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Subject: I have solved the Greek debt crisis! rss

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As you can see, world markets react very dramatically to news from Greece.

So what they should do is 1) take long positions 2) release good news 3) take short positions 4) release bad news 5) take long positions and so on

Eventually, they'll have enough to pay off everyone, and we can all move on.
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Jasper
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Mondainai wrote:
As you can see, world markets react very dramatically to news from Greece.

So what they should do is 1) take long positions 2) release good news 3) take short positions 4) release bad news 5) take long positions and so on

Eventually, they'll have enough to pay off everyone, and we can all move on.
That makes sense, and explains a lot of Merkozy's behaviour the last few months.

The planned Greek referendum might throw a spanner in the works tough?

Where do you stand on this as an economist Harald? Is the troika right to foist even more austerity on the Greeks or does that stifle any chance of an economic recovery?
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No, the Greek referendum would be according to plan.

1) Greece invests in short positions (through some unscrupulous associate, Soros or such)

2) call a referendum

3) sell their short positions, buy index funds

4) call off the referendum, stock markets recover, sell index funds

5) invest in short positions, release new bad news

and so on

As a translator, I've had the luxury not to think about this But I'd say that a middle-road is best: Of course they should pay, lower salaries and benefits and increase taxes. The recovery should be led by exports to other EU countries aided by the new lower price level, just like us smart people who don't have your banana currency are aided by our currencies depreciating. You need a balancing mechanism; you need to be able to force down salaries, or you need to leave the euro. They do what they feel is the best of those two. The referendum should be about 1) lower our living standards dramatically or 2) leave the euro

At the same time (yes, I wrote middle-road), canceling some of the debt also makes sense. After all, Greece is paying much more interest on their loans than other countries, precisely for this reason. Investors have been rewarded for this extra risk. What annoys the hl out of me with global capitalism the way it often works out is that investors take risky positions, make fortunes that way, and then when some of those horses don't win their races, they make someone else pay for it.

So I guess Merkozy are playing it right here.
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How do you know that leaving the euro (option 2) will not still cause lowering living standards (option 1)? Becuase as I understand it, it almost certainly will.

Edit: also, how is depreciating their currency constitue a long term improvement? Because they did that a lot before joining the Euro, and what it got them is a deeply uncompetative economy.
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Yes, leaving the euro would also cause a drop in living standards, albeit by other mechanisms. Debt would rise with depreciation, and imports would get more expensive, forcing people to consume more domestically and less overall. But it'd be a lowering of living standards that would not be mandated by easily identifiable (and "protestable") political decisions.

A lower currency would increase long term growth prospects by helping exports, which would pull money in, in a commercially sound way, money to be invested in those industries that works. Of course, industries also need to import some inputs, but the net effect is positive.

There are many problems in Greece today. The obvious one is the corrupt and lax government, which has troubles keeping expenses low and raising tax revenue. But a very basic problem is that living standards are higher than productivity is, which is unsustainable. It's true that many (IMF-led) austerity packages in the past have been deeply flawed and in many cases destructive, but nevertheless, the government needs to save money, and the population needs to earn less; they need to earn at par with the country's productivity.
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Mondainai wrote:
A lower currency would increase long term growth prospects by helping exports, which would pull money in, in a commercially sound way, money to be invested in those industries that works. Of course, industries also need to import some inputs, but the net effect is positive.
So why did that not happen before, when they did devaluate their currency?
Or asked in another way, what is, in your opnion, the core cause of the uncompetative state of the Greek economy PRIOR to entry in the Eurozone? I agree with your assesment of the Greek government, but ifthat is the cause, how will devaluing the Drachme again have any long term beneficial effects? It would remove the pressure on the gov. to act towards changem as you hint at yourself.

Also: how is your arm?
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I don't know anything about the economic history of Greece, so it's hard to answer "why didn't the weak currency help?". Maybe it did, maybe things would have been worse if the currency was pegged to the D-mark throughout the decades.

To answer your other question, I can just guess that Greece started from a low position, having been plundered by its dictators and stuff.

