Is Greece going to set off the long feared next wave of the Great Recession?

@High Seas,

Thanks, I'll take a look.

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@High Seas,

High Seas wrote:

The German court's decision would only be binding on Germany - not the rest of Europe. I did read the complaint, but unfortunately my eyes glaze over after a few pages of legalese (German legalese in particular!) so I've really no idea how the court will rule. Hope Walter will show up to enlighten us all on that one.

It's really not very simple ... even if I would try to explain it in German Wink

I could imagine that the court ask the European Court for a decission .... because there can be doubts, if this is case, our Constitutional (sic!) Court is the correct court to make a decision.

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@hawkeye10,

I don't think it's so much Greece, but the bailouts from the other Euro countries that will cause havoc. There is no way Greece can pay back those loans, because their primary economy is tourism without much in the way of exports.
Most of their citizens don't pay income tax, and trying to enforce such a long-going problem will not happen over-night. Even if and when they do, it will not be enough to pay for their domestic needs.

The domino effect of the banks holding Greece bonds will suffer, and how that plays out in the future is anyone's guess.

I don't see too much hope, because the options available to Germany and France are small.

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@cicerone imposter,

Quote:

There is no way Greece can pay back those loans,

A point that the global holders of capital continue to bring up, that the EU leaders have so far refused to deal with. the choices as I know them are

1) Germany, the last EU nation with any money, pays

2) those who are owed money by Greece take a haircut, which would be a buzz cut if this was the only solution used

3)Greece leaves the Euro and uses monetary policy to get out of the debt jam

the problems are

1) the Germans refuse, and any German party who agrees to this is toast at election time

2) If even just tiny Greece refuses to pay all EU public debt gets hammered, and problem so do most of the rest o the worlds, driving us into depression for sure

3) the EU builders know that if they do this it will be the beginning of the end of the Euro, and maybe the EU, so they are balking.

Quote:

I don't see too much hope, because the options available to Germany and France are small

I dont see much hope because there is not enough money to go around...the Germans MIGHT be able to save the day by backstopping all EU debt, but they are not going to do this. Once it was clear that the French are out of money we knew this situation was not savageable, as the Germans MIGHT have agreed to pay the EU debts if they had a partner in pain, but they for damn sure are not going to be the one and only bill payer.

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@hawkeye10,

I'm not so sure that Greece "problem" will destroy the world's economy.

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@cicerone imposter,

cicerone imposter wrote:

I'm not so sure that Greece "problem" will destroy the world's economy.

I am not sure either, I am sure that the economy is circling the towlet bowl and there is no saving it, but the trigger remains to be seen.

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@hawkeye10,

What will destroy the world's economy are the governments that spend more than revenue, and make stupid decisions concerning the economy.

The tea party's ability to hold our government hostage on the debt ceiling debacle is one example of stupid governance.

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Perhaps what the Greeks really need is a visit from Krugman and some of the other self-appointed Keynesian savants here, who can tell them how to borrow lots of money and spend it on some shovel ready infrastructure projects. According to them such actions will have no adverse consequences and will surely stimulate the Greek economy to unprecedented heights.

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@georgeob1,

georgeob, It's time to stop trying to compare apples and oranges. The two economies of the US and Greece are not equal in any way shape or form. Please provide evidence that the are somehow equal?

Your analogy stinks!

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@cicerone imposter,

cicerone imposter wrote:

georgeob, It's time to stop trying to compare apples and oranges. The two economies of the US and Greece are not equal in any way shape or form. Please provide evidence that the are somehow equal?

Your analogy stinks!

Both countries are experiencing a severe recession with continuing high levels of unemployment . Both countries are experienceing a lack of investment by domestic and foreign investors and entrepreneurs compared to several years ago. Both countries have very high levels of total and public sector debt relative to GDP and continuing public sector deficits that are proving hard to restrain. Our Federal debt is much lower than that of the Greek government, but if that of state and local governments is included the difference shrinks a great deal.

