Classic Liberal Blog

The following are a few different and interesting looks at the crisis in Greece.

A wake-up call for America.

The Road to Greece and Rome

Leave it to the Greeks to expose American liberals and the road to statism they continue to take our nation.

Over the past 20 years, how many times have we heard European statists extolling the virtues and benefits of the socialistic welfare state? Europeans have proven that socialism works, the statists have repeatedly claimed over the years. Just look at how successful all that free government dole has proven to be in Europe.

And then there is Greece, which everyone is conceding is only the first socialist European domino that is set to fall. Notice that there’s no talk about how deregulation, free enterprise, free markets, the bankers, the speculators, profiteers, or greedy people are responsible for the Greek debacle. Everyone concedes that the core of the problem is debt, massive amounts of debt that the Greek government has incurred to fund the ever-growing demands of the parasitic class, that is, those Greek people who are on the government dole.

Let’s go back to economic basics. The only way that government gets its money is through taxes and borrowing. If it borrows, the way it pays back its debt is by taxing people and then using the tax revenues to pay off the debt.

Not surprisingly, given human propensities, over time the number of people who are seeking to go on the dole increases while the will of public officials to tax people diminishes. Giving out the dole to more people is fun but collecting the taxes to fund the dole is not so much fun because people tend to get angry over that sort of thing.

So, to fund their welfare state Greek public officials just began doing what U.S. public officials have been doing to fund their welfare-warfare state. They embarked on a massive borrowing spree, borrowing ever-increasing sums of money ... it’s no big deal because “we owe it to ourselves.”

But as the Greeks are discovering, it is a big deal precisely because “we don’t owe it to ourselves.” One group of people — the bondholders —are owed money by the government. And the only way the government can pay off the bondholders is by taxing another group of people — those in the private sector who have wealth.

There is an obvious solution: dismantle the welfare state and the massive spending and borrowing it requires. But that’s anathema to statists everywhere, including Greece. Meanwhile, Greece’s dole recipients are on the rampage, refusing to accept even modest reductions in their dole.

I've been warning about inflation since I started this blog. Now here's Jim Rogers on the coming currency crisis.

Currency crisis will get worse: Jim Rogers

You have been warning us for quite sometime now about our currency crisis. Is that what is finally upon us?

The currency crisis has been going on for a while. It did not start this week. It has been happening for a while. It started with, maybe depending on how you want to look at it, with Iceland or Latvia or many other countries who have been having problems, and the currency crisis is continuing and is going to get worse. This is not the end. Over the next year or more, we are going to see more. So prepare yourself.

What is your sense? Do you think that the Eurozone is going to shrink because of what we are witnessing in Portugal, Greece and Spain?

Eventually the euro unfortunately is going to break up I am afraid because it keeps weakening itself from within. If they would lead Greece go bankrupt, for instance, it would strengthen the euro, it would strengthen the Eurozone because then people would know you have to maintain a sound economy, you have to maintain a sound currency and everybody would jump in and buy the euro including I would buy more if that would be case. Weakening from within and continuing to lend money and paper over problems is not a solution for a sound currency. I do own the euro, do not get me wrong but I do not thing this is the proper approach.

We are also seeing the impact of the crisis on most commodity markets. Do you think that this is just temporary and commodity is still the place for investors to be?

Yes, gold is making all time highs in some currencies. So some currencies are doing well during this period of time. But to your bigger question, if the world economy gets better then obviously commodities are going to do better because the world would use more and there are shortages developing. But let’s assume the worst, let’s assume the world economies does not get better, the things continue to get there, then I would rather be in commodities in most things because governments are going to print even more money and whenever you have had printed money throughout history, it has led to higher prices for real goods whether it is silver or natural gas whatever it happens to be. So I would rather own commodities than most things in the world that we have in the next two or three years.

The world financial crisis can be boiled down to the Austrian School of economics versus Keynesian economic theory. In other words, free markets vs. central planning.

Sovereign debt, centralized economic planning, and a bit of history.

This is the logical end of uncontrolled sovereign debt, Greek style.

