Wednesday, December 15, 2010

Take Your Austerity and Shove It!

It looks like the Greeks decided to not be upstaged by Italy today:

My Take:

Nothing like seeing angry mobs trying to light cops on fire.  How long can this last until the police say "F" this and join the other side. 

Folks, take it all in because you are going to see a replay of this over here.  I say this because the US is in the same fiscal shape as Greece.

The images above are horrifying and it's only going to get worse.  This is what happens when your debt levels can no longer be sustained, and you must slash the cost of government via austerity in an attempt to stay solvent.

The problem we have is the people in the world today are soft and have no idea what it's like to experience real HARD TIMES.  Go watch a few clips from WWII or the Great Depression if you want to see what it's like to really struggle in order to survive.

As a result, citizens like the Greeks are completely unprepared when the government stops writing checks when they run out of ways to borrow more money.

The bottom line here is reality is beginning to set in and they don't like it.  The people of Greece are now broke and jobless, and the government has no money or answers for them.  This is not an acceptable answer for it's citizens so they turn to violence and upheavel as they become enraged with the situation over time. 

Things is only going to get worse as people become more desperate.  If I was a politician over there I would be strongly considering getting the hell out of dodge before getting bloodied like the stooge at the end of the video above.

I know if I lived in Greece and had money I would getting out of there because inevitably people will start stealing from others in order to survive.  Think about it:  What other options do people have when there are no jobs and no future?

Some advice:

Before you go spend your last $2000 on a 50" HDTV I suggest you reconsider unless you have at least 6 months of cash in the bank. 

In case you missed the move in bonds, we are now seeing something similiar to what Greece saw a year ago in their own debt markets.  Take a look at the 10 year today:

Now take a look at the 10 year since the Fed decided to QE in early November:

The Bottom Line:

Are we officially Greece yet?  No, but we are well on our way if we don't dramatically change our government spending. 

Greek 10 year bonds got up to around 9% yield before all hell broke loose in their debt markets.  How did they get there?  Just like we did by spending.

Remember folks, the path to insolvency does not matter.  We got here by bailing out the rich and hiding our losses.  Greece got there by allowing their public sector to retire at the ridiculous age of 53.

The point I make here is it doesn't matter what path you take.  Once you are considered to be insolvent from a debt vs GDP perspective it's over because no one will continue to lend you money.

Does anyone really think the Chinese will keep lending us money via buying treasuries if they don't think they will get paid back?  You are delusional if you believe so.

Everyone likes to think that it's different over here.  Yeah OK.... I recall a realtor telling me the same bullshit when I looked at houses during the peak of the housing bubble.   

Like my father always says:  "It is what it is".  Insolvency is insolvency no matter what country you live in. 

Whats scary to me is I think we are toast over way before we reach the 9% yields that Greece did because we have issued so many trillions of dollars in treasury bonds that we must pay interest on. 

For example:  If we hit 6-7% yields on the 10 year then a huge chunk of our GDP would have to be used to service our $14 trillion of public debt.  Austerity would then be forced upon us because no one would lend to us without a realistic budget. 

Fortunately, the US is allowed extra time to get it's house "in order" because we have been the world's "safe haven" for several decades.

This luxury has arrogantly made us think that we can keep acting like Greece without the consequences.  How else can you explain the passage of another $900 billion spending bill on tax cuts?

The bond market is currently telling us that we are no different than anyone else.

The US politicians need to learn the from the lesson that our Realtors were taught a few short years ago:  Housing doesn't always go up if you treat it like a Ponzi scam and our reckless spending is no different.

Government spending will be forced to collapse once we reach the tipping point of sustainability just like the Greeks and the housing industry learned.

If we fail to recognize this and take action then our debt bubble will end up popping just like the housing bubble did. 


Herb said...

Your forgetting that the Greece cannot print its own money.

Bernake can keep the presses working overtime. That should buy us a few more years.

Jeff said...


Great point but the end game is the same.

Ben can print all he wants until the bond market stops the nonsense which is what I think is happening right now.

If the bond market doesn't stop it then the US dollar will become trash but it might take awhile as Europe unwinds.

Lots of tides right now. Hard to figure out where this ship takes us IMO.

flipdippy said...

But Jeff we are different. We have more $ to keep bailing out the banks who must have all gotten their MBAs at Strayer given their love of terrible investments. First dot coms then cdo and now european bond debt.

But what would the worlds biggest bubble be without a spectacular blowoff top? I think we need a few more fireworks before it is time to cash in and move into the basement bunker.

I have my plan set, down to where I will get food and fuel and when I will cash all my assets in.

We are getting close.

Jeff said...


I agree. There is a little more time left. Especially with Europe blowing up.

However, If the bond market keeps selling off like it has all bets are off.

You can't print if rates keep soaring because it threatens the solvency of this country.

Scary times for sure.

CT-Hilltopper said...

You know, when I first started reading and commenting on this column, there were at least six to nine comments a day, and sometimes more. Not everyone would agree with what you were writing, but there was a lot more interest.

It isn't just the holidays either, because the level of comments have been dropping off way before Thanksgiving.

I don't know if it's that people have had their own problems to deal with (like me), have started believing the propaganda, or have just started sticking their heads in the sand at this point, but you have been on fire lately with your posting, and your audience has been a few die-hards. (and thank goodness for them)

It's good to see that you are back on track with your posting. i do enjoy your blog. I look for new posts every time I get on here.

Herb said...

I don't remember any .com companies getting bailed out. A lot failed quite spectactularly.

Art said...

Greed is good :

Create nothing, simply transfer the wealth.

Jeff said...


It's funny

Traffic is way up but comments are down. Last month was the busiest month of the year and double what this blog did 6 months ago

A lot more lurkers for whatever reason.

The comments dropped when the layout changed so I wonder if that had something to do with it.

Anonymous said...

Off topic but I had an idea I want to run by you. A solution to the huge amount of bank reo, how to sell houses in a declining market, and underwater homes. Have percentage mortgages. The house is valued based on the average selling price of comps. The bank would decide on a reasonable monthly payment based on income. The payments would be deducted from the loan as percentages not dollar amounts. The bank gets a steady income and upkeep of the property. The homeowner knows that they are in an essentially no loss situation if they keep up with their payments.

Jeff said...


Sounds interesting but I think it would be tough to pull off because so many parties would be involved IMO.

Comps are tough when nothing is selling in many markets. Real values have not really been recognized because many can't afford to sell because they are underwater.

If we had real price discovery then perhaps that could work. I don't think there is confidence that home prices will stabilize at these levels.

As a result, it would be difficult to figure out a price that all parties could agree to.

getyourselfconnected said...

Indeed, great stuff Jeff.

I have been quiet for reasons of my own, but I see this stuff as well. Keep up the great work.