AUSTRIAN ECONOMICS ADDICT

The Greek Government is about to collapse for a couple of reasons. 1) Government debt is greater than what is collected in taxes. 2) Over the last 8 plus years the EU has given the Greek government loans to finance increasing spending. 3) Just like an underwater mortgage, they can’t pay the loans back to the countries who tried to help them up.

That’s the simple version. Now lets look at it from a few different perspectives. 1) Let’s look at the overall picture of what has happened to Greece.  2) Lets look at the Greek government. 3) Lets look at it from the standpoint of the Greek people.

OVERALL PICTURE.

Lets look at the country of Greece as if it were a single person. This person takes in X amount of revenue per year, but spends X plus 1 third X per year. They finance this excess spending by essentially maxing out credit cards that banks have given them. With each passing year this person needs to get more credit cards to cover spending, and pay off the debt on the other credit cards. As long as they are making minimum payments on these cards, banks are willing to give them another credit card. At some point though the amount going out for regular spending, plus the service on the credit card debt, is more than they take in. Now they have to make a decision on either cutting spending, or not paying the credit card payments, or both. When this starts to happen, banks will not give them another credit card to float their debt. At this point the person has to declare bankruptcy. His assets will be liquidated and his creditors will get paid a percentage of what they are owed. He will have to cut his spending and start over.

The Greek government is the person maxing out his credit cards, and the EU is the bank that keeps issuing the new credit cards. The reality is the EU and other countries that financed Greek debt did a disservice to the Greek government (and people) by issuing them the ability to keep their failing financial policies propped up for so long. Now the people in the EU countries, and the people of Greece, will have to absorb the cost of the over consumption that was allowed to go on unchecked by the Greek government, the EU, and the Greek people.

GREEK GOVERNMENT POLICIES

The Greek government’s socialist redistributionist policies have created a class of people who don’t produce anything of value. This group includes government employees, public employees and social security pensioners taking early retirement, people who fake disability, welfare recipients, and politicians. Add to that a 26% unemployment rate, thirty hour work weeks, and the fact that most people who actually produce something of value evade taxes, (which is totally understandable), and the math doesn’t add up.

Government spending is consumption without corresponding production. Government has been using the credit card to prop up consumption by non productive people (including politicians and bureaucrats), as well as paying the service on their previous debt. At some point economic reality wins out as consumption starts to out run production. A liquidation takes place, a bottom is reached, which is the new stating point for the economy. The liquidation is the cure for the Keynesian cancer of thinking consumption comes before production.

THE PEOPLE OF GREECE

The Greek people have gotten used to consuming without producing anything. Debt, financed by European Central Bank money printing gives the illusion of sustainability, for a while. The people have no understanding about Say’s Law which states, 1) A buyer can only demand a good if he supplies a different good. 2) The supply of one type of good constitutes the demand for another type of good. 3) The source of demand is production not money, Money is only a temporary parking place for past production. 4) Printing money does not produce any good or service, it only creates the ability to go into the market and demand goods.

Greek politicians have brainwashed their people into believing that a world of scarcity has been abolished by the magic of the printing press. Politicians have framed the argument as a battle between the Greek people vs. the EU and creditors, with the Greek government baring no responsibility for what has happened. Politicians have cleaned up the DNA evidence that points to them, and planted evidence that points to the EU and its creditors. Having been given the perp on a propaganda platter, the people have no intellectual curiously to seek the truth. That truth is that socialism, central planning, the welfare state, increasing debt, borrowing, and money printing,  incentivizes consumption and constrains production.

Put differently, More corn is being taken out of the bottom of the grain bin for consumption, than is being produced and put in the top of the grain bin. At some point no corn comes out of the door when consumers demand grain. This is where Greece is. But the people, who have been propagandized by socialist politicians, don’t understand this. They voted for the EU to give them more money so they can continue their consumption. If that happens, these countries are stupider than when they loaned them the money in the first place knowing that they couldn’t pay it back. But don’t be surprised, because politicians make economic decisions through the political process, and it never turns out well.

LESSON

Can this happen here? Lets see! The Federal government is in debt up to its ears. The Federal Reserve can print money to fund government consumption activities. There are 93 million working age people not working (not producing). There are more Americans on disability and food stamps that ever. The Democrats have an avowed Socialist, Bernie Sanders, running for president.

You tell me. Can this happen here? Yes, if we keep traveling down the “consumption comes before production” road.

Related Article – The Global Template For Collapse: The Enchanting Charms Of Cheap, Easy Credit, by Charles Hugh Smith, at oftwominds.com.

Related Article – Athens On The Potomac – It Could Never Happen Here, Right? at zerohedge.com.

Related Article – Say’s Law And The Permanent Recession, at austrianaddict.com.

This entry was posted on July 7, 2015 at 1:25 am and is filed under Econ. 101, Government and Politics. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: Austerity, Charles Hugh Smith, Cheap Easy Credit, EU Bailout, European Central Bank, Greek Collapse, Greek Debt, Greek Vote, Production before Consumption, Say's Law, Socialist Redistribution