Bill Bonner

“People of Europe: Rise Up,” says their banner.

Greek communists are usually a reliable bastion of error and darkness. Their ideas are appalling. Their proposals are absurd. The only thing they are not wrong about is their opinion of the ruling classes – whom they regard as morons.

But this time it’s different. Leftist mobs, now throwing missiles at policemen in Athens, have the high ground. They just need to work on their aim.

The latest dollop of financial grease was announced two weeks ago. At a cost of 110 billion euros, Europe will pretend to protect Greece from its creditors and the Hellenes will pretend to put their financial affairs in order. Instead, the Greek affair will slide into a larger crisis. As we explained last week, all of modern macro-finance can be understood as an attempt to push problems into the future and onto people who were not to blame for causing them. Now we see the formula at work in Europe.

Greeks borrowed money they couldn’t reasonably expect to pay back. Foreign bankers – largely French and German – hoped to earn outsized yields by taking a risk on Greek debt. A just ruler would let them all collapse, and give them the boot on the way down. Instead, the knaves enjoyed their loot. And, under the terms of the bailout, the fools are supposed to get their money after all; it will be squeezed out of taxpayers all over Europe.

The plans of the ruling classes are not merely unjust. They are unworkable. Over the next three years, Greece will add $50 billion in deficits, stabilizing the debt at 150% of GDP. It will also need to come up with $70 billion to pay off debt that matures over the next two years. That is more than the amount offered in the bailout. Which means, Greece will have to borrow more money as early as next year, probably triggering another crisis. Plus, there are the other weak sisters and spendthrift brothers in the European family. Bailing them all out could cost as much as 1 trillion euros.

But the real problem is much deeper. It is philosophical as well as mathematical. Too much debt, like too much dying, is not a transitional state. It’s a final state. And once the soul has left the body, there is no point in trying to keep the husk alive. Similarly, when a debt cannot be repaid, there’s no use pretending. When you cannot keep up with the interest on a debt, it is added to the principle. The debt grows, becoming evermore unmanageable. It’s better to admit the error as soon as possible and start organizing the details of your financial funeral.

At present, the Greeks owe an amount about equal to 120% of GDP. Thanks to the bailout, it is scheduled to go up. The plan on the table stops the debt growth only after it has increased by another 30% of GDP.

There is the problem right there. Today, the poor Greeks stagger. What is going to happen when they have an even heavier load? The meddlers hallucinate that they’ll get up, smash a plate and dance a mazurka. They even imagine that lenders – who required as much as 18% yield on 2-year notes when Zorba was still on his feet – will ask for only a fraction of that after his back has been broken.

Let us make believe that this were possible. Say, Greece is able to borrow in the future at just 8% interest. At 150% of GDP, this puts the annual cost of interest (assuming all the debt were at 8%) at about 12% of GDP. In other words, 1 out of every 8 euros of output would have to be put to the task of paying the carrying cost of accumulated debt. Greece only collects about 5% of GDP in income tax revenues – not even half of what is needed to pay the interest. It’s supposed to collect another 4% in taxes. Already, as much as 30% of the Greek economy has gone ‘black’ to escape taxation; imagine how crowded it gets underground when taxpayers realize that every penny they pay in income tax is used to protect foreign bankers from their foolish speculations. And imagine what happens when, instead of adding 10% to GDP by borrowing, the Greeks subtract 10% to pay back the debt.

Last week, schools, airports, hospitals and other services in Greece were shut down. A riot drew blood. Fifty-one percent of the Greeks said they will not go along with the austerity program. The others will turn against it once they see how it works. They were used to having their cake and eating it too. Now, they will neither have it nor eat it.

Rise up, ye Greeks! You have nothing to lose but the chains of debt! This is what revolutions are for.

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • Daniel Miller

    Harry Wanger: ‘Putting the douche in fiduciary’.

    ware yat budd-e?

  • JMR bayou bobby

    a strikingly radical column, Senor B.

    I’d be sure to be out of the country when this happens here as you may be mistaken for a bomb thrower.

  • H.H.

    Very interesting reckonings this week.

  • Cosmo Hippie

    Preaching social stability seems more socially responsible, all things considered.

    Buying gold to cover ones act is also a very good idea.

  • Creature From Jupiter

    Mr Bill has all the mathematical figures on hand. It is best to appoint Bill as the funeral undertaker.
    Then, Greece shall go for a revolution. Repeat the slogan “workers of the world unite you have nothing to lose but more money to gain”. Then, choose the colour of revolution – red, blue, yellow, black or white.

  • Mark

    How ironical that the first three states the market has decided to knock over in its quest for equilibrium. ( Greece, Portugaul, Spain ), were once the barers of great empires that ruled both land and seas…All of which suggests that the next three cabs off the rank should be France England and the U.S

  • Copyright Act 2010

    I hope Greece’s version is copyright proctected. It is strictly private and confidential and solely for Greece only.
    Furthermore, I hope Washington or London will respect the copyright and refrain from ininfringement of this Greece’s intangible asset.

  • Ed

    Global economic integration – very stupid and yet that’s what the banks want. Here is what the tards say – on CNBC they were talking about global economic integration in the consumer protection bill. This is why to consider it is sooo stupid. “Democracy, national sovereignty (or in Americas case soverignty by the people) and global economic intergration are mutually incompatible” It’s possible to have any 2 but not all 3″. “It’s the inexcapable trilemma of the world economy”. What’s your choice? I’ll take democracy and sovereignty by the people- fk global economic integration. It’s a scheme to bankrupt the world, because there is never enough money for the greedy. It appears the Greeks are feeling less and less sovereign in their own country and democracy is suffering around the world. Vote out everyone that voted for TARP and especially vote out those that NAY’d the Kaufman-Brown amendment the other day to break up the big banks into manageable pieces. The government is owned by the big banksters.

  • Fred Gibson

    Bill, sometimes you miss the mark when you advocate unregulated capitalism and misunderstand the proper role of government, but today’s essay is one of the best essays ever written! It should be included in university textbooks. Today, I am in awe of your insight and common sense. I just don’t know what more I could say. I still like your stories about Elizabeth, Maria, and South America, too, though.

  • Max Power

    how much money did you make today harr?

  • Jeff

    Execellent Essay. In my opinion the communist social experiment died 18 years ago. But maybe there is a chance to try a new better experiment that is based on Marx’s origional idea. Not Soviet Style fascism. I propose a direct democracy with yearly elections for all members of gov’t (you get paid by gov’t then your a candidate for election) and with 3 year elections for the president. Direct Democracy was previously impossible because of large populations and vote counting. But with the advent of modern technology it is finally possible to bring democracy to the forefront. Democratic Communism where people vote on the allocation of public state funds. The bankers will not be happy.

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