Of course we're "not equal" (whatever that means). My question relates to the supposedly immutable economic principles of the Keynesian doctrines that are so blithely cited (without proof) to be the needed remedy for us. If a massive (several times that done in 2009) stimulus done on borrowed money is the certsain cure for our problem, why would it not also be the needed cure for the Greeks?

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@georgeob1,

Simply because the Greek economy is in no position to pay back their loans. If Greece had their own currency and bonds, there will be no demand for them.

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@cicerone imposter,

Do you believe that we could float another "stimulus" this time large enough to satisfy Krugman .. say $2.5 trillion ... with new debt and do so without repurcussions in the bond market?

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@georgeob1,

I'm not sure about the amount, but some kind of stim bill that will create jobs is the key to our economy's future.

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@cicerone imposter,

You are just evading the question.

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@georgeob1,

It's because I don't have a direct answer; my answer will have to suffice. Dollar amounts are meaningless without the detail.

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@Walter Hinteler,

Walter Hinteler wrote:

It's really not very simple ... even if I would try to explain it in German

I could imagine that the court ask the European Court for a decission .... because there can be doubts, if this is case, our Constitutional (sic!) Court is the correct court to make a decision.

Please do your best to explain in German, I'll translate - what do you mean, the German constitutional (sorry, is it capitalized in English? didn't think so) court isn't the correct venue? It handles all kinds of other cases (not that I agree with most of them, but never mind that) so why not validity of treaties as signed? Thanks.

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@georgeob1,

No other serious economist agrees with Krugman's ideas (or Romer's, but then the $1 trillion stimulus tarbaby was hers, as were the extensions from the original $787 billion voted by Congress) on any "need" for some new massive government spending program. The world financial system reached criticality in 2008 and the oscillations since then (in and out of criticality) are getting worse - not good news at all, barring drastic action, and nobody wants to go first on that. How you know criticality has been reached, btw, is perceived expected returns on different asset classets become highly correlated (even those who weren't correlated before), stop following normal or lognormal distributions (standard outside of criticality) and suddenly start following power-law distributions. I don't know if criticality in plutonium, as it's reshaped from a torus into a sphere actually follows that distribution but in economics and lots of other disciplines it works.

Quote:

There is evidence that the distributions of a wide variety of physical, biological, and man-made phenomena follow a power law, including the sizes of earthquakes, craters on the moon and of solar flares,[1] the foraging pattern of various species,[2] the sizes of activity patterns of neuronal populations,[3] the frequencies of words in most languages, frequencies of family names, the sizes of power outages and wars,[4] and many other quantities. It also underlies the "80/20 rule" or Pareto distribution governing the distribution of income or wealth within a population.

This is one app, not too impressed by it, but it illustrates power law use in financial markets:
http://www.nature.com/nature/journal/v423/n6937/full/nature01624.html

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@High Seas,

P.S. what a power law distribution means in this context is you suddenly get "fat tails" i.e. probability of extreme outcomes increases dramatically. Otherwise criticality means the same in economics as in physics - you want to careful not to mess with a system in that stage as any little thing can set it off.

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@High Seas,

The Constitutional Court (Britannica, Wikipedia, the court itself et. al. capitalise it) said already in July at the first hearing that they "don't want am economic debate. It's only about legal questions." The court's president said that he didn't want to discuss political questions - that's what politicans had to do. "However, the Federal Constitutional Court has to explore the boundaries set by the Basic Law."

The main question is, if the budget law has been violated in such a way that the constitution wasn't observed.

And it could well be that the Constitutional Court doesn't think so but will refer the trial to the European Court.

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@Walter Hinteler,

Do you have a link? The issue is legal: nobody applied to the court (OK, the Constitutional Court) for political opinions! There was no enforcement of the treaty, no penalties, no fines, nobody went to prison - how enforcement failed, exactly, is Brussels business, but whether Germany is still bound by the treaty's terms is up to the Court in Karlsruhe.

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Is Greece going to set off the long feared next wave of the Great Recession?

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