Is the Euro well and truly buggered?

@hawkeye10,

Yes, but unfortunately I am not part of this - I pay my taxes!

@CalamityJane,

CalamityJane wrote:

Yes, but unfortunately I am not part of this - I pay my taxes!

Some of the Greeks used to pay their taxes too, but they were considered the dopes. California suffers from many of the same faults that got Greece into trouble, the massive government employment, the excess government control which stifles business, the huge portion of the economy that is allowed to exist off the grid thus is not subjected to helping out with the tax load, the government that lies about the state of its finances, the government that over decades refused to be responsible about its finances, the government that now has so much debt that it is difficult to imagine it ever getting paid in full....

You claiming that California is the anti-Greece is hilarious.

1 Reply

@hawkeye10,

hawkeye10 wrote:

Are you ignorant of the fact that a huge slice of the California economy is off the grid and thus pays $0 in taxes (black market)??
[/quote] You haven't presented any facts on this point.

High taxes breed extra efforts to evade them throughout the world. Are you suggesting that California is more susceptible than other states in this area?

I have lived in at least eight states and can tell you that California is more through and zealous than many others in collecting all forms of taxes, ranging from income to property taxes on individuals to sales and use taxes on small businesses.

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@CalamityJane,

Madeira was meant - lol, sorry, my island names got mixed up, but my numbers are correct Smile

There's a sense of impending doom taking over otherwise serious quantitative publications. Here's how the Financial Times reported the latest Portuguese statistical "errors and omissions":

Quote:

Madeira, a scenic archipelago of 267,000 people, crashed into the Portuguese mainland on Friday, scattering shards of new sovereign liabilities…

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@hawkeye10,

I'm a former Californian and can vouch for the fact the tax collectors in Sacramento are always on the job, so Jane is right on that. The Greek tax collectors are actually on strike - the new property tax they imposed as part of Bailout # 2 is supposed to be collected by... the electricity company.

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@High Seas,

High Seas wrote:

I'm a former Californian and can vouch for the fact the tax collectors in Sacramento are always on the job, so Jane is right on that. The Greek tax collectors are actually on strike - the new property tax they imposed as part of Bailout # 2 is supposed to be collected by... the electricity company.

I am trying to document something that I thought I knew, which is that because of the huge closed immigrant populations of California the state does less well than does other states of finding the black market activity and shutting it down. Immigrants from different areas stick together and trade only between themselves, and in part because many of them are illegally in the US they are very leery of any outsiders who come around, especially of those who asking questions about transactions. Most states have smaller percentage of immigrants, and usually they are more dispersed through the general population than we find in California, so most states have an easier time locating the illegal activity.

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@High Seas,

I thought you might have meant a different island Smile

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@hawkeye10,

Actually, according to many studies - not particularly to California only -
immigrants contribute to the economy as well as costing states in healthcare, schooling and other social services. Generally, their wages are lower which benefits the consumer, but I realize it does depress hourly wages across the board in fields where immigrants dominate the work force. Regardless, U.S. economists concluded that the benefit to us of having undocumented workers is equivalent if not outweighing the cost they incur.

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@CalamityJane,

Quote:

Regardless, U.S. economists concluded that the benefit to us of having undocumented workers is equivalent if not outweighing the cost they incur.

That is certainly debatable, but what is not is that every dollar of transaction that is allowed to be done on the black market costs many cents of extra burden to be placed upon those who do pay the taxes that the law demands that they pay. What we saw with Greece is that so many evaded so much of their taxes for so long that those who did pay all of their taxes were seen to be chumps. My objection is to the claim that California is a model for tax collection, because what I think I know is that California has a vast underground economy which it has long known about but has not put forth enough effort to stop, in my view because of fear of offending the tax cheats and the immigration criminals by demanding that the laws of the land be followed by all equally.

1 Reply

@CalamityJane,

Quote:

that the benefit to us of having undocumented workers is equivalent

"that the benefit of having illegal workers is equivalent"

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@hawkeye10,

You are postulating that the underground (i.e. untaxed) economy is fuelled primarily by illegal immigrants. Certainly they are a major component of it - one need only look at the corners in every city where day laborers gather for hiring. However, in the main these are jobs that the documented unemployed won't do. One must still balance the taxes evaded and the economic benefit of the underground work performed. I can't prove it, but I strongly suspect that barter for undicumented goods and services and cash sales by documented taxpayers is in dollar terms a bigger share of the total.

