Source: http://www.ft.com/cms/s/0/e41a0fd0-c45a-11dd-8124-000077b07658.html
It’s been a pretty interesting week as far as events go. The pressure has been on and off Greece all week, as it now seems clear that a bailout for them is coming, but the question is under what terms and conditions. Angela Merkel of Germany is going to have to face regional elections soon, and the German voter probably does not feel too good about paying additional taxes or having more debt on their shoulders in order to support the profligacy of Greece.
On one hand, it’s probably morally right to stop feeding the addiction of the coke addict. It is painful to go through withdrawal, but it is what is needed in order to recover and get back on the path to a sustainable level of government. On the other hand, we cannot look at everything in strict isolation as our economies are so interconnected these days, and the cost of a bailout may be less than the cost of a cascading fall of dominos as states default, one after another. Such conditions are ripe breeding grounds for populist tyrants, such as the world endured back in the first half of the 20th century.
It’s a choice between the frying pan and the fire. If those in power choose one path, they save their political careers, and Greece probably avoids a complete meltdown. However, it sets up the stage for a bigger fall in the future, once the loan money is exhausted, and it gives a bad example to Spain, Italy, and others in similar shoes. If the other path is chosen, Greece suffers the consequences of its past decisions and is left to its own fate. The markets crash, leading to another good buying opportunity but also sowing the seeds for severe social unrest and disorder in Europe and a possible series of collapses as investors refuse to finance further deficit spending.
So, is there a middle path between these two options? Can Greece simultaneously get bailed out and return to fiscal sustainability? Here is an interesting graphic about current sovereign debt levels and where they are going in the future.
Here are some good links for your weekend reading:
- Beating the Index: Stock Trades Update: Bought TSE:FVI
- Mich shows just how entertaining it can be when a stock falls due to emotions rather than fundamentals. This is what creates good buying opportunities!
- Investment Watch Blog: More American Expatriates Give Up Citizenship
- Investment Watch Blog covers this story from the New York Times about the increasing numbers of Americans giving up their citizenship.
“Anecdotally, frustrations over tax and banking questions, not political considerations, appear to be the main drivers of the surge. Expat advocates say that as it becomes more difficult for Americans to live and work abroad, it will become harder for American companies to compete.”
“American expats have long complained that the United States is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income.”
- Wealth Pilgrim: Should I Change My Career? Three Questions To Help You Decide
- Wondering if it’s time for a career change? Not sure if you’re on the right path? Neal over at Wealth Pilgrim is there to help.
- 7million7years: I’m Angry!
- Adrian over at 7million7years is angry. Why? Well, you’ll just have to go over to his site and read about it to find out. 🙂
- Read-y: Do something for the planet – Dispose your CFL Bulbs properly
- Read-y talks about why it’s important to dispose your CFL bulbs properly due to the mercury content. I personally would recommend avoiding the issue altogether by not purchasing CFLs; I can’t stand the lighting quality as they do not give off a full spectrum of light and it feels unhealthy. However, if you really must buy them, then at least dispose of them properly!
- Money Reasons: Crucifying Goldman Sachs, Start of The Witch Hunts
- As populist fervor grows, events like this will start to become more commonplace. However, you have to ask yourself… will the final result mean a more transparent market open to more competition, or a more oligarchical market protected from competition?
- Canadian Capitalist: Greek Woes: What to do now?
- Canadian Capitalist discusses the impact of Greece’s woes and how it can affect your investing strategy.
- Money Funk: Private School: Worth Your Money?
- Private school, or public school? That is the question…
- Hope to Prosper: Earth Day Investment Ideas
- Hope to Prosper tells us how far the US has come since the Cuyahoga River caught fire in 1969, and how much still needs to be done.
See you next week!
I would hate to hear Greece needs to sell off Islands to pay off their debt. Something about Germany (or any other country) buying Islands… sounds like it would take the ‘mojo’ of Greece and its mythology away. Perhaps I am just too sentimental. 🙂
Thank you for including my article in your link up.
Thank for the mention!
I hope Greece isn’t the first domino in the list of countries in trouble over there, because is sure does look that way!!!
Kevin,
Thanks for the mention in your post. I enjoyed reading your blog.
I think Greece is a harbinger of things to come and a warning for the whole world, especially the U.S. While most of our citizens have been intensely concerned about the balooning deficit, our government is spending money like a drunken sailor on leave. And, most of our tax dollars are finding their way to wealthy entities, instead of being used for governmental services.
If something doesn’t change quickly, both in the U.S. and in Europe, we could see a repeat of the ’90s Asian currency crisis, here in the west. President Obama is now beating the drum about “concern for the deficit”. In my opinion, that’s just a precursor for the next big surprise, “we need a VAT, so we don’t go broke”. Any new taxes are going to be a hard sell to voters, who are struggling through this recession and losing their homes. The thought of cutting back on spending is not even on the Government’s radar screen.
I expect to see a lot of new faces in Washington next year.
Bret
@Money Funk
I wonder if there are any in Greece willing to create a “Greek” Hong Kong: Instead of selling land outright, maybe a better solution would be for Greece to lease some land for development as a free economic zone. If the project is successful, then the investors get to keep a handsome return and Greece remains in control of the land, which can eventually integrate back with Greece proper. If the investors fail, then Greece gets back the land anyways.
The main obstacles against this are political (think entrenched interests, unions, etc…), but some friendly competition can often help!
@Money Reasons
I believe Spain is next in line, and Spain is a much bigger domino than Greece, so its fall will shake the table a little bit. What happens with Greece will help decide what the next move is.
@Hope to Prosper
I agree with you, and it’s a little sad to see what once was the shining light of the world more than half a century ago is now dimming out its light. Three main problems I see:
1) Things are becoming more centralized over time, and therefore government is becoming more removed from the people.
2) The two parties are basically two sides of the same coin.
3) The country has been borrowing from the future for decades, and the rope is reaching its end. Whether the end is a noose remains to be seen.
Whenever a large tree in the forest falls, some damage is done, but at the same time, the sun gets to reach the ground once again, and new trees can grow in the void left by the old tree. I believe what we have been hearing for the past couple years are the cracks of the trunk as the tree begins to fall. The worst is yet to come, but there is a lot of potential for things to be better with the passing away of old entrenched interests. Time will tell!
Thanks for the feedback, everyone!