The last post on Greece before the Euro exit?

Really, this is unlikely to be the last post on Greece, but it could be the last one before Grexit.

Interestingly today the EU Commission - the hotbed of fundamentalists who put the EU before everything (except their wallets which are supported by it)  is making all sorts of soothing noises in the EU media about how Greece's new proposals are just great and a deal can be sealed.

On the other hand the IMF is in a quandary - the IMF supports real basket case countries on the rule that it must not actively support bust countries and piss away the wealth of the world's poorest countries into basket case situations. Unfortunately for Greece, it current falls foul of this basic criteria.

As such the IMF should technically force a default here is Greece fails to pay. That means the EU will have to find the money to pay the IMF at the end of the week. They will do this via the ECB and possibly by the European Stability Mechanism which was sort of designed to enforce the will of Eurofudge.

I don't know whether the Greek plan is in fact new or just the latest in the bizarre rantings of the mental communists the Greeks elected to run their show.

I guess we will find out today whether the mother of all Euro Fudge is being baked or if even the EU Commission has lost its power over Germany and the will of the majority of EU citizens to stop throwing good money after bad.

US Debt ceiling....one day this will be a real crisis

I have not really concerned myself too much with the US being unable to get approvals through the Senate and Congress about its Government shut down or the potential of not raising its debt ceiling. This is no doubt because, along with everyone else, I have seen this wolf-crying movie and am pretty sure I know how it ends. There is some messy, not quite complete, deal which is struck on the last day and all is fine.

However, one day I also know that the story of the boy who cried Wolf has a different ending. In the US the Tea Party is reviled by the left, but many of its members have really quite orthodox idea about money. The Democrats, whilst not as hateful of capitalism as our Labour party, have followed the same approach of creating a client state of welfare recipients. Moreover, this group is not only large, but in real terms poor. The poor of America are in a far worse state than say the poor of the UK. Society is split and the economy is recovering but no one thinks the US is going to rise again to have 50% of world GDP, just as the UK won't return to its pre-WW1 heyday either.

The US budget is though in better shape than most European ones and thanks to Shale Gas the US has discovered another motor to go with its computer-based technology leadership. The US is not going to collapse or face a fate like that of France in the near future, where lack of leadership and competitiveness will enforce a period of absolute decline.

However, one day the deficit must be addressed and the endless debts too. Plus as the society ages the Country must face up to pension and health care costs. In many ways, this is what the Tea Party want to do today, rather than wait another decade. They don't have much support for this view and their constant clashes in Congress are probably not helping. But then again, President Obama is also being hard nosed with them, calculating he can get his spending through and welfare bills maintained or increased with higher taxes. It did not quite work last time and ended with Sequestration.

So one day, the Republicans and their Tea Party elements are going to think they have nothing to lose and indeed, that chaos maybe the only way back for them. In the UK we had Gordon Brown with his scorched earth policy for 2 years who played a similar, but opposite role. Politics is dirty and the collateral damage to the economy and people is worth it for the ideologues. So whilst I think there will be a deal today, one day the boy who cried Wolf will be right and the debt ceiling won't be raised.

What is worse: Greek Default or EU management?

The markets are very jittery this week already. Notwithstanding China's support yesterday for the eurozone, all eyes are still on Greece.

The choice facing the Greeks is a default on its debts or the bitter medicine of accepting a European Bailout of e100 billion, with some horribly stringent requirements.

However, as bad as these are (massive sell off of virtually all state owned assets, tax rises and social benefits reduced), we should consider the default scenario.

Argentina is the best comparator, as it came of its dollar peg - but even Argentina did not have to print an emergency currency overnight as Greece would have to do. Nor did it in the end default on a large amount of its debt. Yet over the next 3 years the Argentinian peso lost 80% of its real value. That is quite a haircut - Greece, if falling our of the euro altogether, could do worse.

As bas the the Eu bailout is, those on the streets of Athens saying 'let's default' have perhaps not thought through its costs. Imagine the price of a computer going from £400 to £1600 in a short period - too much for many businesses to cope with.

Argentina had at least a decent export market of grains and soft commodities to help bring in foreign cash - Greece has some but nothing like so much.

Instead, my vision of a bankrupt Greece is that state assets get sold anyway, only now the wealthy shipping owners, money safely in dollars in London banks, come back to their home country as 'saviours'; picking it up for a few drachma along the way.