I'm inclined to agree with Calamity that the net economic effect of illegal workers here is very likely positive. The harm is in the breakdown of the rule of law that is attendant to the widespread practice. For that I blame our government, which is clearly unwilling to either fish or cut bait on the matter because of the perveived political advasntage involved.

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BUNDESTAG BAND-AID: THE LATEST ACT IN EUROPE'S DEBT CRISIS BLUFF-A-THON

Op-Ed: Three cheers! The relevant EU states approved the new euro bailout package. There’s just one problem: everybody knows the money is not enough, which is why they are already planning their next steps. Why are politicians ignoring the truth and playing for time?

Quote:

MUNICH - The Greek bailout package is a case of coming to the rescue after the rescue. Now that all the relevant EU states have approved the rescue fund, vehement debate has started about how to leverage a few more billion euros with the new framework.
Starting this week, the Eurozone’s finance ministers are going to be working on money creation concepts -- or how to finance debt with more debt, and buy enough time until the moment finally comes when emergency measures have to be undertaken to help those euro countries that have been living way beyond their means.
A first step is the European Financial Stability Facility (EFSF), as the rescue umbrella is known in the technocratic language of the finance eggheads. Again, measured against the size of Greece’s money woes, it is a tiny umbrella indeed.
In any case, last week, Germany’s lower house of parliament -- the Bundestag -- approved increasing effective financial help to 440 billion euros since the initially proposed 250 billion would not be enough. And while most of the experts dealing with the Greek mess know that too will not be enough, ways are being sought to leverage that money – with obligations, of course.
Pumping capitalism, kicking cans
This is a new variation of the ‘pump capitalism’ that in the wake of the 2008 financial crisis led leading market economies to the abyss. One current model entertains the use of collateralized debt obligations (CDOs) – the very mechanisms that a few years ago were responsible for exporting the U.S. real estate market disaster to other countries.
Are financial products of this type really the solution? The EFSF fund would, at least in the imaginations of apologists of the dangerous products, guarantee some yet-to-be-created entities that would buy and sell bonds, with varying degrees of risk and interest, of troubled countries like Greece.
Another idea has also recently come under discussion: granting the EFSF a banking license. That way, for example, it could buy Greek bonds, deposit them at the European Central Bank (ECB) and get more money to acquire more such bonds.
This is the dangerous “leverage” that could create 3.5 billion euros from the 440 billion, and which German Central Bank president Jens Weidmann is condemning.
It is to be feared that whatever creations the EFSF comes up with, risks to stability in the Euro zone will rise. Europe‘s debt fighters are manifestly trying to survive this year and 2012, before rolling out the big gun in 2013: the European Stability Mechanism (ESM). Only that, the governments believe, will make it possible for them to deal with what is already being talked about now: Greece’s bankruptcy.
Meanwhile, Greece’s creditors may be facing a haircut of up to 50%. First, however, we need to wait a few weeks and see what the representatives of the ECB, the EU Commission and the IMF – the so-called “troika“ – come up with after their inspection tour in Athens. Drama feeds on drama.
The problem is being kicked down the proverbial road like the proverbial can. The time to pay will come later. In the business world, what is happening here would be considered delaying bankruptcy.

http://www.worldcrunch.com/bundestag-band-aid-latest-act-europes-debt-crisis-bluff-thon/3867

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The German Spiegel writes that the Greek finance minister told the EU that they have found a security savings account of 1.5 billion Euro which will tie
them over until the End of November when the bailout funds should arrive.
Apparently the savings account was founded in 2008 during another fiscal crisis.

It wasn't clear if the Greek found the money themselves or if the EU finance inspection discovered the funds.

Funny, maybe they find more billions along the way...

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@CalamityJane,

CalamityJane wrote:

..........It wasn't clear if the Greek found the money themselves or if the EU finance inspection discovered the funds.

Funny, maybe they find more billions along the way...

