Yanis Varoufakis is Threatening to Push the Greek Default Button!

He may be a confused “Marxist libertarian” whatever that means, which is what he calls himself, but whatever fire is in him, though it isn’t a total “kosher blue flame” as my 10th grade chemistry teacher called it in lab, Yanis Varoufakis is heating up. This is what happens when a human being, though not perfect, walks into a den of politicians with his resignation letter on the inside pocket in case he succumbs to politician-hood. Yanis Varoufakis is trying to keep his soul and that’s what makes him so exciting.

I’m not sure he will succeed, but he’s trying. He’s no Ron Paul, but he’s closer than most. He’s threatening to push the default button…the beautiful shiny jolly candy-like button.

Varoufakis has said he does not intend to cooperate with the Troika (that conglomeration of bailout funds with different acronyms) and will NOT seek an extension to its bailout funds.

Yanis is taking Greece into default. The Greek Government will not be able to borrow any more, from anyone for a long time. If they want to stay in the euro, they are going to have to cut, slash, and burn like there’s no tomorrow. But I doubt they will do that, because politicians have voters to bribe.

Varoufakis will bring them into default, the Greeks will complain and scream, and they’ll start printing Drachmas into hyperinflation. Italy’s next.

 

 

GREEK HOPE Yanis Varoufakis Named Greece Finance Minister

BAM! Yanis Varoufakis was just confirmed as Greece’s new finance minister. I’ve been writing about Varoufakis since 2012. You can see all the posts I’ve written about him here.

First off, no he is not a libertarian. BUT he is genuine, he is not a politician (yet), and he’s got fire in his soul. That much I can tell. I’ve been fascinated with him for years because he has been the lone (and loan) voice of sense in the entire Greek mess. While he is not a libertarian and believes in government regulation, he does know and understand that the state is the entrepreneur’s biggest enemy. This much he said in a recent interview.

He’s articulate, speaks like a human being instead of in moronic soundbites and brainfarts that make you want to vomit, and his English is impeccable. And he doesn’t fake his conviction say, like Elizabeth Warren.

Oh, and he isn’t a fat disgusting lizard-looking slob of an embarrassment like his predecessor Evangelos Venizelos. (I only insult politicians for being physically repulsive.)

I mean really, which guy would you want to be a Finance Minister? This guy:

Evangelos Venizelos, Fat Lizard Man
Evangelos Venizelos, Fat Lizard Man

Or this guy:

Yanis Varoufakis
Yanis Varoufakis

No contest. He also understands how the current bailout setup is only bleeding private Greek citizens to the last drop.

What happens is this. A government spends too much money loaned to them by fractional reserve banks that are inherently unstable. The government then scares everyone into believing that if it defaults, the planet will explode. Therefore, private taxpayers are scared into giving up a bunch of money so the government can keep paying the banks their interest, which if they don’t get, could start a chain reaction of bankruptcies due to the inherent instability of fractional reserve banking. Meanwhile the private economy has no capital left to grow the economy because it’s all going to the government that keeps paying off the banks.

In the case of the Greek bailout, it is all of Europe’s taxpayers that has to finance the Greek government, so it’s much worse.

Varoufakis’s solution you can listen to here, which I wrote about almost 3 years ago. It’s a little nutty at the end where he wants to Europeanize the entire banking system which will have the effect of spreading out Greece’s government’s losses over the entire Eurozone. This will dilute the effect, but won’t solve the problem. It’ll just put it off for another decade or so until the entire continent’s governments collectively run up their debts even higher.

But in any case, it doesn’t matter. Varoufakis won’t get that far. He’ll insist on defaulting, which really is the only honest thing to do. Better say you can’t pay and go home than rob taxpayers even more just so you can keep paying interest payments a little longer while your debt keeps going up anyway. Am I sure it’s going up? Yes.

greece-government-debt-to-gdp

I’ll keep saying it, but once Greece defaults, there will be a crazy bond run on Italy. Italy will fall, and then the Eurozone will either split or collapse entirely.

But if anyone has the guts to push the default button and see what the hell happens, it’s Yanis. I’m totally psyched.

