Greeks drop debt referendum
The Dow rose 208 points yesterday. Hardly a day goes by without a 100+ point move. We鈥檇 be disappointed with anything less.
What these extreme moves are telling us is that investors are very uncertain. They know there鈥檚 a lot at stake. And they don鈥檛 know which way it will go.
Yesterday and the day before they were betting that Europe would muddle through. Their optimism seemed justified as Greek premier George Papandreou dropped the idea of holding a referendum.
鈥楬ey, George,鈥� said the bankers鈥� 鈥榊ou can鈥檛 let the voters decide something like this. You know what they鈥檒l say. They鈥檒l say they don鈥檛 want to pay our damned debts. And what are we going say?鈥�
Of course, it鈥檚 not that simple. When the going was good, the Greeks were able to borrow a lot of money at German interest rates. Anybody who bothered to look at the history of Greek debt would have known that it was a bad bet for the lenders. The Greeks have been in default during about 1 out of every 2 years鈥ver since they gained independence in 1828. The Greeks are good at gaming the system, having a good time鈥nd living well. They stay up late鈥ut they retire early!
Who can blame them for taking the bankers鈥� money? And who can blame them for not wanting to pay it back? The bankers should have known better than to lend to Greeks!
At the heart of the problem is a lot of debt that really cannot be repaid. The more you squeeze an economy with austerity measures鈥he less juice you get out of it. The more you try to pay鈥he less you are able.
The debt is bad, rotten鈥t has turned鈥t is way past its 鈥渟ell by鈥� date.
The smart thing would be to let the market handle it. Greece goes into default. The banks go broke. The debt is 鈥榩aid鈥� by the people who ought to pay it 鈥� the people who lent it to the Greeks in the first place.
Naturally, the bankers鈥nd the people who run government finances鈥on鈥檛 want that to happen. They鈥檝e invested their careers in keeping the debt-ball rolling. They want to see it continue鈥t least until they retire.
So, they push it. And clear the path ahead 鈥� by taking obstacles, such as democratic referenda, out of its path. Democracy is great when the voters give you the answer you want. When they don鈥檛鈥orget it.
Here at The Daily Reckoning, we鈥檝e never had much truck with democracy. After all, why should a bunch of strangers get to tell us what to do? But there are some things it is good for. Deciding the colors of the national flag, for example. Or the tune of the national anthem. Or who will represent the country at the Miss Universe contest.
Otherwise, we don鈥檛 need no stinkin鈥� democracy鈥� Better to let people decide for themselves how to organize their lives.
But there鈥檚 no point in telling people our creed. They don鈥檛 care. Besides, they want someone to tell them how to organize their lives.
The problem in Greece ought to be a private matter. It鈥檚 between debtors and creditors. They can work it out between them. Always have. But if you鈥檙e going to try to bail out the creditors鈥y making the citizens pay鈥ou should at least have the courtesy to let them have a say in it!
Meanwhile, back in the USA鈥�Bloomberg reports that the number of really poor people is increasing:
Economy Drives More Americans to Extreme Poverty
The number of Americans living in neighborhoods beset by extreme poverty surged in the last decade, erasing the progress of the 1990s, with the poorest areas growing more than twice as fast in suburbs as in cities.
At least 2.2 million more Americans, a 33 percent jump since 2000, live in neighborhoods where the poverty rate is 40 percent or higher, according to a study released today by the Washington-based Brookings Institution.
The report, which analyzed Census Bureau data, shows the extent to which the US lost ground in efforts to fight poverty during a decade marked by recessions, including the deepest slump in seven decades. The Midwest and South were hardest hit, suffering from manufacturing job losses and the housing bust.
鈥淲ith two downturns and a decade that saw the typical household income fall, the 2000s took an economic toll,鈥� said Elizabeth Kneebone, a senior research associate at the Brookings Metropolitan Policy Program and lead author of the report.
When people are concentrated in very poor neighborhoods, they face a host of additional problems from worse schools and fewer job opportunities to poor health, she said.
The report follows the release of data by the Census Bureau in September that showed the number of people living in poverty was the highest in the 52 years since the agency began gathering the statistic. US household income fell to its lowest level in more than a decade in 2010 and poverty rose to a 17-year high.
One of the interesting things to come out of the study was that poverty is no longer just an inner-city problem. It鈥檚 moved to the suburbs. A few years ago you could escape poverty by moving to the suburbs. Now, you鈥檝e got to escape from the suburbs too.
Bill Bonner
听蹿辞谤 The Daily Reckoning
