Greece again!
I'm getting sick of it too (although there is a GREAT overview in Stock World Weekly) but it's moving the markets so we can't put our heads in the sand... There are now 4 defectors from Papandreou's Pasock Party, narrowing the votes he can "count on" to a 1-vote margin in Parliament in voting for the austerity budget that will take place on Wednesday and Thursday this week. So, two days for the opposition to flip one vote and squash the austerity program that is effectively selling Greece down the river to Euro-Banksters - I'd say that's a done deal so why don't we just move past wondering if the vote will fail and start thinking about what happens after it fails.
Greece doesn't have enough money to make July's payments. If they say no to taxing their people 3% to pay down the debt (along with cutting another 25% of Government services and another 10% of existing pensions) and if they say no to selling off their islands, their phone company, their water and sewer services, their ports etc. in order to come up with barely enough cash to cover the interest on their debts so they can keep this charade going for another year - then what?
Well, there's the joke - then nothing. The Greeks sold a note to an INVESTOR. The INVESTOR took a risk that the note would be paid back in exchange for an agreed-upon interest rate that compensated him for a combination of the time value of his money plus the perceived risk of payback (as well as currency fluctuations and whatever else goes into the pricing of bonds). The vast majority of the bond investors are professional fund managers, who fully understand the risks they take when buying bonds but STILL chase after the riskiest (highest-yield) bonds, simply because they believe that they can always do exactly the kind of arm-twisting that is now being done to Greece to keep them from defaulting.
For the past two years, Greek debt has been selling for 10-20% and investors have been buying it hand over fist because they believe the game is rigged in their favor and that the EU won't let Greece default. Essentially, they are betting that the Greek paper priced at 20% is really as good as German paper priced at 4% so why not make 5 times more money for mis-priced risk? That logic is so compelling that PIMCO dumped a lot of their US paper and moved into all sorts of European notes and now they are on TV every day, doing their best to manipulate the situation to their advantage.
But think how ludicrous this is getting - the Greeks sold bonds and the bonds promise to pay back the cash plus a rate of interest. They are "non-recourse" notes, they are not backed by assets yet now the creditors are attempting to (and have succeeded so far) in getting the Greek Government (corrupt, inept, Bankster puppets) to treat them as if they were a mortgage on the country. Following the same course of NO LOGIC AT ALL, the Banksters have also gotten the Government to treat its $800Bn of pension obligations as if THEY HAD NO RECOURSE and Greece has already defaulted on a portion of those payments. Adding the pensions to Greece's already $400Bn debt plus the $200Bn they will have to borrow to maintain the status quo through 2012 and we have $1.4Tn of debts against a $300Bn GDP (466% debt to GDP ratio).
When do we own up to reality? 500%? 600%? 1,000%? Do we just keep lending them more and more money and pretending they are not in default? Before you say, that's ridiculous, keep in mind THAT's JUST WHAT THE U.S. IS DOING NOW! That's right, I fooled you - who cares about Greece and their silly $400Bn total debt when the US is borrowing $140Bn PER MONTH! Wake up America - Greece is the distraction of the moment because it's THIS country, America, that has REAL PROBLEMS, not Greece.
Greece can just default. If Greece defaults, they wipe out their debts and they simply can't borrow more money but, at this point, any cutbacks the Government has to make and any taxes the Government has to impose are nothing compared to what is being asked of them to service their debts. Not only that, but if Greece defaults, then that money stays in Greece, rather than the Greek people putting in all their efforts to fill the vaults of European Bankers and PIMCO.
America, on the other hand, has a REAL problem. Like a heroin junkie - we NEED our fix! Greece has a 10.5% budget deficit but 10% of their budget is paying interest in Debt and another 10% is paying principal on debt. The US has a budget deficit that is also 10% of our GDP (and we are not even going to get into UNfunded liabilities = $114Tn) yet interest on our debt is "only" about $400Bn a year at the moment (2.5% of GDP) but, at the current rates - have nowhere to go but up.
In fact, if we were paying Greece's average rate of 10% instead of our average rate of 2%, we're need $2Tn more dollars a year JUST TO PAY OUR INTEREST!
Don't forget, our interest is not just on the money we owe to foreign banks and pension funds, our interest is also "owed" on the money we stole from the Social Security lock-box. Senior Citizens in this country better hope the Greeks don't roll over and take the EU "deal" because they are a Bankster test case for how much crap they can get a nation to take before the people revolt and the US is next.
In fact, at this very moment, our elected "leaders" are debating the issue of raising the US debt ceiling over the $15Tn level. That's 37.5 times the size of Greece's debt and growing at a rate of 4 times Greece's ENTIRE debt per year. One entire Greece each quarter yet we are fixated on Greece and ignoring the ticking time bomb that is going off in this country. Isn't that strange?
