2011 December 07 Wednesday
Greeks Continue To Pull Out Of Their Banks

Entering the euro zone hasn't worked out well for Greece. With an unemployment rate already at 18.4% the outflow of deposits from Greek banks puts their banking system at risk of collapse. This is a silent bank run. How do the Greek banks avoid collapse even before the Greek government defaults on the government bonds held by the Greek banks?

At the start of 2010, savings and time deposits held by private households in Greece totalled 237.7 billion -- by the end of 2011, they had fallen by 49 billion. Since then, the decline has been gaining momentum. Savings fell by a further 5.4 billion in September and by an estimated 8.5 billion in October -- the biggest monthly outflow of funds since the start of the debt crisis in late 2009.

The Greek central bank estimates that around a fifth of the deposits withdrawn have been moved out of the country.

Imagine you lived in a country where the government was at risk of defaulting and causing massive bank failures and unemployment was at depression levels and the economy was still going to contract for another year. Surely a nightmare for the Greeks.

Ernst & Young estimates Greek GDP is dropping 6% in 2011 and 3% in 2012. OECD agrees with that forecast.

Greece still has a lot of down side risk. The next global oil price spike could prevent a projected drop in the Greek sovereign debt level.

The United States also faces a worrisome debt-to-GDP ratio. Imagine a huge oil spike lays the economy low in, say, 2013. The debt-to-GDP ratio would get scary.

If the current 335% ratio of household, business and government debt-to-GDP sounds bad now, just imagine if GDP were to contract. A 3% drop in nominal GDP from current levels would push that ratio up by more than seven percentage points to 342%. This is the trouble with austerity measures, and is why Greece's debt-to-GDP has soared, not

Share |      By Randall Parker at 2011 December 07 09:49 PM  Economics Sovereign Crises


Comments
Ross Noble said at December 24, 2011 10:14 PM:

Randall, the Greek situation and America's situation are totally different. Greece is more akin to a State in the U.S. If the socialist state of Greece spends more money than they tax, they need to make up the shortfall somehow. To do this, they issue a bond to the market. Typically, a commercial bank will take up the bond, and then create new credit money. Credit money comes into being at private banks, when they hypothecate assets into new debt money. I call debt money credit money, they are the same thing. In this case, the bond is seen as an asset, and goes on the asset side of the ledger. American banks, and other counterparties often jump onto the bond in order to score some money. After all, a sovereign country like Greece should be good for it, right?

So, over time, Greece becomes more and more indebted to Commercial banks and the insurance tangle of counter parties. It is no accident that banking shill Giethner is preaching austerity to the Greeks. The real problem is the European central bank cannot spend into governments like the U.S. Fed can. The treaty of Lisbon forbids direct spend of deficit money from the central bank into the individual countries of the E.U.

Therefore, the individual countries of the E.U. become debt slaves to private banks. The interest usury at the root of credit is outside of nature. The time basis of the debt is an exponential curve, meaning that the debt cannot be paid if it is constantly rolled over. The bond counterparties should have known this, but afterall Greece is a sovereign and they wouldn't default, would they? The issue is that Greece isn't really sovereign, they gave away their money power.

The U.S. by contrast is a sovereign issuer of Credit. The U.S. simply creates money at the government level and spends it into the economy. This direct spend of deficit money out of the government, counters the debt buildup of private credit issuing banks. The new money needs to come from somewhere, and when it comes from a central bank it has low interest rates.

Why the low rates from a central bank? Because there is a REBATE! Our Federal reserve rebates at 90%, per an admission in 2007. If the FED were to rebate back to the Treasury at 100%, then there would be no debt at the government level. The debt issue at the government level is really a canard, a side show meant to confuse the monetarily ignorant. When debt is concentrated at the government level, it can be extinguished by law.

When idiot polticians confuse the opeations of Government with that of a household, then that should automatically tell you the polticians are out of their depth. Housholds cannot create new money and credit their checkbooks.


However, Greeces tangle of debt, which has vectored to commercial banks in the Germany and France is an entirely different story, and much more dangerous than the U.S. situation. Greece is in debt to others, and not itself. This cannot lead to good outcomes. WW2 was due to a tangle of inter-ally debts, where the Europeans were in debt to the U.S. and not themselves.

Germany and other mercantile countries are also to blame for the problems of the periphery. Whenever a good is exported, a unit of money is imported. Germany collects euros from the periphery, and the source of those Euros can be traced back to German and French private commercial banks. It is a big circle of screwing the periphery and sucking credit derived Euros into the center. In the meantime the periphery has a bad monetary system that doesn't signal when things are awry. If Greece had their own money, it would have long ago been devalued, signaling to the population to change their behavior, or increase taxes. If Greece had their own money, they could also use the law to wipe the unnatural exponential of debt off their own books.


Merry Christmas.

Ross Noble said at December 24, 2011 10:31 PM:

Japan's debt to GDP ratio is 200%. The U.S. hasn't reached 100% yet. So, it isn't the amount of debt that matters, it is where the debt vectors and who it is owed to.
Depressions wipe out debt as a big eraser comes down and clears out banker's ledgers. That which cannot be paid, won't be, and assets are revalued during a depression.

In the U.S. we've forestalled a depression by spending deficit money, thus trying to repair banker's ledgers by money infusion, rather than erasing.

Japan is managing their debt just fine, because they owe it to themselves. In Japan's case, the debt at the government level is an accounting identity that defines where the goverment debt money originated. Japan also rebates to themselves, moving it from their right hand to their left hand. For purposes of analogy, if your wife owed you money, then your houshold account would not be in deficit. The money is simply shifting from one account to another. In other words, not all debt is equal.

The canard is when organizations like the Fed and their tied banks pretend that they are owed extreme profits just for the privledge of creating money on their keyboard. In this case, the Fed and other central banks maintain an illusion in order to be predatory on the real wealth producers.

Greek plutocrats were predatory during the cold war, extracting tribute from the U.S. and Europe. However, now that the cold war is over, they cannot expect tribute in order to pay off their populations. The lack of cold war dynamics, and being stuck with the Euro has put them in a debt bind, where the debt vectors to non greeks who are outside of Greek law.

Randall Parker said at December 26, 2011 11:41 AM:

Ross,

Greece differs from a US state in important ways:

- It is not part of a political union with high labor mobility. The various EU states speak different languages and this makes labor mobility much lower.

- Europe also has very different labor laws in different areas. Getting jobs is harder across the EU as compared to the US due to these labor laws.

- Europe has far less labor price flexibility, especially in southern European countries such as Greece.

- There's no strong central government that will bail out member states.

- There's no EU equivalent of the FDIC to bail out state-level banks or cross-state banks. Each state must bail out its own banks and yet each state lacks its own currency and central bank to help do that.


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