Courtesy of Karl Denninger at The Market Ticker
Or should that be "I told you so"?
The European Union, European Central Bank and the International Monetary Fund are negotiating hard among themselves about how to structure debt relief for the Greek economy. The latest reports suggest they might have come up with a temporary deal among themselves. But what the EU, ECB and IMF want won’t matter unless they get the Greek government to play as well. And that’s by no means assured.
For one thing, Greeks are growing fed up with austerity and seem very unwilling to take on the still stricter conditions being demanded of them to win fresh funding and avoid default. The Greek economy has taken a beating during the past couple of years. Non-stop, large-scale political protests, routine general strikes and parliamentary rebellion have brought Athenian streets to a standstill. And Prime Minister George Papandreou’s government is teetering.
I hear rumors that boiled rope futures are positively booming in Greece. I wonder if I can trade that over here in the US?
In all seriousness though there’s nothing to see here that I haven’t been talking about for months. Greece, like many other nations (America-cough-cough) made promises it couldn’t keep. It allowed people and institutions to lie. It then lied itself, as a government, and hid obligations, and engaged other people in assisting it to lie.
(Gee, you don’t think somewhere between $70-100 trillion of promised entitlement spending in the US might be related to this, do you?)
The only reasonable solution is for Greece to tell the EU to go stuff it and default. This probably means leaving the Euro. Yes, that in turn means that all those people who bought Greek bonds and then REPO’d them at par are going to have them shoved down their throat and be forced to come up with the loss, and that in turn might blow up some banks – maybe a lot of banks.
Is there an alternative? Not a reasonable one.
Let’s be clear: this path doesn’t mean no pain for Greece and the Greek people. On the contrary; the idea that you have a handout from government is a fallacy; government can only take money from one person and give it to another in the long run, so in order to give it you it must first steal it from someone else.
No, the question is not whether Greece is "better off" defaulting or not just like it isn’t here in the US. We will default – on the "social obligations" we cannot pay – just as Greece will default.
They’re simply choosing the terms of the default, and as the debtor and a sovereign, against which all lending is unsecured, they have every right and in fact duty to do exactly that, lest their citizens lynch Parliament – perhaps literally.
