the debt with the underwriting governments, a step Germany is opposing rigorously (and rightly so).
What is in my view decently clear is the prediction I made earlier, that Greece is playing Possum in the 11th hour is coming to fruition, my issue becomes, why is the Greek population accepting this and why is there no proper investigations in lighting up all the sides on how previous Greek administrations accepted tons of debt without any decent exit plan. In my view, Antonis Samaras was sailing the only path that had the option of keeping the Greek population independent and proud, a plan that is certainly becoming less and less a reality under Tsipras, because no matter what happens next, whether it is feigned forgiven debt or any Russian deal, there will be consequences for the Greek population at large, an issue ignored by most players involved, especially their elected officials.