4 ms·

I think I openly admitted that the way the Greek government was spending money was terrible. Yes, I agree with you. The Greek economy was a joke and it definite

by lyudmil 15y ago

I think I openly admitted that the way the Greek government was spending money was terrible. Yes, I agree with you. The Greek economy was a joke and it definitely needs to change, but let's talk about the situation as of the initial collapse. The fact was (and remains now) that they need(ed) money just to keep afloat. The CEB could have put any provision it wanted on the money lent. They chose to force the Greeks to cut spending. My argument, informed by what I've read on the topic, would be that it would have been better for them to force the Greeks to spend the money as a stimulus, making the sort of investments that you talk about. Instead, the CEB likely worsened an already pretty dire situation. I think you'll agree that the interesting part of this argument isn't Greece at all, but the case study Greece is becoming. It's clear more austerity measures are coming in more European countries and the US. I think it's a bad idea and I'm curious to find out what this community thinks.

yaakov34 15y ago
Suppose you have a friend who screws up and gets fired from menial jobs, spends his money on booze and gambling, and ends up in heavy debt. Now you want to help him out, so you can do one of two things: 1. I'll lend you the money if you get a steady minimum wage job and cut off the spending. 2. Look, I believe in you. I'll lend you a whole bunch of money so that you can go to college, retrain, get a much better job, and then repay me with plenty left over for yourself. Now I understand that (2.) sounds much better than (1.), but it's just not realistic. He will waste the money again, because he knows he didn't earn it. You have to be tough and force him to get his house in order. Then he can save and borrow to retrain. If Greece is spending its own money on infrastructure and investments, there is at least a chance it will be spent well. If it's spending other people's money - no chance at all. EDIT: I didn't mean this to sound like I am calling Greeks in general wastrels and boozers. It's more about how other people's money tends to get spent. See the message below.
- waterlesscloud 15y ago
  What if you've been lending the money to him that he's spent on booze and gambling? And what if you're very well paid to make good decisions about lending money? Shouldn't you then be forced to take a very serious, if not complete, loss on the money you lent to him? It's your own fault you lent it to a wastrel. Why should you be bailed out, exactly?
  - yaakov34 15y ago
    You make a good point, and if it wasn't for the panic that's been gripping everyone for the last 3 years any time there is any kind of talk of bad debt, I'd say "stand back and let whoever lent money to them do due diligence next time." Get it over with, get the bad paper out of the system. It's not enough money to cause collapse, it's a small fraction of, say, the US housing crisis. The problem is that the panics in the market make this into a very expensive proposition.
  - stayjin 15y ago
    Exactly. I will put a little more PF (political fiction) to make it a little bit more interesting: How about if your "friend" is a drinker and gambler, but happens to have a big fortune, say islands, nature, ancient temples. So you find his girlfriend and start lending her drinking money out of your heart's "goodness" without managing your loan when it is small, just let it grow... Of course your friend gets drinking money and thanks his lucky stars and all his friends for lending him just to have the pleasure of his charm.... Of course you politely ask him to spend half of that money to buy submarines and fighter aircrafts from your shop. Then one day you go and tell him, "you know your debt is so big, me and everybody else were so surprised by the size of your debt, and really you have been only drinking and womanizing, haven't you... So we decided we will not lend you anymore. From now on you are not allowed to drink, but neither to eat, unless of course you sell to us your telecommunication industry at the amount of the next round of drinks, so what do you say?" It works like a charm, your friend starts getting depressed, and gives in... But then maybe he says, "Look I am grateful for all these drinks and all but you can't in your good sense expect me to sell my property so cheaply just because you were giving gifts to my girlfriend right. I will stop drinking, please stop giving gifts to my girlfriend and wait for a while I will give them back to you. Also I noticed you borrow money for 1% and you lend it to me for 5.2%, that is too much for "friends" isn't it, please be a sport and let me repay it to you with 1.5%." What then? [EDIT] Disclaimer, I am Greek, I have no illusions about the management abilities of my country (sometimes I think we are born without the part of brain responsible for financial planning ;-), but I have strong opinions about the economy of debt, the way it is manipulated by the "market" and it's implications on the life of people. My opinion is biased, of course.
- v21 15y ago
  I'm not sure the usual analogy between household and nation's spending is useful. Countries work in fundamentally different ways from people.
  - rdtsc 15y ago
