Economics, Greece and John Galt

From Herb Daniels, Politics Bourd chief editorial writer.

United States President Jed Bartlett in the television program West Wing was an economist. We can't say the same thing about our current political leaders. Greece, creators of noble Deities from bygone era's, has had a bad run lately with Zeus-lite, chief economic Diety of Drachma. The mythical turns to reality this week as the world turns to Greece.


Greek Prime Minister George Papandreou said there was "zero possibility" of Greece leaving the euro zone. "One thing is for sure," he said. "We will not go to the market again with these barbaric interest rates because this is a recipe for bankruptcy.

"Increasing pressure on the European Union, Greece may seek financial help from the International Monetary Fund over the April 2-4 Easter weekend if no detailed rescue plans are forthcoming from the EU, a senior Greek official said Thursday.

"We still want a solution within the European Union, but it doesn't look good," the official said. "If there is no clear support at the EU summit on March 25, we will have to decide where to go next," he said. "There are a number of scenarios on the table, but the most prominent one is the IMF."

Prime Minister George Papandreou is "in steady contact with" IMF Managing Director Dominique Strauss-Kahn, the official added. The IMF, which has been giving Greece technical assistance on the debt crisis, has said it stands ready to help.

Mr. Papandreou said Thursday he has talked to the IMF as high interest rates are wiping out the steps Greece is taking to reduce its debt levels. The steps Greece is taking are those that would have been mandated by the IMF, he told the European Parliament. "They would ask nothing more," he said. "We have the worst of the IMF" without the benefits of an IMF loan, he said. Louka Katseli, told local media Wednesday the chance of going to the IMF was 70%.

Greece's debt crisis—the government last year admitted to a budget deficit of 12.7% of gross domestic product, triple the EU limit—has spooked global markets in recent months, battering the euro on worries that Athens might default and that contagion could spread to other indebted euro-zone economies like Spain and Italy.

Despite Greece's series of painful budget-cutting tax increases and spending cuts that have caused mass protests, investors demand a yield of some 3 percentage points higher for Greek 10-year bonds than for German bonds. Greece, which has sold €18 billion ($24.73 billion) worth of bonds out of this year's total borrowing needs of €54 billion, must redeem some €22 billion of bonds in April and May.

"Germany would be open to an intervention" by the IMF if euro-zone countries deemed it "a one-time necessity.""The rift with Germany is widening instead of narrowing," the senior official said. "There is an increasing belief in the government that the IMF will be the only solution."

Now, this writer recognize there is a lot of data and information in this editorial opinion and a short attention span and a real job to return too is not helpful in earning our learning time. But let's read a few hundred more words before we go to our power point slide shows. What does this data and information mean to me?

The US$ is falling and has fallen against the European Union euro. The EU monetary position is that Greece isn't keeping its end of the agreement by failing to meet agreed upon financial conditions. EU countries, especially the Germans, don't want to prop us Greece.

The IMF meanwhile is partially funded by the US Government by over $35 billion dollars annually, according to the information from the IMF website shown at the end of this opinion.

The US Government has over 20% of its debt held by China and another 20% plus of its debt held by Japan. The US Government now has a 1.2 trillion dollar shortfall or deficit of incoming US$ to outgoing US$. In addition, the underlying States in United States of America has a trillion dollar shortfall in meeting their commitments to former government workers in pensions and health care benefits.
Now, knowing the US$ is falling, Americans are deep in long-term debt, Americans owe more in short-term debt than what we make, and the US makes less than what we spend, then what is our action?

We tax our citizens at higher rates, we borrow more from a less-than-human-rights friendly communist government, former foe's, and we still contribute $35 billion dollars a year to the International Monetary Fund. The IMF can then bail out a heavily socialistic government with a dependent citizenry with a government who has knowingly falsified their records and reneged on their commitments to their neighbors in the EU.

Where is the imaginary economist President Jed Bartlett? I believe he's having a great time in discussion with another imaginary economist named John Galt. Perhaps the less than imaginary politicians Nancy Pelosi, Harry Reid, Mr. President, Charlie Crist, David Patterson, Arnold Schwarzenegger, Jeannie Granthem and others could schedule to attend the imaginary Webinar of this meeting.

Until an imaginative American leader comes to the light with an answer to why we do this, I am flummoxed (that's right, flummoxed). Knowing we have a falling US$ to the Euro and we're deep in debt, how can we still justify contributing to the IMF $35 billion dollars a year and more to "throw around" to prop up countries centuries old?

May that Greece has learned something from Zeus-lite that there is a future in "beg thy neighbor" to continue to strengthen my friends. Then my neighbor will be weak and my friends will be strong, When the European Community is not willing to finance its own member and another US$35 billion dollars is gone this year alone from our diminishing "lock-box" then what happens?

Our lenders, Japan and China, will they be stronger? Yes. Where is their incentive to "make nice" with a bankrupt America whose defense spending will likely decline to EU levels? Where then will the US$ go to "beg thy neighbor" for our people when the cookie jar of our largest societal segment of baby boomer American taxpayers goes empty?

It is time we reexamine our commitment to the IMF and allow Japan or China to step forward to fund the rescue of Greece from itself.

Based on the history of punishment for borrower defaults to the IMF it is no big deal to default on IMF debt. It's time to test whether a default to China is a big deal or not. This writer would rather Greece be the recipient of aid from the Chinese government. The Greeks would then experience the wrath, or not, of the Chinese if they default. America will then know our fate and our consequences when or if the US$ ever decides to default or devalue our currency reducing the value of our debt to the Chinese.

This writer imagined that if he attended the imaginary Webinar between John Galt and President Jed Bartlett that the opinions of John Galt would please the mighty Zeus-lite.


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Parts of this opinion and information was excerpted from an article in the Wall Street Journal on 3/17/2010— Patrick McGroartyin Berlin and Carolyn Henson in Brussels contributed to this article.


Below: IMF Home Page, courtesy of Bing.

United States: Financial Position in the International Monetary Fund as of February 28, 2010


Summary of IMF members’ quota, reserve position, SDR holdings, outstanding credit, recent lending arrangements, projected payments due to the IMF, and monthly historical transactions with the Fund.


I. Membership Status: Joined: December 27, 1945; Article VIII
II. General Resources Account: SDR Million %Quota
Quota 37,149.30 100.00
Fund holdings of currency 29,620.06 79.73
Reserve Tranche Position 7,530.50 20.27
Lending to the Fund
Notes Issuance
Holdings Exchange Rate
III. SDR Department: SDR Million %Allocation
Net cumulative allocation 35,315.68 100.00
Holdings 36,882.24 104.44
IV. Outstanding Purchases and Loans: None
V. Latest Financial Arrangements: None
VI. Projected Payments to Fund 1/


(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
2010 2011 2012 2013 2014
Principal
Charges/Interest
2.64 2.64 2.64 2.64 2.64
Total
2.64 2.64 2.64 2.64 2.64


1/ When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.