Since the Greek parliament approved some austerity measures, scenes like that above have been the rule rather than the exception. The government sector of the Greek economy has expanded to such an extent it is reported that there is no accurate count of the government employees available. Greek protests and riots have resulted so far in the deaths of three bank employees. Greek public employee unions are directly involved. As has been written elsewhere in Washington Rebel, public sector employee unions have no legitimate public purpose, but are instead in league with bureaucrats against the taxpayer.

There is every reason to think we will not avoid the kind of economic meltdown we see in Greece now, and soon to be witnessed in the PIIGS of Europe..We are linked to the Greek crisis, most directly through the IMF, which has agreed to provide ~$40B in loans to the Greek government. As you probably know, the United States is the primary financial backer for the IMF.

What is common about these economic train wrecks? Precisely one thing: the centralization of economic planning by governmental entities. The delusion that an economy of any size can be organized and directed in detail by a central government was is the basis of a century-old disagreement between the Austrian School of economics, exemplified by Friedrich A. Hayek, member in good standing of the Austrian school of economics, which advocates individual liberty and very limited government intervention in economic activity, and economic Statists, whose patron saint is  John Maynard Keynes.

How central planning was adopted by Wall Street.

Wall Street & the Bolshevik Revolution

The Bolshevization of Wall Street was known among well informed circles as early as 1919. The financial journalist Barron recorded a conversation with oil magnate E. H. Doheny in 1919 and specifically named three prominent financiers, William Boyce Thompson, Thomas Lamont and Charles R. Crane:

Aboard S.S. Aquitania, Friday Evening, February 1, 1919.

Spent the evening with the Dohenys in their suite. Mr. Doheny said: If you believe in democracy you cannot believe in Socialism. Socialism is the poison that destroys democracy. Democracy means opportunity for all. Socialism holds out the hope that a man can quit work and be better off. Bolshevism is the true fruit of socialism and if you will read the interesting testimony before the Senate Committee about the middle of January that showed up all these pacifists and peace-makers as German sympathizers, Socialists, and Bolsheviks, you will see that a majority of the college professors in the United States are teaching socialism and Bolshevism and that fifty-two college professors were on so-called peace committees in 1914. President Eliot of Harvard is teaching Bolshevism. The worst Bolshevists in the United States are not only college professors, of whom President Wilson is one, but capitalists and the wives of capitalists and neither seem to know what they are talking about. William Boyce Thompson is teaching Bolshevism and he may yet convert Lamont of J.P. Morgan & Company. Vanderlip is a Bolshevist, so is Charles R. Crane. Many women are joining the movement and neither they, nor their husbands, know what it is, or what it leads to. Henry Ford is another and so are most of those one hundred historians Wilson took abroad with him in the foolish idea that history can teach youth proper demarcations of races, peoples, and nations geographically.³

In brief, this is a story of the Bolshevik Revolution and its aftermath, but a story that departs from the usual conceptual straitjacket approach of capitalists versus Communists. Our story postulates a partnership between international monopoly capitalism and international revolutionary socialism for their mutual benefit. The final human cost of this alliance has fallen upon the shoulders of the individual Russian and the individual American. Entrepreneurship has been brought into disrepute and the world has been propelled toward inefficient socialist planning as a result of these monopoly maneuverings in the world of politics and revolution.

America also faces a demographics crisis like Greece.

The Greek Crisis Is A Demographics Wake-Up Call

The sovereign debt crisis in Greece had a brief respite when Euro-zone member countries and the IMF agreed on a €110bn rescue package last week-end. However, the financial markets wanted nothing of it, dragged the world stock markets lower and drove the Euro to its lowest level in 14 months.

The Greek crisis and the populist backlash are a wake-up call, not just for Greece and Europe but also for the US and most other developed nations. The current government budget deficits and the overall debt burden may be frightening but they pale in comparison to the scale of unfunded liabilities for pensions and healthcare. Temporary measures for bailouts and economic stimulus packages are one thing but without drastic measures, ongoing government deficits are simply not sustainable for the simple fact that people live longer and there are not nearly enough young people joining the work force to generate sufficient government revenues and to support the growing unfunded liabilities.

In my view, the root of the problem (in addition to the obvious irresponsible spending habits of most government officials) is demographic in nature; the easiest way to hint at the scale of the predicament is to look at projected population charts.

Greece is just the beginning. The world's financial systems are falling apart.