Jun 142012
 
 June 14, 2012  Posted by at 7:16 pm Finance

Round 2 of elections in Greece are coming up this weekend, and all of the media spin machines are working in hyperdrive to make sure that A) the elections DON’T go according to plan, i.e. the anti-memorandum Syriza party doesn’t take down as many votes as the stark stench of uncertainty, uneasiness and anger permeating throughout the country implies that it would (forget the polls), and B) if Syriza does win and Greece is forced out, the rest of the EZ periphery is convinced that it would be unwise to follow the same path.

An article in the Telegraph by Jonathan Gilbert, published yesterday, is an excellent example of this type of media propaganda in its most potent form. Just take a look at this headline:

The cost of default – rioting, sieges and death

Why is that the cost, you ask? Gilbert answers by referring to the Argentinian default of 2001. But before we get to that, I want you to take a look at the conclusion of the article:

The Kirchnerist model, which has seen Argentina grow by around 8pc a year since Néstor Kirchner came to power in 2003, benefited strongly from the devaluation of the peso, which encouraged exports, especially of soy, and a fiscal surplus.

 

“Argentina’s economic success since the crisis is based on the default and its fiscal balance,” says Dr Blejer. “A partial default isn’t enough to solve Greece’s problems. It needs to be total.”

That’s not exactly the conclusion you would expect from the headline, is it? Well, it is really the only conclusion that can be reached at this point, but if you stick it in at the very end, most readers aren’t going to take that message away from the article. Instead, they will just see the BIG, BOLD headline, perhaps skim through the article really quick-like, and take away the following – Default = BAD, No Default = GOOD.

Yet, we should all remember that default is only a “bad” outcome for the Greek people right now because it has been put off for much too long. Their economy and society have been strip mined by the Eurocrats and the bankers to keep an inherently unsustainable situation profitable for the minority elites, and to buy time for those same people. The banking system, the pension system, the healthcare system, the civil service system, the legal system, the political system… you name it – all of them range from completely broken to highly dysfunctional, and that’s BEFORE a hard default on external debts.

That is the cost of denying reality for so long, and it is the same cost that was bore by the Argentinian people:

De la Rúa had declared a ‘state of siege’ after thousands marched throughout Argentina banging pots and pans – in what is now termed the cacerolazo.

 

The social unrest triggered further political turmoil: four presidents held office in 10 days after De la Rúa’s resignation. Following an emergency session at Congress, Eduardo Duhalde was sworn in on January 2, 2002, providing some stability.

 

This was the fallout from the collapse of Argentine economy, which led the South American nation to default on $100bn (£64bn) of debt – the biggest sovereign default in history until Greece’s partial restructuring three months ago.

 

Together with the default, Duhalde brought an end to the ‘convertibility’ system of the previous decade, which had tied the Argentine peso to the US dollar. The peso was subsequently floated, leading to its rapid devaluation.

 

Convertibility had been the response by former economy minister Domingo Cavallo to Argentina’s hyperinflation of the 1980s, which peaked at 5,000pc in 1989.

 

It meant the central bank would have to keep enough dollars in reserve to match the value of pesos in circulation, forcing the government into a strict monetary policy.

 

From 1991 to 1998, the economy grew at an average of 6pc a year with almost no inflation – just 0.2pc in 1996 – but the currency peg was “completely unstable”, Leandro Bullor, an economist at the University of Buenos Aires, said.

 

As the dollar strengthened and Argentina allowed up to a third of its reserves to be held in the form of bonds, the peg strained. Government debt rose and the fiscal deficit widened.

 

“The government didn’t suitably adjust its fiscal accounts to back up the convertibility system,” Mario Blejer, president of the Central Bank of Argentina in 2002, told The Daily Telegraph.

 

“And when things started to go wrong – after Russia’s default and devaluation in August 1998 – nobody was brave enough to abandon convertibility. There would have been total chaos.”

 

In the aftermath of the Russian crisis, Argentina was borrowing from international markets at progressively unaffordable rates. As its external debt became unsustainable, the government received huge loans from the IMF, including one of $14bn in December 2000.

 

In a mirror of modern day Europe, austerity measures were introduced in an attempt to cut the budget deficit. However on December 1, 2001, after a bank run by savers, Cavallo imposed the corralito – accounts were frozen for 90 days and capital flight was restricted. “The banking crisis was the most difficult thing to handle,” Dr Blejer said.

 

Days later, the IMF pulled out of a planned rescue package to replenish foreign exchange reserves.

 

The default that followed led to a huge debt restructuring and Argentina was shut out of international financial markets. It still is today. There remain debts to settle. Members of the Paris Club are still owed $7bn while creditors that held out and ‘vulture’ funds have taken their cases to the World Bank.

