Harvinder Sian from RBS said the sovereign humiliation of Greece by EU creditor states smacks of colonialism and can expect to meet fierce resistance. It may be tempting for Greece to precipitate a “hard default” before the second rescue package comes into force and switches a large stock of debt contracts from Greek law to English law, he said.
It is not clear who is in the stronger position in the latest round of brinkmanship between Greece and the German bloc. If pushed too far, Greece can set off a powderkeg. The International Monetary Fund says European banks are highly vulnerable and need to raise their capital by €200bn. Many of the weakest are in Germany.
The Greek crisis has spilled over into Cyprus, raising the risk that a fourth country will soon need an EU bail-out….
Sooner or later, given the current intransigent insistence upon a Keynesian understanding of economics, some event will occur, whether in Greece or elsewhere in the industrialized and socialized states of the world (virtually all of the industrialized states now that Switzerland has decided to follow the herd by inflating the Swiss franc, and apparently being willing to do so without limit), that pushes the global economy beyond its carrying capacity. At that time we will all be sent back to school by reality. And we will have yet another opportunity to learn that to be economically and politically irresponsible has unpleasant consequences.
The last time it happened on that sort of scale (the Great Depression), we were told that we were saved by government programs—the direct ancestors of the more recent government stimuli. In the coming unpleasantness we will have an opportunity to learn a valuable lesson about that prior misinformation. Will we be able, collectively, to learn what we need to in order that we don’t sentence our descendants to live through it again in the next generations? I tend to be rather pessimistic about a positive answer to that question. Partly because we have a number of historical lessons that have been neither taught nor learned, and which strongly suggest that a contrary approach is required. And partly because we are all fallen creatures, all with some tendency not to want to face up to what Adam and Eve were told would be their lot after they disobeyed God.
One thing is certain, if we keep listening to the current economic gurus (Bernanke, Geithner, Krugman, [i]et al[/i].), whose efforts have produced less than zero positive change, and disregard what the Austrian school economists have to tell us, we will learn nothing. I would humbly suggest that to do so would fulfill the popular definition of insanity, repeating the same behavior and expecting a different result.
[i]Pax et bonum[/i],
Keith Töpfer
Indeed. There is a phenomenal amount of mal-investment to be burnt off before we can begin a return to natural interest rates that permit (first) savings and (subsequently) productive investment.
All the bad debt must be washed away, every bit of it, and the longer governments attempt to counteract that process the longer and deeper will be the economic and social misery only now beginning to gain traction.
@Bart,
There was a relevant article posted yesterday (Friday) at the blog of [url=http://patrickbarron.blogspot.com/2011/09/retrying-discredited-policies-of-hoover.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed:+PatrickBarron+(Patrick+Barron)]Patrick Barron, an Austrian Economist[/url], reiterating the close parallels between this administration’s approaches to the economic situation and those of Hoover and FDR to the Great Depression. The indications that we, as a society, have learned anything of value in the interval are [b]not[/b] encouraging—one of the most persuasive factors in my pessimism. The article also provides a direct reference and link to one of the best explications of the Hoover/FDR errors, Murray Rothbard’s [i]America’s Great Depression[/i].
[i]Pax et bonum[/i],
Keith Töpfer