What is happening in Greece is the result of socialism playing out in the city square. But you won't know that by reading papers or watching TV.
Greece has enacted entitlements which assure the citizens a royal life just because they are born in Greece. For example everybody gets pension. Everybody, means everybody. At the age of 57, you as a private or self employed person retire with full State pension. But there is another catch. If you work in a hazardous profession, you can retire with full pension at the age of 50. There are about 450 professions classified as hazardous. One of them is hairdresser. Yep, you read that right, in Greece, hairdresser is a hazardous profession.
So if you are a hairdresser, you can retire with full state pension at the age of 50.
All other entitlements- healthcare, education, unemployment benefits, housing, etc., of course are there. With these securities in place, Greeks did what all other Europeans have done: They stopped having babies. If government is there to take care of you from cradle to grave, why go to the trouble of maintaining families and having babies? Its fertility rate is just 1.41. (World Bank in fact put the figure at 1.29 in 2013.) So there are not enough Greek nephews to take care of the old age pensions and medical care of Greek uncles. Greeks are discovering the hard way two inescapable facts of life:
1. government doesn't have infinite money.
2. Government has no money of its own.
If there are no taxpayers around, government earns nothing.
But Greek uncles say,"We don't give a damn. We don't care how you arrange the money. Just keep our Welfare cheques coming. Otherwise we will burn down our own cities." The dispute right now is that Greeks want their entitlements to continue, to be paid by the rest of Europe, whereas rest of Europeans are not ready to pick up the tab. How cruel of them, those Europeans. They all profess to be socialists but are not ready to take care their poor brethren in Greece.
What is happening in Greece, and in the rest of Europe as well, is that the latest avatar of Socialism-the Welfare State- has also bombed big time. Socialists through their control of media may put any spin to it, but the fact is that their latest project of collectivising only incomes (and not means of production or property) has also ended up destroying some of the richest and most advanced countries on the planet- the Welfare States of Europe. Another issue with Greece is their excessive borrowing from market, which they fail to disclose at the time of their application for joining EU. This means that only way they can survive is by keep borrowing to repay another borrowing. If it gets into crisis, which is likely, tourism wd take a big hit. Their economy was on low wages good sea connectivity which was the reason why EU got them interested but over years they messed it up throughly. They still want to live in aristocratic ways even when they have no money to eat. Sad state of affairs. It will affect some of the nearby countries as there banks are owned by Greece based persons or Greece based banks. It will h
ave ripple effect in coming days.
*****
I was so confused as to why Greece is upsetting the world's Stock markets till I read this:
MARY is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar – she will go broke.
To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.
She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around about Mary's 'drink now, pay later' marketing strategy and, as a result, increasing numbers of customers flood into Mary's bar.
Soon she has the largest sales volume for any bar in Dublin — all is starting to look rosy.
By providing her customers freedom from immediate payment demands Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.
Consequently, Mary's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary's borrowing limit.
He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.
At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into Drinkbonds and Alkibonds. These securities are then bundled and traded on international security markets.
The new investors don't really understand that the securities being sold to them as 'AAA' secured bonds are really the debts of unemployed alcoholics. They have had a 'rating house' certify they are of good quality.
Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.
One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary's bar. He so informs Mary.
Mary then demands payment from her alcoholic patrons, but, being unemployed alcoholics, they cannot pay back their drinking debts.
Since Mary cannot fulfil her loan obligations she is forced into bankruptcy. So she now is broke.
The bar closes and the 11 employees lose their jobs.
Overnight, Drinkbonds and Alkibonds drop in price by 90%.
The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Mary's bar had granted her generous payment extensions and had invested their firms' pension funds in the various Bond securities. They find they are now faced with having to write-off her bad debt and with losing over 90% of the presumed value of the bonds.
Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations. Her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro, no-stringsattached cash infusion from their cronies in government.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary's bar.
Now, do you understand economics in 2015?
No comments:
Post a Comment