Greek Domino Effect – Does Italy Guarantee Greece Bonds?

There’s a Mises.org article circulating now about how the recent Greek elections could end up shattering the Eurozone. This really is uncharted territory because nothing like the Eurozone has existed before, with separate sovereign states sharing a fiat currency controlled by a central bank.

The article is titled “How Greek Default May Still Unravel the EU“. Despite a few strange contradictions between the beginning and the end of the article, what I found most interesting was this part:

Greece currently owes a little over 300 billion euros to various creditors. About 200 billion is owed to the Eurozone institutions, the European Financial Stability Facility (EFSF), and the European Stability Mechanism (ESM), that raised funds based on Eurozone guarantees…Spain, Italy, and France have guaranteed about 50 percent of this debt. A default would mean an important increase in the debt load of each of these countries. This would likely be the tipping point for Italy which has a current debt to GDP level of over 130 percent and several decades of essentially no growth. Italy is too big to bail out.

I did some cursory Googling of anything about Italy guaranteeing any portion of Greek debt. I couldn’t find anything, but I didn’t really put much effort into the research. There are no footnotes to the article, so I see no source for this, though that doesn’t mean it isn’t true.

Let’s assume it is though. Tsipras and Varoufakis together are a pretty formidable force for getting out of the current debt stranglehold. Varoufakis wants to default and hates politicians. Tsipras wants to maintain his fiery appeal and may just be crazy enough (in a good way) to listen to Varoufakis, who is probably the only honorable person in the entire Hellenic Parliament to have any grasp of economics at all.

If Tsipras can’t get a good deal enough to appease his voters – and nothing will appease them because their expectations are ridiculous – then Varoufakis will egg him on to default within the Euro. Now, whether this actually increases Italy’s debt burden due to guarantees through the ESM and EFSF seems rather unimportant, because if Greece defaults, I’m willing to bet that Italian bonds are going to plummet the next day with Italian interest rates skyrocketing. That will be enough to push Italy overboard.

If Greece defaults at 175% debt to GDP with bond investors losing everything, Italy is not far behind at 133%. Nobody is going to want Italian bonds in the event of a bona fide Greek default. If Italy goes down, then so do the rest of the PIIGS – leaving Portugal, Ireland, and Spain. What happens then is really up in the air. Nobody knows.

But yes, a Greek default will fundamentally alter the Eurozone if not destroy it.

Varoufakis and Tzipras are on a Collision Course

I love this guy, but I don’t understand him. He’s got some things so right, and others so wrong. Yanis Varoufakis was just interviewed on Bloomberg about what should be done in Greece. He’s a pleasure to listen to because unlike other smug econometrician academic weasels, you can tell Varoufakis is sincere and has some sort of moral drive. The problem is, he’s confused. He understands Greece is bankrupt. He doesn’t seem to understand that the politicians he is joining do not understand that that essentially means they can no longer spend money.

In his latest interview with Bloomberg, Varoufakis made some pretty frank comments. Among the most frank was his answer to the question “Do you know for sure if the bailout will be renegotiated, or if SYRIZA will make a U-turn?” meaning, will SYRIZA cave and just keep going with the bailout in order not to get kicked out of the Eurozone in a so-called Grexit.

His answer reminded me of what Ron Paul said to the question “Will the Federal Government default?”

“The government will default. It’s just a question of how, through outright default or inflation.”

Varoufakis answered this question the same way. The bailout will be renegotiated, simply because the current bailout makes no damn freaking sense. How can a bailout from debt put you more in debt? How is that even a bailout? That’s just doing CPR on a corpse. (My words, not his.)

Dealing with the issue of a Grexit, Varoufakis said that in “brushing off” a Grexit as containable, the sponsoring Eurozone countries were basically making up bullshit. They have no idea what the consequences will be, because nobody knows who holds how many bonds where, and what the systemic effects will be, whether other bond runs will ensue, it’s like trying to predict exact weather patterns 2 years in advance.

In short, there can be no Grexit without severe consequences for everyone, and those brushing it off have no idea what they’re talking about.