    Ok, but what doesn't work? It seems kind of reasonable to use such analogies. Most people would understand how transactions work between themselves and others, just from experience, but view of us here were in government, in position to borrows, spend and repay back from another government. It seems that basic things like "you need to pay back money we lent you" are still the same? Sure details are different, well, I don't know how different, that is why I am asking ...
    - quanticle 15y ago
      A household is an open system. It is possible for a household to increase its net revenue without incurring costs. For example, if I get a new job with higher pay, the amount of money in my household has increased. Countries (even countries in economically integrated Europe) are closed systems. Increasing the revenue to one sector results in losses to another. In this case, the Greek government can increase its revenue by increasing enforcement and raising the tax rate. However, that results in a cost to the private sector. People paying more in taxes have less to spend on other things, which lower economic activity and lengthens the recession. As an aside, this is why I get very irritated when politicians use household/business analogies to model national economies. The two are different in kind, not just in size, and trying to compare an open system to a closed system leads to serious errors of judgement.
      - prewett 15y ago
        I don't think countries are closed systems, since they interact with the rest of the world. Countries can increase revenues without increasing costs. Suppose a country figures out how to get fusion to work: decreases electricity cost, increases revenues from sales of fusion plants. Or they talk to other countries about how to grow more/better crops; assuming they weren't at 1st world yields, there are many things that are cheap to implement that produce more money.
- lyudmil 15y ago
  It would take too much work to transform your hypothesis into something analogous to what's happening with Greece, so I'll just point out the major leak in the abstraction. In your example my friend and I are two economically independent entities. Yes, I care about him on an emotional level, but not lending him money will not affect my income. This isn't so when you talk about Greece and the EU. Also, as any developed economy, Greece has a large economic capacity - it has advanced industry, technology, tourism, education, etc. In short, it has a lot of assets, so lending money to it would be more like lending money to my gambling friend who just happens to be an immortal Stu Ungar - yes, he's wildly dysfunctional, but the potential ROI is almost always worth it.
  - yaakov34 15y ago
    OK, and I think I was exaggerating and being unfair to the Greeks - they are not gambling drunks, although I am annoyed at many of them throwing a tantrum because they have to repay money that was spent by their government in their country, and not in some foreign adventure. The main point I was trying to make, though, is that other people's money doesn't get spent efficiently. I've been involved in some EU-financed programs, and the productivity of those compared to private sector or even regular government contracts is in the pits. Taxpayer money doesn't always get spent efficiently, either, but at least there is some kind of accountability of the government to the citizens. The idea that Greece would take money that comes from other countries, and spend it on these really great stimulus programs, doesn't pass the skepticism barrier for me.
    - lyudmil 15y ago
      Point taken. I agree that there is a lot of waste of EU funds. I could tell you stories about my native Bulgaria that would surely make you very angry. I still think this is a separate problem. I think right now it would be more efficient to stimulate the Greek economy than it would be to just bail it out with austerity provisions. The analogy would be to finance your friend to go to school for a year or two and earn a degree to get a better job and pay you back - he wins (gets money in both the short and long-term) and you win (get your money back and a functional friend).
michaelcampbell 15y ago
> No one argues that the Greek economy was in good shape. ... > The Greek economy was a joke and it definitely needs to change... Which is it?
- lyudmil 15y ago
  The first sentence could either be parsed two ways which yield opposite meanings or is grammatically incorrect. I can't decide which, but in any case you have a point. The first sentence was supposed to mean that the Greek economy was in bad shape and everyone knew.
  - starwed 15y ago
    To argue a point means to advocate for it. Your statement was unambiguous, and meant what you meant it to.
    - michaelcampbell 15y ago
      To you, perhaps. Not to all. Which makes it not unambiguous.
    - michaelcampbell 15y ago
      I apologize. After re-reading, I see you are correct. Pardon my earlier post(s) on the matter.
dia80 15y ago
Greece has huge international debts due now. If these new loans were used as a stimulus instead of debt repayment they would default now and escalate the crisis the lenders are trying to contain. If you managed your house well in the good times then large deficit spending is an option in the bad times. However if you end the good times with debt at 100%+ of GDP you have no options.