It's a dark tale going back years - somewhere in the basement of the Finance Ministry in Berlin sits a little gnome who studies documents like this one >
http://www.risk.net/risk-magazine/feature/1498135/revealed-goldman-sachs-mega-deal-greece
> and gives a nudge to Eurostat to "remind" the Greeks of where they parked the cash they got last time from the EU, IMF, etc Smile

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@georgeob1,

georgeob1 wrote:

I think the Euro will likely survive and the principal European economies will recover more or less with the world economy.

...........................................................
The United States faces analogous financial issues as well. Though our government amounts to a smaller fraction of our economy, there are still strong political forces that seek to increase it. With a combined Federal, State and Social Security Trust debt well over 100% of GDP, we can no longer afford to increase it or to borrow our way out of cyclic economic problems.
..........................................................................

You say you know very little of financial economics but all you write above is exactly right. To use an analogy better known to you: the little Nibelungen (you like Wagner, right?) in the basement of the German Finance Ministry are in the same historical situation as their long-gone predecessors tasked with implementing the Schlieffen plan (recall, attacking France while moving masses of troops and materiel through Belgium). The Belgians, knowing full well that plans and schedules vastly superior to their own, of their railroads, rail gauges, timetables, wagons, and other rolling stock, existed in Berlin, sensibly decided to drop their own updates of such matters and started calling the little-basement-gnomes in charge at the time whenever they needed that information. Brussels-based Eurostat does the same now with financial statistics submitted by Greece and Portugal, BUT Ireland has been honest to a fault!

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@High Seas,

It is interesting to note that as of last Monday Greece has already defaulted on some of its debt. The "theoretical possibility" around which all the European posturing for the last 18 months has been centered is already a material fact - and strangely unnoted by the press. Very likely wiser and more knowledgable observers will note that the real Greek default actually occurred months ago the first time the ECB made references to the possibility of a 'haircut" for Greek bondholders.

All this puts a new light on the rather strange slow dance of the EU powers around the question of a Greek "rescue fund". I have long since come to the obvious conclusion that it is really a stabilization fund for French and German banks with significant exposure to Greek bonds. However, now I am beginning to wonder whether the EURO can be saved at all, and the possibility that it is precisely this fear that has so paralyzed the European powers for the last several months. I am now concerned that the (somewhat illusory ) strength of the dollar will be used as an excuse for a reckless bailout of Europe (perhaps through the IMF) by our ever feckless and idiotic government.

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@georgeob1,

There's too much debt sloshing around the system, both here and in Europe, and not all of it is sovereign. Dexia (Franco-Belgian bank in process of asset liquidation) was a big player in US municipal securities as well - and in munis we expect 50 to 100 defaults in the next couple of years. The Fed is sitting on about 2 trillion of very, very, doubtful paper taken over from the banks as part of their bailout deals and can't do a QE3 to inflate the US economy, let alone the EU, and the IMF can't realistically commit more than half a trillion $ or so to supporting the euro as the other member countries will object.

Criticality was reached in the world financial system some time ago, and the only ones not recognizing it are politicians on both sides of the Atlantic - except for the Polish finance minister, who just gave a speech to the European Parliament saying that if the EU comes apart, he expects a war within 10 years (sic). Financial modeling of outcomes is impossible unless US money supply volatility gyrations stop and world debt levels come down >

http://av.r.ftdata.co.uk/files/2011/10/Volatilty-and-money-e1317974152165.jpg

> which they will do, one way (orderly) or another (a re-run of the 1930s). Did you know trading models complexity reached the stage where US regulators now send their market data to the nuclear weapons labs for analysis?! It's true: http://www.lbl.gov/CS/CIFT.html

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@georgeob1,

georgeob1 wrote:

It is interesting to note that as of last Monday Greece has already defaulted on some of its debt. ...

That's not considered an official default unless the accountants say it is, and as of right now that crew is going along with "extend and pretend". Info on "derecognition" of financial assets (means "impairment") charitably known in the trade as "mark to model" or, less charitably, as "mark to fantasy") here:
http://www.iasplus.com/standard/ias39.htm

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@High Seas,

"mark to fantasy" - I like that! It identifies many governments and how they operate their budgets.

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@High Seas,

What do you think will be the consequences when muni's begin to default? Higher interest or will consumers pay the loss?

1 Reply

Is the Euro well and truly buggered?

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