Wednesday, August 12, 2015

Greece -- Postponed

The Greek government appears to have completed a new deal with the troika (IMF, European Union, and European Central Bank) that will further depress the Greek economy, balloon Greek debt, and continue this, apparently, unending catastrophe.

Greece will never pay their debts.  The Greek economy will continue to fall apart.  My own prediction, that Greece would default rather than to put themselves back into the German straight-jacket, was not borne out.  That Greece, once again, has opted for continued depression and economic misery, is certainly surprising.  That Europe has underwritten more Greek profligacy is even more surprising.

At this point, Germany's sovereign balance sheet looks increasingly shaky, if one acknowledges Germany's implicit guarantee of Greek sovereign debt.  In time, not only will Greece default, but Germany will as well.  The differences between the Greek economy and the German economy are differences in degree, but not in kind.

The entire Eurozone, which a mere ten years ago sported a reasonable current balance sheet, now looks extremely perilous.  The debt explosion in Greece is matched by France, Germany, Italy, Spain and the UK and for similar reasons -- large and expensive entitlement programs with a rapidly aging population to support.  Meanwhile, economic growth has ground to a halt.  This can only end badly, as European politicians are taking no current steps to deal with the coming crisis.

Things are no better in the US, where entitlement programs have been expanded dramatically by each of the last four US presidents.  It is as if a family, whose income has not grown significantly in a decade, has suddenly decided that the solution to their problem is to dramatically increase their spending.  The US, like Europe, has opted for no-growth economic policies and seems determined to snuff out small glimmers of economic expansion that might emerge.  Stagnation of the economy seems to be the current plan of the Obama Administration and they are certainly succeeding beyond their wildest dreams.

The world debt situation is not sustainable.  How and when this unravels is unclear, but that it will unravel is a pretty safe bet.

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