Even stranger is the joke of the discussions going on where the Republican'ts in Congress insist that there be no tax increases to pay off our $15Tn current debt and rein in our $1.4Tn annual deficit. The Reps feel we can just take an ax to Government Spending and slash $1.4Tn in spending while growing the economy at a 4% annual rate. Our major spending items are:
- $818Bn - Medicare/Medicaid
- $713Bn - Social Security
- $700Bn - Defense (not that anyone is attacking us)
- $423Bn - Social Security
- $210Bn - Interest on Debt (not including SS interest owed)
- $210Bn - Federal Pensions
That's $3.1Tn out of $3.6Tn in total Government spending and then there's $500Bn in "discretionary spending" on things like roads, bridges, environmental protection, post offices, education, the center for disease control, FBI, CIA... you know, Government waste, as Rush likes to call it (and there's a great NYTimes article this weekend on the value of public spending, so they can report, you decide). On the collections side of the equation, we have the following (keeping in mind we're $1.4Tn short already):
- $942Bn - Individual Income Tax
- $842Bn - Payroll Tax (80% paid by people making under $106,000)
- $195Bn - Corporate Tax
That's just $2.2Tn collected but don't worry - all we need to do is cut $1.2Tn out of our $500Bn worth of discretionary spending (and 58% of the discretionary budget is military too!) and grow the economy 4% a year without those needless government programs (or the jobs they create) while keeping the interest on our debt at 2% or less and everything will be fine over here too - just like it's fine in Greece! Do you see how we are being lied to like children by our representatives - who themselves are too immature to face up to the truth.
If you are dumbfounded by that $195Bn Corporate Tax Rate - you should be. Corporations pay an average tax rate of just 12% - and that's on the profits they declare! That's even better than the 17% average tax rate paid by the top 1%, which goes to show you the value of a good accountant vs. the joker who prepares your taxes! Even more amazing is that we include the $842Bn in Payroll Taxes collected as Government Income, when it should be earmarked to fund the SS and Medicare payments it is specifically earmarked for.
As with any Ponzi scheme (and clearly the SS game is coming undone) the real danger is that the rubes wise up and you can no longer find new suckers to fund the con. As the Republicans succeed in paring back SS and Medicare benefits, at some point workers will wise up and refuse to contribute to a fund that's never going to pay them back. Once that happens, you can kiss $842Bn in revenues goodbye and then you will see that the Emperor really has no clothes as the US is actually collecting just $1.1Tn to cover their $3.6Tn spending habit. Those Greek bonds are starting to look pretty good by comparison, aren't they?
Meanwhile, those 110M Consuming Households who will ultimately have to shoulder the US Debt Burden are themselves $16Tn in debt, with $13.7Tn in mortgages and $2.4Tn in credit card debt putting the average family over $150,000 in debt with 50% of those families earning less than $30,000 per year. Every year, the US is CURRENTLY racking up another $11,616 worth of interest debt PER CITIZEN alone! That's $35,000 per family of interest payments that have to be made to service the current debt, which is projected to double over the next 10 years, and if interest rates were to double to 4% (40% of Greece), then we'd need $140,000 per family just to pay the interest on our existing debt - EACH YEAR!
As I said, Greece is nothing but a distraction and thank goodness for it or we'd all be focused on these numbers every day and then everyone would be REALLY depressed but, as we reach the end game on Greece (and the EU HAS to give them money, whether they want it or not so it will come on Greece's terms, not the EU's) we need to get ahead of the crowd and focus on the beginning of the end game for America, and that game does not look like it's going to end well. The ONLY possible way for us to avoid default is to grow our way out of debt but the only plans Congress is willing to vote on involve cutting back and (insane as this may sound) collecting LESS money to pay our bills.
Anyone who looks at the above numbers can plainly see how ridiculous that is. We either have to spend MORE money to grow the economy, putting more people to work and increasing our TAX Revenue base to close the spending gap, or we have to just print so much money that inflation devalues the $75Tn in national assets (was $100Tn before QE1 & 2) to extend and pretend this scam for another year or two. So far, our Government has consistently chosen option number 2 - and $25Tn of lost asset value later we still have not filled the gaping hole in the balance sheets of the banks. Can we survive another round of Quantitative Easing?
We could, if the Fed gave the next $16Tn to 110M families instead of the IBanks - that would wipe out all family debt and then we could raise taxes 10% and collect another $400Bn a year ($200Bn from citizens and $200Bn from corporations) and then we would at least be on a rational road to recovery. But that's never going to happen. Instead we can expect more extending and pretending until collecting $400Bn will be nothing more than a drop in the bucket (and it's not much now, is it) so there will be no point - just as there is no point for Greece to try to repay their impossible debt load.
The only difference is, when Greece defaults, it will cause a ripple in the Global pond, but when the US defaults, it's very likely the whole world will go down the drain with it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