by lyudmil 15y ago

yaakov34 15y ago

Suppose you have a friend who screws up and gets fired from menial jobs, spends his money on booze and gambling, and ends up in heavy debt. Now you want to help him out, so you can do one of two things: 1. I'll lend you the money if you get a steady minimum wage job and cut off the spending. 2. Look, I believe in you. I'll lend you a whole bunch of money so that you can go to college, retrain, get a much better job, and then repay me with plenty left over for yourself. Now I understand that (2.) sounds much better than (1.), but it's just not realistic. He will waste the money again, because he knows he didn't earn it. You have to be tough and force him to get his house in order. Then he can save and borrow to retrain. If Greece is spending its own money on infrastructure and investments, there is at least a chance it will be spent well. If it's spending other people's money - no chance at all. EDIT: I didn't mean this to sound like I am calling Greeks in general wastrels and boozers. It's more about how other people's money tends to get spent. See the message below.

waterlesscloud 15y ago
What if you've been lending the money to him that he's spent on booze and gambling? And what if you're very well paid to make good decisions about lending money? Shouldn't you then be forced to take a very serious, if not complete, loss on the money you lent to him? It's your own fault you lent it to a wastrel. Why should you be bailed out, exactly?
- yaakov34 15y ago
  You make a good point, and if it wasn't for the panic that's been gripping everyone for the last 3 years any time there is any kind of talk of bad debt, I'd say "stand back and let whoever lent money to them do due diligence next time." Get it over with, get the bad paper out of the system. It's not enough money to cause collapse, it's a small fraction of, say, the US housing crisis. The problem is that the panics in the market make this into a very expensive proposition.
- stayjin 15y ago
  Exactly. I will put a little more PF (political fiction) to make it a little bit more interesting: How about if your "friend" is a drinker and gambler, but happens to have a big fortune, say islands, nature, ancient temples. So you find his girlfriend and start lending her drinking money out of your heart's "goodness" without managing your loan when it is small, just let it grow... Of course your friend gets drinking money and thanks his lucky stars and all his friends for lending him just to have the pleasure of his charm.... Of course you politely ask him to spend half of that money to buy submarines and fighter aircrafts from your shop. Then one day you go and tell him, "you know your debt is so big, me and everybody else were so surprised by the size of your debt, and really you have been only drinking and womanizing, haven't you... So we decided we will not lend you anymore. From now on you are not allowed to drink, but neither to eat, unless of course you sell to us your telecommunication industry at the amount of the next round of drinks, so what do you say?" It works like a charm, your friend starts getting depressed, and gives in... But then maybe he says, "Look I am grateful for all these drinks and all but you can't in your good sense expect me to sell my property so cheaply just because you were giving gifts to my girlfriend right. I will stop drinking, please stop giving gifts to my girlfriend and wait for a while I will give them back to you. Also I noticed you borrow money for 1% and you lend it to me for 5.2%, that is too much for "friends" isn't it, please be a sport and let me repay it to you with 1.5%." What then? [EDIT] Disclaimer, I am Greek, I have no illusions about the management abilities of my country (sometimes I think we are born without the part of brain responsible for financial planning ;-), but I have strong opinions about the economy of debt, the way it is manipulated by the "market" and it's implications on the life of people. My opinion is biased, of course.
v21 15y ago
I'm not sure the usual analogy between household and nation's spending is useful. Countries work in fundamentally different ways from people.
- rdtsc 15y ago
  Ok, but what doesn't work? It seems kind of reasonable to use such analogies. Most people would understand how transactions work between themselves and others, just from experience, but view of us here were in government, in position to borrows, spend and repay back from another government. It seems that basic things like "you need to pay back money we lent you" are still the same? Sure details are different, well, I don't know how different, that is why I am asking ...
  - quanticle 15y ago
