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Greek Debt Crisis, No Simple Answers, For Anyone

5:36 am in Uncategorized by Bill Egnor

Greek flag

Greek flag by gingerbeardman

There are a few truisms that pop up again and again in my life; Everything takes longer and costs more; Nothing is simple and There are no simple answers to complex problems. All of these seem to be true of the Greek debt crisis. There are a couple of articles in the New York Times today that lay out the scope and complexity of the problem, you can find them here and here.

Unlike the United States the Greek government is actually in a debt crisis. They have probably entered a debt trap, where they don’t have enough money to pay all their normal bills plus the interest on their debt. This means that they have to borrow to cover the interest. Of course when they borrow they have more interest and more debt.

Unlike the United States or other nations who have a sovereign currency they can’t just devalue their currency or lower interest rates. Being part of the EU and the Euro zone these things are controlled by the European Central Bank.

This puts them in a really bad place with few options. Right now the three groups that are loaning them money, the IMF, the European Union and the European Central Bank are demanding cuts or savings totaling $40 billion by 2015. That is a huge amount of the Greek GDP, nearly 12% of GDP. To give you an idea of what that would be in the United States economy it would be like cutting out $1.75 trillion (yeah, 175,000 billion) in the same time period.

To do this the Papandreou government is basically going to have raise taxes, slash wages and employment and sell off a bunch of the state owned assets of the nominally Socialist state. The question that is starting to emerge is, will this actually fix the problem?
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Sen. Kent Conrad Joins The Republican Hostage Takers

5:35 am in jerks by Bill Egnor

Kent Conrad - Caricature

Kent Conrad - Caricature by DonkeyHotey

What the Hell is Sen. Kent Conrad smoking? And why it is that he won’t share (c’mon, Senator, don’t bogart that doobie!)? In today’s Washington Post Sen. Conrad enables the hostage taking of the Republican Party by saying that he does not think that the two trillion in budget cuts that the Administration is talking about is enough.

Worse, the Senior Dufus from North Dakota is actually tying these cuts to the Republican threat of not raising our debt ceiling. But don’t take my word for, here is a quote:

Conrad said he would agree to raise the debt limit for no longer than six months without a more serious effort to reduce future borrowing. And he told reporters that he is recruiting like-minded senators to “send a very clear message that some of us are not going to vote for a long-term extension of the debt limit unless there is a credible plan” to reduce borrowing.

This is not the first time that that Conserva-Dem has tried to hijack the raising of the debt limit ceiling. He was instrumental when we had a 59 seat majority in the Senate for holding up the last round of debt ceiling increase. At the time he rounded up 12 Senators and insisted on the creation of the Simpson Bowels Cat Food Commission as the price for their votes.

What makes me nuts about this whole thing is that it has no basis in economic reality. Yes our debt is high, we have been in the worst economic downturn (major recession plus an anemic recovery) that the nation has seen in 80 years, pretty much the life time of the majority of the nation, this tends to lead to higher debt.
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