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Playing "Chicken" European Style

Posted on Thursday, February 19, 2015 No comments

Thursday, February 19, 2015

Well, the Germans apparently have had enough of subsidizing Greece's 30 year old students and 50 year old retirees.  Who knew?

Greece requested a "no strings attached" extension on their last bailout terms.  Germany just rejected the request out of hand.  The reaction has been swift and telling:

From a Greek political observer on Twitter (@YanniKouts):
The Germans are going a step too far. Greece will now find many supporters. Germany risks Eurozone crisis.
It seems they think sympathy is a currency.  No wonder they're in the shape they're in.

Steve Collins from London & Capital Asset Management (@TradeDesk_Steve) is shocked! Shocked, I say!
YOUVE GOT TO BE KIDDDDDDDDING! What does Greece have to do ????
Silence from the other Finance Ministries is deafening - we need to hear if they are all just hiding behind the Germans
And then there is Columbia University's Jeffrey Sachs as the latest in our parade of academic economists - as if Jon Gruber wasn't enough:
Germany & Eurozone must choose to negotiate with Greece. Otherwise Eurozone will fall apart & damage the world.
From his blog we learn that Sachs is a "world-renowned professor of economics."  I wonder if he thinks the Germans are too stupid to understand the consequences of their stance.  That would pretty much be par for academic economists' course.

Sachs worries that finance ministers in Europe will "derail the global recovery."  Uh, exactly what recovery would that be?  Does he mean the fictional GDP numbers we're fed here at home?  Everyone who has actually made dinner lately knows full well that inflation is not under two percent.  And if inflation is grossly understated, the mathematics of the GDP necessarily mean that GDP is grossly overstated.  So, again, which recovery are we talking about?  Europe's?


Sachs' latest post is an absolute masterpiece.  If anyone needed any further evidence - after MIT's Jonathan Gruber - that our culture of experts is on the brink of destroying the world economy, look no futher than the link provided above.  Let's review:
These are the facts: Greece has a newly elected government because the Greek people understandably have asked for a new approach to overcome the prevailing 26 per cent (sic) unemployment. This new government needs around 90 days to find its feet and make new arrangements with its creditors.
So we see unemployment and debt rising together. Hmmm.  The solution would seem to be obvious, but nooooo...
During this 90-day period, Greece also needs to make several billion dollars worth of payments to its eurozone creditors and the IMF, and these payments will require new loans. Greece also faces a self-fulfilling run on its banks as a result of the prevailing uncertainty. It is the stuff of introductory banking textbooks. Why keep money in Greek banks if they are at risk of collapse because of a run and a lack of ECB financing?
So, after seeing debt and unemployment rise together, the answer is more debt?
Greece and its creditors therefore need 90 days reprieve to sort things out... If they can’t resolve their... disputes during that period, Greece will probably be pushed out of the eurozone... [which] would suffer a decisive collapse of credibility from that point onward.
Both Greece and the eurogroup should say that the 90 days are a period to try to find a creative and mutually satisfactory solution to the existing problems. The debts should be rolled over, with new IMF and European Financial Stability Facility (EFSF) loans replacing those falling due. The ECB should provide liquidity to Greek banks, knowing full well that the deposits now fleeing the country will quickly revert to Greece if and when a new accord is reached. Depositors prefer to keep their deposits close to home when it’s safe to do so.
Oh, I see: 90 days to devise a way to make 2+2=8.  Sachs seems to think the nature of the problem is a combination of finance and philosophy.  If the "world renowned" economist can show us exactly which financial arrangement can make 2+2=8; or under which philosophical construct the Greeks can pull that off, well, by all means make some new loans and please, teach the rest of us how to borrow like this!

Again, we are talking about a cultural expectation of government which allows students to study until they are 30 and then retire when they are 50.  There are simply too few people between 30 and 50 to produce in the economy to support this.  So the Greek government imposes confiscatory taxes on those between 30 and 50... and then condemns the (inevitable) culture of tax avoidance... all the while borrowing more and more to make up the difference.

