Why Greece Should Default and Go Broke With Dignity

by Bill Bonner
Daily Reckoning

Recently by Bill Bonner: Bubble to Bubble, Dust to Dust

First, the market news.

Yesterday, stocks went up. Gold went up. And bonds went down.

It was a “risk on” day…but not so much of one that you could draw any conclusion from it.

Investors still had the Greek debt crisis on their minds. But they seemed to have gotten tired of worrying about it. All the financial sweepers in Europe are working around the clock, trying to get the mess under the carpet or out the door. By the looks of the markets, they were succeeding.

But it’s not over yet. You’ll remember that we gave some advice to the financial officials who are in charge of bailing out Greece? We told them to take a page out of Gerald Ford’s book. Just tell the Greeks to “drop dead.”

Today, we give advice to the Greeks. Tell the bankers to “drop dead.”

A vote is expected today…which will tell us something. The Financial Times says it could be a “suicide vote.” That is, the governor of Greece’s central banks says the Greeks will be committing financial suicide if they don’t go along with the plan.

Speaking to The Financial Times, Mr. Provopoulos expressed concern that Greece’s economic crisis had been played down by politicians over the past 18 months as the country lurched towards a possible default.

“We have never really had a debate in this country about what went wrong. In Portugal the new government has come in and said that there will be a difficult two years ahead. We have not had that kind of talk here,” he said.

He added: “For parliament to vote against this package would be a crime – the country would be voting for its suicide.”

Turning up the heat, Olli Rehn, the EU’s top economic official, dismissed German suggestions that the eurozone was contemplating a “Plan B” in case the Greek parliament failed to approve the austerity cuts. “The future of the country and financial stability in Europe are at stake,” Mr Rehn said. “I trust that the Greek political leaders are fully aware of the responsibility that lies on their shoulders to avoid default.”

We’re not so sure. From what we’ve been able to make out of the rescue plan, they’d be better off rejecting it. Not that we’re in favor of people who don’t play fair. But this deck was always stacked. And the dealer had a few aces up his sleeve at the get go. The way we figure it, the politicians, the banks – notably Goldman Sachs, as well as the big French banks – were in on the whole thing from the get-go. It would be considered rude to mention it, for example at a champagne-swilling reception hosted by Christine Lagarde, but the whole deal was always corrupt. Goldman Sachs helped the Greeks disguise their debt so they could get in the EU system. Then, more or less the same bankers, advising pension funds, the IMF and the European Central Bank, urged them to buy Greek debt. And then, when the debt went bad, they organized a rescue – which spared the lenders any losses. And then, when the rescue went bad, they set to work figuring out the terms of a new rescue…and warning the Greek people that if they don’t go along, they’ll have to face Armageddon.

The Greeks would be better off calling their bluff.

Then, they could go broke with some dignity. They wouldn’t get any more credit. But more credit is the last thing they need. Besides, each time they are rescued, they end up in worse shape, with more debt to pay…and higher interest rates to pay on it.

So tell the bankers to “drop dead.”

Of course, the Greeks themselves were as corrupt as the bankers. They took their opportunities, too, as they came along. If they could get paid for not working, they didn’t work. If they could get a subsidy and not have to compete in the real world economy, they took the subsidy. If they could retire early, or get something for nothing, or hoodwink investors with some nonsense figures…of course, they did it.

So, there’s a pot. And there’s a skillet. Both are as black as a tax collector’s heart. And now they are both colluding to make sure neither has to reckon with his greed and errors.

Trouble is, that’s not the way it works. Debt doesn’t go away just because a knave and a fool decide they don’t want it. It’s still there. Like grinning death. It knows it will have its way.

Let’s see how things are going in the US.

We’re here in South Florida…where consumer confidence is falling, just as it in the rest of the nation.

Hey, if there were a recovery, how come consumer confidence is falling?

The answer is simple: there ain’t no recovery and consumers know it. The feds can babble about anything they want, but the typical consumer knows he is in a tough spot…and it’s getting tougher.

The good news: gasoline prices are falling. “But so are home prices in South Florida,” says the Palm Beach Post. House prices rose in 13 cities says the latest news. But not in Miami…which is in Palm Beach county.

Over on page 4 it says “Fla. Seniors insecure about income.” They ought to be. They’ve lost purchasing power for the last 10 years.

Of course, that’s just a part of the story. As we keep saying, the last 10 years has been a “lost decade” – for Florida seniors as well as just about everyone else, except the rich. The middle classes have lost ground on every front.

Their houses are now back to 1990s prices.

Their real incomes have actually gone down.

Their stock portfolios too have lost value in real terms.

And the job market offers them fewer jobs than it did in 2000.

A gallon of gasoline costs only $3.64 in Palm Beach County, down from $3.85 a month ago. But it’s up from $1.30 in 2000.

“Consumers will keep their wallets closed until they feel a heightened level of confidence,” says a source interviewed by the Palm Beach paper.

When will that be? No one knows, but if present trends continue Florida seniors will have turned up their toes long before they turn up their confidence.

Reprinted with permission from the Daily Reckoning.

July 1, 2011

Bill Bonner is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21^st Century and The New Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007). His latest book is Dice Have No Memory. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning.

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