Greek Drama

Europe’s European Central Bank President Trichet spoke out against offering low- interest loans for Greece…The Greek crisis is getting serious. What started as a problem with the fiscal credibility of one euro-zone state has exposed political fault lines running through the currency bloc. Constructive ambiguity, whereby markets were placated with the belief that unspecified help could be provided to Greece, has given way to confusion. With politicians becoming increasingly entrenched on either side of the Greece-Germany divide, the risks are rising that Greece becomes a big problem for the global financial system.

Trichet’s demand for stringent terms and German Chancellor Merkel´s push for sanctions against nations that breach deficit limits heightened the chance that Greece will leave a March 25-26 summit empty-handed. That could force Greece to turn to the IMF.

And from John Maulding´s Outside  the box  :

“Hans-Werner Sinn’s remarks are apparently listened to as closely as are the Federal Reserve Chairman’s remarks in the US. He said:

• The Greek drama will have a ‘frightful’ (’schreklich’) ending no matter which course of action is taken. The objective is to avoid having a Greek default trigger another banking crisis across the EU.
• The EU member states are too financially fragile to take on any flaky Greek debt. The actual Greek deficit is running at 16% of GDP, not 12% as previously reported. Greece is in a deepening retraction, not a recovery, as previously claimed. [Germany's social security, welfare, unemployment, and health care entitlement programs are all running cash-negative or soon will be, but that is another subject entirely. Angela Merkel has a committee established to work on tax reform, meaning tax rate reductions - Steve].
• There are three bad alternatives. He recommends #3 (effectively, default):
  1. A Franco-German bailout. Dr. Sinn believes this is impractical and the worst of the three alternatives because the amounts required for an effective bailout are so large that it would trigger a jump in yields on French and German sovereign debt which would result in a Euro-wide financial crisis. In addition, Angela Merkel said ‘no,’ and so did Guido Westerwelle (her coalition partner and foreign minister).
  2. IMF loans. Dr. Sinn believes that this would accelerate the Greek economic contraction with a dramatic deflation of wages and prices, which could lead to civil war, revolution and a political destabilization of the area.
  3. Exit the Euro zone, revive the Drachma, re-denominate the sovereign bonds in Drachma, let the Drachma collapse, and rebuild after the collapse, largely on tourist remittances Assuming a small amount of domestic (internal) default, this would be the least-painful to the Greek populace, but German banks and investors would lose approximately $38 Bn in bond investments +/- what can be recovered after the Greek economy recovers. Eventually, Greece would be allowed to re-join the EU.
• Formation of an EU monetary fund is out of the question, he believes, because it requires treaty modifications that might take many years to pass.
• As an aside, he said that if German tax rates are not lowered, that Germany will slide back into recession.”

Difficult decisions ahead for Europe…

Today, we would like to recommend THE EMPATHIC CIVILIZATION by Jeremy Rifkin. We think that he is right in calling : The Third Industrial Revolution. And we quote :

“The great turning points occur when new, more complex energy regimes converge with communications revolutions, fundamentally altering human consciousness in the process. This happened in the late 18th century, when coal and steam power ushered in the industrial age. Print technology was vastly improved and became the medium to organise myriad new activities. It also changed the wiring of the human brain, leading to a great shift from theological to ideological consciousness. Enlightenment philosophers – with some exceptions – peered into the psyche and saw a rational creature obsessed with autonomy and driven by the desire to acquire property and wealth.”

“Today, we are on the verge of another seismic shift. Distributed information and communication technologies are converging with distributed renewable energies, creating the infrastructure for a third industrial revolution. Over the next 40 years, millions of buildings will be overhauled to collect the surrounding renewable energies. These energies will be stored in the form of hydrogen and any surplus electricity will be shared over continental inter-grids managed by internet technologies. People will generate their own energy, just as they now create their own information and, as with information, share it with millions of others.”

“This communications revolution will, like its predecessor, change the way we think. We are in the early stages of a transformation from ideological consciousness to biosphere consciousness. Scientists and the public are realising that all life is deeply interdependent. The very way we live leaves a carbon footprint, affecting every other human, our fellow creatures and the earth we cohabit.”

As William Strauss and Neil Howe say in The Fourth Turning  : ” the fourth turnings have provided the great pivot points for  Anglo-American legacy”.

We believe that we are in the middle of this turning point and hope as Rifkin explains that we will find prosperity through the Third Industrial Revolution but it won´t be easy !!!

It seems that Mr. Market just cares about GDP numbers but as David Rosenberg says : “If it is about GDP, then all we can say is that even with the latest statistical bounce that has largely reflected State capitalism and inventory adjustment, this measure of economic activity is still, amazingly, 1.7% lower today than it was at the pre-recession peak — despite the mountain of government stimulus.  What is “normal” is that by now — eight quarters after a recession begins and the stimulus follows — real GDP has actually not just surpassed the pre-recession peak but has not so by nearly 5%.”

Source: Clusterstock – Chart of the Day, March 11, 2010.

As we can see in the chart above there are some indicators that do not believe the strenght of the GDP…

Maybe other economic measures like :

• More than five million homes are behind on their mortgage.

• There are over six million Americans who have been unemployed for at least six months, a record 40% of the ranks of the joblessness.

• The private capital stock is growing at is slowest rate in nearly two decades.

• Roughly 30% of manufacturing capacity is sitting idle.

• Nearly 19 million residential housing units or about 15% of the stock is vacant. • One in six Americans are either unemployed or underemployed.

• Commercial real estate values are down 30% over the past year.

• The average American worker has seen his/her level of wealth plunge $100,000 over the last two years even with the recovery in equity markets this past year.

• Bank credit is contracting at an unprecedented 15% annual rate so far this year as lenders sit on a record $1.3 trillion of cash.

• Unit labour costs are down an unprecedented 4.7% over the past year and what has replenished household coffers has been the federal government as transfer payments from Uncle Sam now make up a record 18% of personal income.

can bring some more light to where we are…