Exactly what about this math does Sachs not get?
The Greek government has properly and calmly repeated that it was elected to improve the program, not merely to complete it. This is a plausible position given Greece’s desperate economic situation. As Mr Varoufakis has said about Greece’s economic crisis, “This is not a game.”
No, they were elected to make 2+2=8.  It is, indeed, not a game.  It is a calculator.  The only question is when the Greeks will finally be forced to come to terms with what happens when you press the "2", the "+", the "2" and the "=" keys in exactly that sequence.  You can try that for 90 days straight and I am fairly certain the calculator's answer will never be eight.  And I am not even a "world renowned" economist.
I am certainly no German-basher. Germany has one of the world’s best-run economies. It has earned its prosperity, not taken it from others. Despite the complaints of its less competitive neighbours, German policies are not “beggar thy neighbour”. Greece’s deep crisis is not caused by Germany, but by Greece. Yet Greece has a very deep crisis nonetheless, and the current government is responsible for addressing it, including through good faith negotiations with its creditors. Yet good faith negotiations require both parties.
Really?  So why would would they sit by and watch Greece's 30 year old students and 50 year old retirees rob them of the prosperity they have rightly earned.  The kind of money printing that is necessary here will do just that - rob German savers of their savings through inflation.  The Germans have seen this movie before - and it did not end well the last time.

"Good faith" has to be rooted in mathematical realities.  2+2=4, now matter how you cut it, today or 90 days from now.  The people complaining are those whose financial bets have been placed on the money printing enterprise of the ECB, or those whose academic theories will be the first things to collapse when mathematical realities finally trump political ambitions and reveal the supposedly free market for the den of thieves it has become.

I Bowed Before an Image: Actually, Lots of Them

Posted on Sunday, February 15, 2015 No comments

Sunday, February 15, 2015

From  I took this same bus line 
from the Narita airport to the Haneda airport for a flight to Fukuoka.  The
attendants bow to greet the passengers as the bus arrives.  
Over the last week of January and the first week of February this year I found myself in one of the most engaging, fascinating places and situations.  I was on travel for work to Japan.  The first leg of my flight left a few hours late, so I missed the connecting flight to my first destination (Sasebo).  This forced me to make some on-the-fly changes which included flying out of a different airport than planned and making a couple unplanned bus connections.

And it only got better as the trip progressed.  Because of bus/flight timing, I had to leave Sasebo a day early, make a last minute hotel arrangement, and then fly back to Narita (near Tokyo).  And all of this while fighting off the flu.

I had expected to get sick.  It was the height of the flu season.  The strain common among the Japanese, of course, is not something they worry about when making the vaccine here in the U.S.  And I had never been in Japan before, therefore I had no immunity.  So the middle of the trip was a matter of fighting through the flu while commuting for about two hours each way, each day, from Narita to Yokosuka on their local and express trains.

But it was an absolute joy nonetheless.

A small part of that is just my makeup - I love flying by the seat of my pants and having to just make it up as I go.  Being married with two high school age boys doesn't usually leave one too many opportunities like this, so I was intent on enjoying it while it lasted - flu or no flu.

The much bigger part of what made it so enjoyable was the simple joy that you find in Japan when just watching the people.  That joy permeates relationships.  There is a deeply ingrained interpersonal courtesy among the Japanese.  Of course, this is expressed in how they bow to each other as a way of both greeting and expressing thanks.  Even down to the curbside staff of the bus lines that serve the airports - they actually bow as each bus arrives to greet those riding the bus.

I had left the U.S. on Monday.  Crossing the International Date Line meant I arrived on Wednesday (Japan time).  It wasn't until Sunday - the Lord's Day - that the significance of all of this began to hit me.

I was bowing before images.  Lots of them.

Coming from my Evangelical seminary education, I can tell you that there is a lot of writing and thought out there about what "idolatry" means.  The Ten Commandments tell us not to make any "carved image" (or "idol") of God; to so do is then called "idolatry."  I think it might actually be pretty easy to get our heads wrapped around exactly what this means, but we have to start by asking a simple question:  Why not?

Why not make a statue of what we think God looks like?  Other religions have them.  Why not us as well?

I know the conventional answer: Our images can never capture what God is like in all of the rarified senses that entertain the seminary faculty and their dutiful students.  But I am becoming convinced there is a much simpler answer and that you do not need a seminary degree to understand it:  We are not to make images of God because He has already done that for us.  The creation story tells us we are created in the image of God.  So if you want to know what God is like, you do not make a statue - you go next door and talk to your neighbor.

And in Japan, you actually bow to him or her.

I left Japan thinking there is something very "godly" about their traditions of interpersonal courtesy.  When we use the word "Christian" to describe a country, we usually think of the existence of churches.  South Korea is a "Christian" country in that respect.  (There is a fascinating history there - but that will have to wait for another post.)

