To most people, international finance is as exciting as a snail race. Let me explain why you should get interested.
First, the planet is essentially one big economy. When we traded among a few small tribes, humans could suffer or prosper separately. Prosperity or lack of it in one region had little bearing on those who lived elsewhere, especially if it was far away. Now, a sneeze in Fiji leads to a cold in Norway.
Second, a band of inebriated simians runs the show. They figured out how to make fake bananas and use them for currency to their benefit and the detriment of everyone else. Europe is now engaged in a cluster-juggle trying to see which country’s goodies hit the floor first.
Greece’s elections on Sunday will answer the question of what happens when enough people in a democracy can vote themselves benefits. And the markets know it. Spain is right up there behind, trying to shore up its banking system with hard-to-come-by money through bond sales. The UK has taken extraordinary measures to shield itself from the contagion, even though it is not a member of the European Union. Note their strategy (from the linked article):
Chancellor of the Exchequer George Osborne and Bank of England Gov. Mervyn King announced plans to flood banks with cheap funds in an attempt to jump-start lending to British households and businesses and to fend off potential financial problems at big U.K. lenders.
Monday may prove to be, ahem, interesting.
This may well be the end game as some people in Greece know already. They are withdrawing funds from Greek banks in droves and either hiding it or moving it to other countries within the EU or elsewhere. Why no pictures in the media? Because bank runs these days are electronic–no lines outside banks like the good old days. If Greece elects the socialists, as is expected, there is a good chance that the austerity-filled terms of the bailout negotiated a few months ago will be rejected in favor of new negotiations. If the rest of EU member countries remain firm, expect Greece to exit the Euro.
Would that be so bad? Well, yes, considering that the drachma would replace the euro, driving up prices in Greece dramatically. Not to mention the turmoil that would arise as Greece tries to negotiate with its lenders, adjust to a lower living standard, and allocate scarce resources like health care and power through rationing. The impact on the rest of the EU would also be damaging as Europe tries to sort out its already woeful financial problems.
All this is a result of believing all is well as a body of voters comes to think of government as an endless supplier of goods and services. We are doing that in the US as well. If Obama is elected, we will have given a resounding affirmation to the gutless policy of solving our problems through legislation and regulation. Seeing Greece look over the edge of the cliff, we will be like curious and foolish teens who just can’t resist taking a peek to see what is at the bottom.
The bottom, of course, is complete mayhem. Pundits are fond of saying that a Greek exit from the EU would lead to a “prolonged recession.” Horsefeathers. It is more likely to set the dominoes to tumbling toward a complete global financial meltdown. European socialism is not just dead–the corpse is rotten and bloated. It is spreading disease and must be burned like the bodies of plague victims.
We can learn from all this, but will we? I doubt it. Already, the UK is prepping to loose a flood of cheap (read “created out of thin air”) currency. It is the only solution the monkeys running the zoo have left. Look for the US to face a similar decision. Soon. When push comes to shove, the crony capitalist bankers and their governmental bedmates will release a tidal wave of fiat money–enough to make it all OK. Of course, it won’t be OK, or even close. At some point, no one knows precisely when, it all will come tumbling down. We can watch Greece and learn or traipse along as if it couldn’t happen here. It can and it will, unless we wise up fast.