Similarities to Puerto Rico, Detroit, Illinois & Chicago to Great to Ignore
While all eyes have been fixated on the unfolding developments in Greece, I have been uncomfortably studying events in Puerto Rico. Recently, having produced two video's with Mish Shedlock on the fiscal situations in Illinois and the City of Chicago I have become acutely reminded of the monetary reality of what happens to those unfortunate democracies which don't have the luxury of expediently "printing their way out" of fiscal problems like the EU and US Federal Government.
Greek ATM's and Supermarkets Following Greek Rejection of EU Terms
What Greece and US State & Local Governments have in common is two fold:
- Neither can print money to bailout their proliferate and reckless spending,
- Neither can debase their currency in a politically stealth manner which reduces standards of livings to match mounting debt obligations.
One of the many observations we can make on what Greece has visibly shown us is how quickly a democratic electorate can be influenced and potentially 'brought to its knees' when ATM withdrawals are restricted and store shelves supporting basic needs are abruptly found empty. Fortunately the Greeks were angered by these threatening acts of control and public opinion swung decidedly from a YES vote to a NO vote in one week. The people knowingly voted to accept tougher consequences rather than feel they were going to be puppets to foreign masters.
Are Other Democracies Fundamentally Any Different?
It is easy to to sit in front of our TV set and pass judgement on others without being retrospective on whether we are actually any different? Consider what placed Greece in this "no win" position?
My Macro Analytics Co-Host Charles Hugh Smith in our latest video on Greece suggests Greece found itself in ithis purgatory of social unrest for the following reasons:
1. Flaws with the Euro:
-- No fiscal integration to accompany currency integration There are no enforceable limits on state borrowing,
-- Euro removes the re-balancing mechanism of national currencies National currencies enable nations devalue their currency to correct trade imbalances
2. Trade Imbalances between Eurozone members
-- Mercantile exporting nations run enormous trade surpluses, consumerist importing nations run enormous trade deficits, and there is no mechanism for importers to fund their deficits except debt
3. The crushing burden of public and private debt in the Eurozone
-- Greek debt of 340 billion euros is just the tip of the iceberg of total Eurozone debt
4. The debt crisis is an abstraction to exporting nations (Germany, the Netherlands) and a painfully concrete downsizing to importing nations suffering from austerity and high unemployment
5. The demographics of Europe (very low birth rates, social conflicts over immigration) and stagnating employment are very negative for nations with heavy social welfare costs and rapidly aging populations
Now ask yourself: Are any of our US State and Local governments in a position that is anything different than the above?
Control - Give People Impossible Choices
The people of Greece are now being given choices that seem impossible to make but will nevertheless be made.
Why are these their choices?
Granted Greece should never have borrowed this amount of money - but they did. Puerto Rico should have never been allowed to borrow $72B but they did. Illinois and Chicago likewise borrowed well beyond their means, and the list goes on.
There inevitably comes a day when the game comes to an end and the choices available are untenable.
Is it possible the problem is that lenders should have never made the loans or maybe lenders should never been allowed to make the loans?
Lenders are allowed to lend as they see fit because it is their money - right? Wrong! It is depositors money.
Lenders versus Borrowers
However, when you look at who Greece owes its 323B Euros to we don't see too many bank lenders on the list. Nor do we see too many Greek bonds held by banks and private individuals / institutions? Oh they made the loans all right and are making boatloads of interest (or as my friends in NY call it - the 'fig')
What we actually see is that the debt is dominantly owed to the Troika. The EU, IMF and ECB.
How could entities that don't produce any wealth, but rather "live off" others who create real economic and financial wealth become such dominate lenders? Maybe we should ask, do they actually have the wealth to extend this sort of debt?
Guarantees and pledges are the coin of the realm for these entities. Banks create extraordinary leveraged money from depositors but ALWAYS secure collateral on these risky loans in the form of guarantees and pledges from these non-productive economic parasites. If by chance the banks lend directly they use regulatory arbitrage to quickly ensure they are removed from the perceived risk of such loans.
As a creator of wealth, Cornelius Vanderbilt would have asked: "Is this anyway to run a railroad?"
Of course not. No one has any of their own skin in the game.
Bureaucrats don't lose their pensions if things go bad. Politicians don't get claw-backs on their earnings as the peoples' representatives. The Central Bankers who have returned to academia don't lose their tenure. Its all monopoly money to them. It sure isn't to the Greeks standing in front of ATM's or pensioners being told their promises are being slashed to pay debt obligations.
The only people not involved are the depositors and taxpayers who lose everything and then are forced to make impossible decisions.
Like a former Las Vegas con artist would offer: "Heads I Win, Tales You Lose!"
People will eventually wake up to this scam and get angry - really angry!
Unfortunately, it won't happen until there are long ATM lines and people are facing empty store shelves because the bank are using new 21st century means to extort what they want from politicians and the electorate.
It would all bring a sly smile to Mayer Amscshel Rothchild's face if he were here to see how bank lending and usury as advanced.
The question I leave with you:
"Is the government regulating the banks, or are the banks now regulating the government?"
Watch Greece closely and see who is really in charge and making the demands. Be sure you don't confuse the puppet bureaucrat in front of the camera for the wizards behind the curtain!
Also remember this could be coming to America soon!