Friday, November 4, 2011

Greece as a Revolution

I got a message today on how Forbes was pushing a "military coup" in Greece to keep them on the straight and narrow, however, this was late to the party in that progress of a revolution is either back and forth blows by different sides, or once a side has established power, a sequence that is designed to drive down the other factions. In Greece we have had a series of elite coups, where by the future of the country is mortgaged to allow the elites to move their fortunes to safety, and a series of popular reactions. Each popular reaction was insufficient to block the elite coups, but destabilized the assurance that the elite coups would hold.

What happened in the last week was that the Prime Minister threatened to hold a referendum – that is, a member of the elite was using the threat of a popular blow to enhance his own position. The result was a no confidence vote being scheduled, which is, as my essay made clear, a constitutional coup. The PM withdrew the referendum call, and was allowed to remain in power. The return blow then, must be from the public. If the public does not topple the government, then they are accepting the outcome that all main political parties regard protecting Greek elites as the paramount concern of government. The Greeks will then have to vote with their feet, as they have in the past, as Greece, itself, will be driven down deep into second world status, with a deflationary spiral causing repeated crushing burdens imposed, and demands for everything to be sold off at fire sale prices. They are, as Ireland and Portugal were, at the end of the line.

This is not about "the ability to borrow." It is about the elites having liquidity to leave Greece, and then buy back in at lower prices later, while the public is stuck with illiquid and vanishing assets - pensions, rights, franchises, monopolies. All of these will be taken away, because they cannot be converted into hot money – the Euro.

Contrast this with Greece going off the Euro - which it should not have been on – and going to the drachma, with a forced conversion to drachma of Euro based assets owned by Greek citizens. That this point the elites could no longer flee Greece, nor buy back in later – using catastrophe arbitrage. Greece could borrow, either in Drachma from its own citizens, or in hard currency from the outside world, though at rates which would end lending. Now, they will borrow, in order to bail out others. The money will not "bail out" Greece, but instead be charged to Greece to bail out others. Greeks over the next generation will be bailing out others, not be bailed out themselves.

The key rule of financial crisis is to prevent flight of assets and liquidity, however, corrupt elites have flight as their first priority. Therefore, if the public wants to have a country left in such moments, they must demand that capital flight end, if necessary, by toppling governments until one committed to remaining in the country takes power.

Since Portugal would not do this, and it seems Greece will not, these nations are going to be crippled for years to come, or have a half life prosperity only by doing off shore work for someone. Do not be surprised however, if Greece ends up going the road of Albania, and becomes a haven for drug running, gun running, and other forms of smuggling – because these are the businesses which they will be able to enter.

The Skipping Stone

People have been asking me what is going on with the economy, and the answer is rather simple: there are two posts that mark the global economy. One is the upper bound of oil where NEG phase change from a globalized economy to a localized economy occurs, this is somewhere around $110/barrel for oil. The other is the collapse of the credit system from dollar drought. Thus the Fed and other monetary authorities must "skip the stone" over the water, neither allowing the banking system to freeze over and deleverage, nor the economy get so hot that the trade system unravels. Having seen the top an the bottom viscerally recently, they actually believe in these sign posts, and thus we wander between them.

This "skipping stone" cannot go on for very long, because on each down leg more economies fall into recession or depression: the UK is in a stagflation recession now, and Greece dropped out the bottom on this down skip. Spain and Italy are next.

While various people speculate about what might happen, all you really need to know is this: upskips cannot even generate enough jobs to soak up the new people coming into the job market, which means that the unemployed become the unemployable, and then the disemployed.

The various political movements running around are going to do nothing about this, so there are no unforeseen factors in developed economies. This is it until such time as the patience with bear depression cycles ends. Since there is only one workable way to produce a fast shot of growth, that is a non-conventional carbon boom, that is what will be done, under a Republican in all probability. This will lead to another raid on the atmosphere, until the tail effects of climate change are unavoidable. The Baby boom will be gone then, and they will have packed power with generation asswipe: the obsequious courtiers of the Millenial generation willing to osculate posterior to get ahead, but who are incapable of doing anything other than balance the various immovable ideologies in a room.

It's over people, only when Generation #Fail – that amalgam of Silent, Boom, X, Millenial that we have now – passes off the stage, will there be change, however, it will be tumultuous violent change, because every component of power today knows they can stop real change by simply not agreeing. Thus, only when people are to the point of violence will this be broken.

Sorry about that.

So look forward to about a year of skipping stone as Obama and Bernanke try and save their jobs, and then Drill Baby Drill after that.