A Big Fat Greek Mess

Greece. The birthplace of democracy. Soon to be the bastard of the European Union (EU) and the graveyard of democratic socialism because of their national inability to say no. I haven't paid this much attention to Greece since Ari spirited Jackie K.O., away from our shores on his 300' yacht, Christina O, bound for Skorpios in the late sixties. So what have you been doing since then, O Greece? Hmmm, no one is picking up.

Well let me try to tell you what has been going on in that small ancient country for the last quarter century plus. It seems that the Papandreou governance style both Sr. and Jr. preferred spending to saving. Greece has been on a drunken sailor spending spree for two generations. Was anybody monitoring this debacle? Apparently not. The EU watchdogs were watching football with a sidedish of internet porn thrown in for spice. And what did the Greeks spend money on which they didn't have? Public giveaways. How altruistic of them. Hmmm, sound familiar USA?

The Greek people were the happy recepients of the government's largess. Problem was that there were more people getting the gifts than there were people paying for the gifts. "So the people wanted more, the government wanted to be re-elected, the government provided more, no one wanted to pay for it, no one could pay for it, budget problems ensued and Greece can't sell its bonds. Greek bonds are S&P rated "junk." Mohamed El-Erian, head of Pimco, the world's biggest bond fund, said diplomatically,"...based on what we know right now, we would not buy Greek bonds." Funny, I thought was there was money to be made in junk. Junk yes, junk bonds no. Greece on line 1, tell them I'm busy.

Did you just hear that horrific thud from above? That was Zeus, the Greek ruler of Olympus and king of all gods, he just collapsed! Oh brother...someone know CPR?

Presently, Greece is tottering over the abyss. Talk about an odyssey. But it's just not Greece tottering. Attached at the hip is Portugal, Spain, Ireland, Italy, Germany, France, oh hell, the entire EU. The Euro has dropped 15% in four months because of Greece's problems and it's residual effect. Even the non-euro Britain is not exempt from this budget deficit business. How ill is this picture? Greece's total government budget deficit as a percentage of GDP is a staggering 125%. Greece's annual deficit is 13.6% of GDP. To give you an idea of how ill that is, the EU's minimum requirement for fiscal sustainability is 50% on the first benchmark and 3% on the second. To serve as contrasting examples, China's percentages are 18% and 3%; and, USA's percentages are 61% and 10.64% respectively. (Those USA numbers are hugely troublesome.)

Germany, the fourth largest economy in the world and wealthiest country in Europe along with help from the IMF and other agencies, are throwing a lifeline to Greece. The disciplined Germans are none too happy about bailing out a country of moochers. That "too big to fail" contagion has spread to Europe, it seems. A deal should be made within days to the tune of $150BILLION for three years and that's just to get them out of ICU. This will be a long hard slog for Greece and the EU after years of profligate governance and irresponsible oversight.

So what happens now? The deal is the EU et al bails out Greece with a 5% loan. Greece must change its ways and fast. Entitlements are over. Austerity will rule. The party is over. So what do the folks in Greece think about all this fuss? They are mad as hell. So mad in fact, they will be taking to the streets in huge numbers throughout Greece on May 5 in a general strike against the "new spartan normal". Undoubtedly, riots will occur and tensions will boil over. The wealthy will be taxed even more. Pensions ravaged. Wages cut. Government may be sacked. Unions disbanded. Potential run on banks. People will suffer and die. Greece will become a shadow of what it once was. All this because of reckless spending and Papandreou chicanery.

At some point, the bill was going to be collected. Well, that time has come. Reminds me of that eerie scene in Apocalypse Now , when the sweaty and whacked-out Colonel Kurtz said in his cave to Captain Willard, "...you're an errand boy, sent by grocery clerks, to collect the bill." The bill always get collected someway, somehow, at sometime. It's Greece's time to pay the bill.

There is a very profound message for us in what Greece is dealing with now. If the USA continues to spend and not fix the mounting debt problems in this country we will face our creditors for payment due some day. Only difference will be is China will come to collect their $800BILLION and they aren't very patient or nice.

This is our #1 issue. Not health care. Not immigration. Not Goldman-Sachs. Not finance reform. Not wars. Not Cap and Trade. Not Global Warming. The deficit ($1.4 TRILLION annually) is #1. How troubling that our greatest threat to our national security and interests comes from within our own borders. If we do not do something profoundly positive to arrest and reduce the growing deficit imbalance soon, what is happening in Greece will happen here, not tomorrow but at some point in time. Only it will be 1000 times more potent and destructive. Greece is our cue, our wake-up call. WAKE UP DC!!!

Ben Bernanke gets it but his is a lonely voice.

Just an aside...I wonder if Paulson is shorting Greece? Probably a good bet.