So much he gets. What he doesn’t get is that when Greece does default, which will absolutely happen in one form or another, his politician friends, the same nincompoops that have co-opted him as their voice of reason in SYRIZA, will want to ramp up the spending once again, because that’s all they know how to do.

He will be in the extremely uncomfortable position, likely as finance minister, of saying no. There is no money, there is nothing, stop trying to spend what doesn’t exist. If he can maintain his candor, he will end up resigning.

At the end of his interview with Bloomberg, he was asked what must be done. He said something very libertarian. Paraphrasing, entrepreneurs in Greece face one big enemy, and that is the State. The State does not let them put people back to work because it punishes them with taxes that make no sense. The economy is totally paralyzed by the State apparatus, and that is why the State is bankrupt.

In Rothbardian terms, the parasite overwhelmed the host, and now both have died.

Someone who can speak in such clear libertarian terms, I don’t know what he’s doing joining a radical left wing political movement expecting them to just sit back and relax as he recommends they shrink government. There’s going to be a big fight between him and Alexis Tzipras. They are on a collision course.

Once the bailout is renegotiated, Tzipras will want to spend more money on his projects. Varoufakis will tell him there is no money. Tzipras will then want to print Drachmas until they have no value, which will happen very quickly if he tries to print them.

There is nothing SYRIZA or New Democracy, or Pasok can do to get money. There just isn’t any. They will all come flying at a brick wall of bankruptcy, because there is no one left to steal from. It’s all gone. Only Varoufakis understands that. He won’t be able to explain it to the politicos. They don’t get it. They never will.

Yanis Varoufakis Running on the SYRIZA Ticket in Greece Elections

I’ve written about Yanis Varoufakis a few times. I check him out whenever there’s a flare up in Greece. There’s one now, so I headed over to his blog and found that he’ll be running on the SYRIZA ticket. He seems a genuine guy, with some really whacked out ideas on centralizing the entire European banking system with a bunch of bonds he made up in his head.

If I remember correctly, he wants Greece to default on the debt, liquidate it, and stay in the Eurozone nonetheless. If this is what he really wants, he won’t be able to accomplish it in SYRIZA. SYRIZA wants an end to the bailout scheme, which is doing nothing but putting Greece into even more debt (it’s debt to GDP has not fallen contrary to popular perception) and at least that aspiration is a good one. But what SYRIZA wants instead is an end to austerity and a free ride to keep spending.

If Varoufakis actually wins a seat, which seems likely, he will likely start to butt heads with his pretty-boy party leader Tzipras, a far leftist who thinks prosperity is invented out of nothing by the good graces of politicians like himself.

End the bailout Varoufakis and Tzipras will agree on. What happens after that, and they’ll start fighting. Tzipras will want more spending, which if he pushes it, will end up pushing Greece out of the Euro by force because Europeans (by which I mean Germans) are not going to finance it anymore. This, Varoufakis doesn’t want. And if they do get pushed out, there will almost certainly be hyperinflation in its drachmas within weeks.

So let’s see what Yanis does. He writes:

My greatest fear, now that I have tossed my hat in the ring, is that I may turn into a politician. As an antidote to that virus I intend to write my resignation letter and keep it in my inside pocket, ready to submit it the moment I sense signs of losing the commitment to speak truth to power.

Keep that letter handy Yanis. You’re going to need it once you see that your fellow politicians are not going to want to cut their spending.

Does public “investment” crowd out the private sector? OF COURSE IT DOES!

There is one rule of thumb I always use in trying to tell the difference between an econometrician and an economist. Or, in other words, a Keynesian versus an Austrian economist. That is, Keynesian arguments are generally devoid of any soul or feeling, and treat economics like a laboratory science where if you mix the right chemicals in the right proportions, you’ll have the desired effect. Often their arguments deny the most basic common sense principles using fancy econometric language and quite frankly make me feel like an idiot for even having to defend absolutely fundamental economic realities that even 5 year old children can grasp with ease.