You will not find much of that in Japan.  But you can certainly find God - if you just know where to look.  I found Him in their courtesy.  It leads me to wonder if, for looking for Him in church buildings and even among politicians who supposedly share our beliefs we have brought ourselves to a place where we can no longer see Him where He wants first to be seen - in our neighbors.

I didn't go to church that Sunday.  But I was in the presence of God just the same.  I found him in the courtesy of a bow shared between images of Him, created by Him, for just that purpose.

Vassals or Enemies: Can Putin Actually Lead?

Posted on Friday, February 13, 2015 No comments

Friday, February 13, 2015

Former U.S. ambassador to the Soviet Union George Kennan is famous for observing that Russia can only have "vassals or enemies" at its borders.  With the new peace deal crafted between The Ukraine and Russia, with the help of German Chancellor Angela Merkel, today's news is rich with history.  It is also pregnant with a question: We know Russia can seize territory.  But can Russia escape the gravitational pull of its own history and seize a future of prosperity and wealth?

The biggest part of that history is no less than 20 million Russian deaths during World War II.  It is a number which staggers the imagination, and at least partly explains (geography and military history helps as well) what seems to be a cultural predisposition to paranoia on the part of Russian leaders.

But imagining a future which is exactly like the past - with only vassals or enemies at their borders - is not the answer to what might otherwise be perfectly legitimate Russian geopolitical concerns.  For us in the West - as we watch an exceptional story unfold before us in The Ukraine - there is an opportunity to articulate a decidedly new - and exceptional - view of the future.  And for leaders like Vladimir Putin and Petro Poroshenko there is an opportunity to seize this chance to actually lead Europe away from a geopolitical orientation which history should teach us will only careen from violent confrontation to violent confrontation.

But this has to start with bridging a chasm in understanding between West and East.  I have written here and here in this blog about exactly what I think "American Excpetionalism" means - and how we are seeing the same thing emerge among the people of The Ukraine.  Russia takes exception to this view because they misunderstand it.  I believe it is exceptional in human history for a people to forge a national identity of ideas instead of ethnicity and religion.  In America we have shown that this can succeed.  In fact, we have shown that true prosperity and wealth follows when the first priority of the exercise of power is the securing of the natural rights of minorities in our midst.  This is the exceptional story of our Constitution and the form of government our Founding Fathers pioneered over 200 years ago.

It might also be the story of The Ukraine... and perhaps even of the future of Europe.  If this exceptional life can be understood together by both Putin and Poroshenko, they have an opportunity together to rescue a prosperous future from a violent past.

For Poroshenko, the geopolitical concerns of the Russians offer an opportunity to strike out and carve a path different from the rest of Europe - and to potentially show the rest of Europe a prosperous way forward.  By staying out of the monetary union of the Euro, The Ukraine can chart its own course in sound banking, limited government and true economic freedom.  They can show the rest of the world that wealth is not measured by natural resources, but by innovation and improvement.

For Putin, the self-determination of the people of the Ukraine offers the opportunity to recast the relationship between East and West around prosperity rather than tired ideological rivalries.  But this has to start with the realization that they - Russian leadership broadly speaking - do not even come close to understanding how we in the West view the world around us.  Starting with our understanding of what it means to be exceptional in human history is as good a place as any to address this.

This leaves us with a few observations about where we stand today.  20 million lives lost in WWII is a bell rung awfully loud - and which cannot be "un-rung."  By striking out on a distinctly different path from the rest of Europe, The Ukraine can at least attempt to address Russian geopolitical concerns.

But Russia's own history has taught it a lesson the people of The Ukraine must also take into account - you do not defend your national interests with pieces of paper.  It remains left to be seen whether this latest agreement between The Ukraine and Russia will go the way of similar pre-WWII agreements between Germany and Poland and later Germany and Russia.  Depending on such agreements for security was the direct cause of the loss of 20 million lives.

And so The Ukraine - as far as monetary policy goes - should stay out of the Euro, period.  As for foreign policy they simply have to draw the same conclusions from history as Putin and the Russians have drawn.  This does not need to mean joining NATO.  But it must mean strengthening its defensive capabilities with the help of NATO to keep that option open.  They must make it clear to Russia that they shall be neither a vassal nor an enemy, but shall chart their own exceptional course in history. And we must support them in this respect.

If Putin and Poroshenko can balance these interests and concerns long enough for peaceful commerce to produce lasting prosperity, both can lead the world away from the tired, war-torn ideologies of the 20th century and toward a 21st century of innovation and wealth creation.  And that will - indeed - be a truly exceptional accomplishment.

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