If there are any parallels worth noting between Argentina in the late 90’s-2001 and Greece right now, it is exactly this one – the longer you put off default, the worse it will be for the country’s population. The politicians and bankers and pundits know that, but they will still pretend that what inevitably ensues in Greece is a result of their decision to default and DEFECT from the Eurocratic nightmare. Right now, a “Grexit” is almost guaranteed, so it is all about convincing other peripheral populations that they should not follow in the footsteps of the Greeks.

“SEE, we told you that it was better for Greece to tough it out, follow through on austerity commitments and stay in the Euro… just look at how those poor Greeks are doing now!”

And they will appear to be right, because Greece will be an ugly sight after the default/exit – much uglier than Argentina. Capital controls, trade barriers, emigration restrictions, hyperinflation, malnutrition, starvation, social unrest, police/military crackdowns – it will be a whopping mess. What will the Spanish people think when they see all of this go down? What will they do when the financial contagion FULLY envelops their bond markets and the bankers demand a pound of flesh for bailing themselves out, just like they did in Greece?

We cannot be sure about that, but one can hope that the Portuguese, the Spanish, the Italian and others remember exactly how the Greek people got to this point in the first place – they were coerced into denying reality for far too long.

Home Forums The Cost of Denying Reality

This topic contains 0 replies, has 0 voices, and was last updated by  ashvin 7 years, 9 months ago.

Viewing 7 posts - 1 through 7 (of 7 total)
  • Author
    Posts
  • #8498

    ashvin
    Participant

    Round 2 of elections in Greece are coming up this weekend, and all of the media spin machines are working in hyperdrive to make sure that A) the elect
    [See the full post at: The Cost of Denying Reality]

    #3989

    Alexander Ac
    Member

    Nice one Ash,

    and I would add that Argentina (and Russia in 1998) had its *OWN* sources of oil, which probably helped them to regain economic growth… so I think Greece is fu*ked up even more, if not forever…

    Alex

    #3992

    kito
    Participant

    ash, you failed to mention-what the american people will do? after all, its fair to say that they too have been coerced into denying reality for far too long…………….

    #3993

    Alexander Ac
    Member

    Kito, you mean 40 years? 😉

    Americans are too obese to protest 🙂

    Alex

    #3995

    If there is one thing you could pin down that keeps the Elite in Power here, it’s the fact that everyone is scared to death of the alternative. For good reason, generally the alternative results in a lot of dieing.

    So Greece, Spain, et al go into the IMF ICU as Gomers on Respirators to hang on for just one more week, one more day, one more hour to the Industrial way of life. Reversion to an Agrarian way of life without Oil can’t happen overnight, the conversion the other way took many decades, close to a Century really. The systems which were in place which made that agrarian lifestyle are mostly gone now. How many Horses do you think there are now in Greece to pull wagons and plows anyhow?

    In the meantime in Greece and Spain along with everywhere else, the population EXPLODED courtesy of all the cheap food available from Industrial Ag. Now that the Oil is not so cheap anymore, the food it produces isn’t either, and if nobody will float you a Loan to buy this Food, you get to STARVE.

    So this is the situation the Greeks find themselves in. Sell themselves as Slaves to the Illuminati and hopefully get enough meager rations from the IMF, ESM or STUPID Funds to stay alive a while longer, or Break FREE and take the hit of a significant portion of the population starving to death.

    If you read anything of Ferfal’s Blog on the Argentinian Crisis and have seen any of the photos of encampments of the poor and disenfranchised of Argentina, you should know that all the talk of how Argentina “recovered” ecoomically and experienced “growth” after defaulting is really a crock of shit.

    THIS is the future for Greece, Spain, Italy…and really everywhere else once they get CUT OFF from the lifeblood of Credit necessary to buy what remains of the Oil under the desert sands of Ghanwar.

    So, everyone NOT yet off the Cliff is TERRIFIED, and rightly so. Transisitioning back off the Oil Jones is a very tough thing to do, and mostly not successful without a whole lot of dieing. About the most successful to date seem to be the Cubans, who have managed to survive Embargos and the collapse of their Patron State of the Soviet Union better than most others Cut Off from the credit markets. Still, the Cubans never industrialized that much in the first place, and they are on an Island somewhat removed from the vast geopolitical forces pushing around a land mass like Europe or MENA.

    What to DO for the Greeks? What to do for ANY of us really, because this show is Coming to a Theatre Near You also in due time. it is unfortunately not a soluble problem by conventional means. Time to start thinking Outside the Box.