And my arm is fine now, since a week or so
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Comparing with Latvia would have been more apt as they had a similar situation to Greece a few years back, and got themselves out of it. Partly by producing Texas Nukem and 2010 Swedish Parliament. I wonder what quotes I would have got from Greece for producing those games?
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Jasper
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Mondainai wrote:
I don't know anything about the economic history of Greece, so it's hard to answer "why didn't the weak currency help?". Maybe it did, maybe things would have been worse if the currency was pegged to the D-mark throughout the decades.

To answer your other question, I can just guess that Greece started from a low position, having been plundered by its dictators and stuff.

And my arm is fine now, since a week or so
Good to know (about the arm), but for Greece, what do you base the claim on that deflation IS a proper long term solution? Is this accepted macro-economic theory?
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Venga2 wrote:
Good to know (about the arm), but for Greece, what do you base the claim on that deflation IS a proper long term solution? Is this accepted macro-economic theory?
I think you mean depreciation. And I'm not sure depreciation is a good long-term solution, but having flexibility is - every economy needs slow changes in demand and supply to adjust properly, and that's what depreciating and appreciating exchange rates help with. And when you don't have the currency adjustment, you need salary-and-price-level-adjustment, and obviously that's not really working in Greece. (Or Ireland, or Portugal.) But I hope it will.
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Ed Bradley
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The "problem" is that if any eurozone country does default then we have Credit Crunch Part 2 and the whole contagion risk/toxicity/domino crash of the world's financial sytem. Again.

That's the only reason there has been so much hoop-jumping over all this. If someone lights the Credit Default Swap Derivative touchpaper, things be fucked.

(Bring it on, I say).
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Bojan Ramadanovic
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Fwing wrote:
The "problem" is that if any eurozone country does default then we have Credit Crunch Part 2 and the whole contagion risk/toxicity/domino crash of the world's financial sytem. Again.

That's the only reason there has been so much hoop-jumping over all this. If someone lights the Credit Default Swap Derivative touchpaper, things be fucked.

(Bring it on, I say).


My humble proposal for the financial industry world-wide is that risk has to be risky and the CDSs must be something other then the free money for the issuers.

I think governments underestimated the danger of the moral hazard in the post-Lehman bailout and that banks (European ones this time) are shamelessly exploiting the fact with regard to Greece.

Greece has to default - even current idea of 50% write-off is much too low and would still leave the country with unsustainably high debt. (It also needs to push austerity until it is achieved at the very least primary surplus). This default needs to be recognized as the default and CDS need to trigger. If that bankrupt's some issuers - so be it - lesson needs to be learned about the reliability of gambling on rare but large events.

Failing banks need to be taken into government receiverships with shareholders wiped entirely (but allowed to privately sue the management if they feel that they have been swindled) and bond-holders reimbursed either in asset auction or on mark-to-market basis.

Yes, it is messy, yes it would clog the credit for a year or two, but it is not as if currently credit is flowing very freely either in EU or in USA and at least at the end you would be out of the morass.

Alternative is only more undeserved profits at banks at the expense of the huge and relatively free underwriting by governments and the deserved derision for this pseudo-capitalism on part of the populace.
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Ed Bradley
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Bramadan, I'm just glad you didn't say I was talking bollocks. I'm glad the conclusions I've drawn from all my post-07 economics reading aren't all bunk.

You're still my favourite free-marketeer.
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Referendum! Holy fuckballs, you can't make this stuff up.

They have to default.

Plus side in a year or so a Greek holiday should again be extremely affordable assuming the country hasn't disintegrated into Mad Max style warring factions by then.

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Mondainai wrote:
As you can see, world markets react very dramatically to news from Greece.

So what they should do is 1) take long positions 2) release good news 3) take short positions 4) release bad news 5) take long positions and so on

Eventually, they'll have enough to pay off everyone, and we can all move on.



Yes, yes! Let the tail wag the irrational dog! So far it seems that the tail has been smarter than its master. Majority of Greeks don't want to leave Euro but minority supports the EU plan. They surely know what's in their best interest.
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