Posted by Karl Denninger
Union officials told Reuters on Thursday the International Monetary Fund had asked Athens to raise sales taxes, scrap bonuses amounting to two extra months of pay in the public sector, and accept a three-year pay freeze.
Other measures in the 24 billion euro package include raising the retirement age from an average of 53 to 67, the FT said in its Friday edition.
Raising taxes means that private spending decreases. It must, because every dollar that comes from the taxpayer to fund government has to come out of private consumption or investment. It cannot be otherwise.
The Greek labor unions have made clear they will not accept the current austerity measures (read: cutbacks in pay and benefits), say much less more of them. We’ve already seen riots, which in point of fact are never that far away from a general conflagration, otherwise known as “civil war” (which is anything but civil.)
There’s a lesson in here in that the Greek deficit as a percentage of GDP is just over 10%.
So is ours.
So is Britain’s.
So is Spain’s.
The destruction they are witnessing “over there” will come here eventually. Remember, this disintegration came in just a few weeks – it was not long ago at all that we had a new Greek government which had made lots of pretty campaign promises and investors and banking officials worldwide – including the ECB itself, their central bank – said that the Greek situation was under control and they’d be able to work their way out of the hole.
These sorts of crisis situations never come slowly, just as did not Lehman Brothers. But just like Lehman, there was plenty of warning, if anyone had bothered to pay attention. Bear Stearns, threats of “Bazookas” in one’s pocket and just the simple math made clear what was coming.
But as with most governments doing the difficult things – including locking up firms that enabled ridiculous levels of fraud in financial reporting and putting a stop to the games – never happens. The government is inevitably bought and paid for right up until the front wheels of the bus go off the cliff.
Then we all marvel at how “nobody could have seen it coming.”
Well folks, it is coming. It is coming for Britain, with the amazing thing being that they’re actually talking about it – and that after their upcoming elections very difficult measures will be taken.
But they’re not being taken here.
They’re not even being talked about here.
GDP is due out in 10 minutes, and I’m sure the number will be positive. But I’m also quite sure it won’t be +11%, which is what it has to be in order for there to be real positive private final demand.
We’re in a big hole and it’s well over our head. If we keep digging the sides will eventually collapse on us. Neither I or anyone else knows exactly when it will occur, but that it will is a known, absolute and certain fact.
We need to stop digging, but I bet we won’t – until the walls do in fact collapse.