    RE
    https://www.doomsteaddiner.org

    #3996

    skipbreakfast
    Participant

    Pretty clearly, the media have convinced an awful lot of people that the elections in Greece will mark some grand signal for Europe’s future. But they won’t.

    As I predicted in a comment a month or so ago, this weekend’s election could well see a return of one of the more “mainstream” parties controlling a Greek coalition government. In fact, I’m not convinced that the difference between New Democracy and Syriza is actually all that radical. Certainly, one or the other does not really ensure much radical change for Greece’s future, despite what we’ve been led to believe.

    If Syriza were insisting that their win would mark Greece’s exit from the Euro, then it might be radical, but that has never been what they want. Syriza is not pro-“exit”. It’s pro-Euro and pro-“re-negotiate the bail-out”. Frankly, if Pasok or New Democracy wins, they’ll be trying to tweak the bailout too, if without so much grandstanding.

    So, not unlike the elections in the US between Obama and Romney, I don’t really see the Greek election results really changing the course of Greek history all that much. Golden Dawn notwithstanding, the leading parties are currently not as different from each other as they or the media would have us believe. The Eurozone will not unceremoniously boot Greece out the morning after a Syriza victory. That would be Euro-suicide. Any exit would still have to be managed. Just as Greece’s exist will still be “managed” when and if New Democracy or Pasok wins. Exit will happen in either event, eventually.

    My bet is still on another country leaving the Euro before Greece does, no matter what the election outcome turns out to be. Greece’s election results may only change the timing of the exit by a month this way or that. Meanwhile, markets and the populace will be somehow re-assured that the election results are a good thing for Europe. New Democracy’s win will be seen as a return of order. And even a Syriza win will be positioned as a reluctant push to start re-negotiating the terms of a bailout that everyone now admits was too “heavy-handed”. Talk about extend and pretend!

    #3997

    ashvin
    Participant

    skipbreakfast post=3627 wrote: As I predicted in a comment a month or so ago, this weekend’s election could well see a return of one of the more “mainstream” parties controlling a Greek coalition government. In fact, I’m not convinced that the difference between New Democracy and Syriza is actually all that radical. Certainly, one or the other does not really ensure much radical change for Greece’s future, despite what we’ve been led to believe.

    If Syriza were insisting that their win would mark Greece’s exit from the Euro, then it might be radical, but that has never been what they want. Syriza is not pro-“exit”. It’s pro-Euro and pro-“re-negotiate the bail-out”. Frankly, if Pasok or New Democracy wins, they’ll be trying to tweak the bailout too, if without so much grandstanding.

    I agree with you that Syriza victory will not mean an immediate exit from the EZ. But what it does mean is that the ECB, IMF, EU and Germany have been made to look like huge fools, getting shoved around by tiny little Greece, and the ball will be back in their possession. It will be their turn on offense, with very unhappy fans (taxpaying populations) in the stands. Those fans will rightly believe that they are not getting what they paid for at all in this game of Greek bailout/austerity ponzi.

    So what will the ECB, EU and Germany do? They really only have two choices in my mind – 1) somehow coerce Syriza into backtracking and going along with most of the austerity commitments previously outlined, or 2) effectively force Greece out of the EZ, cut their losses, and try to make an example out of it, while also setting up contagion “firewalls”. I don’t think the last two things will work out too well for them, but I also don’t think that realization will stop them from trying to do it anyway.

    My bet is still on another country leaving the Euro before Greece does, no matter what the election outcome turns out to be. Greece’s election results may only change the timing of the exit by a month this way or that. Meanwhile, markets and the populace will be somehow re-assured that the election results are a good thing for Europe. New Democracy’s win will be seen as a return of order. And even a Syriza win will be positioned as a reluctant push to start re-negotiating the terms of a bailout that everyone now admits was too “heavy-handed”. Talk about extend and pretend!

    That is certainly a possibility, but unlikely IMO. The Greek economy is so far in the pits right now, I don’t think any symbolic “re-negotiations” will make a difference. If anything, it will just be used as an opportunity for more people to pull their money out of the country and cut off trade/business connections. They are right in the midst of full-fledged debt deflation that is progressing rapidly, with all of the economic and sociopolitical consequences that entails. The only other country that even comes close is Spain, and the Eurocrats will be much more obsessed with keeping it in the EZ rather than Greece. They can either extend or pretend right now, but not really both. Extend Greek’s lifeline, and give the various stakeholders a little more time to GTFO and mitigate their losses from the inevitable exit, or let Greek default/exit, and pretend it isn’t such a bad thing for the rest of the EZ (as long as they stick together).

Viewing 7 posts - 1 through 7 (of 7 total)

You must be logged in to reply to this topic.