    A household is an open system. It is possible for a household to increase its net revenue without incurring costs. For example, if I get a new job with higher pay, the amount of money in my household has increased. Countries (even countries in economically integrated Europe) are closed systems. Increasing the revenue to one sector results in losses to another. In this case, the Greek government can increase its revenue by increasing enforcement and raising the tax rate. However, that results in a cost to the private sector. People paying more in taxes have less to spend on other things, which lower economic activity and lengthens the recession. As an aside, this is why I get very irritated when politicians use household/business analogies to model national economies. The two are different in kind, not just in size, and trying to compare an open system to a closed system leads to serious errors of judgement.
    - prewett 15y ago
      I don't think countries are closed systems, since they interact with the rest of the world. Countries can increase revenues without increasing costs. Suppose a country figures out how to get fusion to work: decreases electricity cost, increases revenues from sales of fusion plants. Or they talk to other countries about how to grow more/better crops; assuming they weren't at 1st world yields, there are many things that are cheap to implement that produce more money.
lyudmil 15y ago
It would take too much work to transform your hypothesis into something analogous to what's happening with Greece, so I'll just point out the major leak in the abstraction. In your example my friend and I are two economically independent entities. Yes, I care about him on an emotional level, but not lending him money will not affect my income. This isn't so when you talk about Greece and the EU. Also, as any developed economy, Greece has a large economic capacity - it has advanced industry, technology, tourism, education, etc. In short, it has a lot of assets, so lending money to it would be more like lending money to my gambling friend who just happens to be an immortal Stu Ungar - yes, he's wildly dysfunctional, but the potential ROI is almost always worth it.
- yaakov34 15y ago
  OK, and I think I was exaggerating and being unfair to the Greeks - they are not gambling drunks, although I am annoyed at many of them throwing a tantrum because they have to repay money that was spent by their government in their country, and not in some foreign adventure. The main point I was trying to make, though, is that other people's money doesn't get spent efficiently. I've been involved in some EU-financed programs, and the productivity of those compared to private sector or even regular government contracts is in the pits. Taxpayer money doesn't always get spent efficiently, either, but at least there is some kind of accountability of the government to the citizens. The idea that Greece would take money that comes from other countries, and spend it on these really great stimulus programs, doesn't pass the skepticism barrier for me.
  - lyudmil 15y ago
    Point taken. I agree that there is a lot of waste of EU funds. I could tell you stories about my native Bulgaria that would surely make you very angry. I still think this is a separate problem. I think right now it would be more efficient to stimulate the Greek economy than it would be to just bail it out with austerity provisions. The analogy would be to finance your friend to go to school for a year or two and earn a degree to get a better job and pay you back - he wins (gets money in both the short and long-term) and you win (get your money back and a functional friend).

michaelcampbell 15y ago

> No one argues that the Greek economy was in good shape. ... > The Greek economy was a joke and it definitely needs to change... Which is it?

lyudmil 15y ago
The first sentence could either be parsed two ways which yield opposite meanings or is grammatically incorrect. I can't decide which, but in any case you have a point. The first sentence was supposed to mean that the Greek economy was in bad shape and everyone knew.
- starwed 15y ago
  To argue a point means to advocate for it. Your statement was unambiguous, and meant what you meant it to.
  - michaelcampbell 15y ago
    To you, perhaps. Not to all. Which makes it not unambiguous.
  - michaelcampbell 15y ago
    I apologize. After re-reading, I see you are correct. Pardon my earlier post(s) on the matter.

dia80 15y ago

Greece has huge international debts due now. If these new loans were used as a stimulus instead of debt repayment they would default now and escalate the crisis the lenders are trying to contain. If you managed your house well in the good times then large deficit spending is an option in the bad times. However if you end the good times with debt at 100%+ of GDP you have no options.