It’s even worse than that actually. It pains me, a punk kid with no degree, to go up against a published PhD and claim that what he’s saying is below the level of a 5 year old with basic common sense, but say it I must, because it’s the truth. It scares me to no end, really, that when the SHTF, people will turn to these authoritarians for answers that will enslave us all.

In my very first economics class when I was a pisher little high school senior, my teacher Mrs. Holcman taught us that economics is, by definition, the study of “scarcity and choice”. Meaning, there is a limited amount of resources on the planet, and economics is the study of choosing between those scarce resources. Presumably, consumers should choose between them in the most efficient and productive way so as to produce the most possible wealth from those resources and raise the standard of living of the human race. What I’m saying here is not rocket science. If a five year old has one dollar and in front of him are a chocolate bar and a toy, and he can only choose one, he understands the reality of scarcity and choice.

Then came the Keynesians and claimed, first, that while economics is about scarcity and choice, it is not the goal of economics to figure out how to best use scarce resources. It doesn’t matter how efficiently they are used at all. They can simply be wasted and aggregate demand for them being equal, everything should turn out the same.

But they claim something even worse than that. They claim that, essentially, there is really no such thing as scarcity at all. The world is an endless pit of resources and we do not even have to choose.

See this article by Yanis Varoufakis. I’ve mentioned him before as a slippery Keynesian who is at first not recognizable as such, and today I’ve figured out why. It’s because he writes with such soul. He has real emotional conviction, and this does not fit into my rule of thumb in searching for a lack of soul to spot Keynesian reasoning. So I was fooled for a while.

The Keynesian Orwellian phraseology for “there is no such thing as scarcity” is “public investment does not crowd out private investment”. He calls the belief that public investment crowds out private investment childish. This is mindboggling and scary.

We are to believe that simply because money put somewhere is put there by government instead of a private person, that simply because the label of the money is different, it is therefore infinite? If public money does not crowd out the private sector, then an infinite amount of public money can be spent without any effect. Essentially, money does grows on trees, as long as it’s the government spending it instead of a private person.

It doesn’t matter what money is labeled and who spends it. If you spend it on one thing, you cannot spend it on the other. It doesn’t matter what sector you are in. Everything crowds out everything, because there is only a finite amount of money and wealth on this planet.

Economics is the study of SCARCITY and CHOICE. That means by definition that if you choose one resource, you cannot choose the other. Government is not a god that can override this human limitation. Varoufakis and other Keynesians want us to believe that government is a god that can provide manna from heaven.

The question is, do you want government choosing where to put resources, or do you want private people choosing where to put resources?

Yanis Varoufakis and Economic Morality in the Eurozone

I ran into a rather amazing find last week when I heard an Australian radio interview with a Greek economist named Yanis Varoufakis on the topic of the insanity in the Eurozone. Aside from having an awesome name, Dr. Varoufakis is sharp, articulate, and a contrarian. He was saying things I generally agree with but with an angle I hadn’t heard before, and what he said made a lot of sense.

You can listen to the interview here. It really is worth the time. The gist is this: Varoufakis holds that the entire structure of the bailout and so-called austerity is twisted. Greece’s debt keeps going up, so the austerity isn’t working obviously. The reason it isn’t working is that the bankrupt Greek state keeps borrowing money from the EFSF bailout fund to repay the ECB on bonds they bought from Greece to support Greek debt when no one else was buying those bonds. So in repaying the ECB via money from the EFSF, the ECB makes $800 million, and the Greek government goes deeper into debt.

Read that again, and you’ll see that the bailout fund is actually serving to drive Greece deeper into debt while letting the ECB profit off of it, and Greece is only “privileged” to continue this rape if it keeps it’s “austerity” which isn’t balancing its budget anyway.

That is why, says Dr. Varoufakis, the way things are going, the Eurozone will disintegrate entirely, as this domino effect will hit the rest of the PIIGS and the EU will self destruct along with the Eurozone.

Varoufakis’ solution is simple: Europeanize every bank in the Eurozone and have the ECB issue bonds in their name that people will buy. So you don’t have Spanish banks anymore – you have Eurobanks in Spain. The ECB issues bonds and becomes the switchboard, everything goes through the ECB, and now totally centralized, they can navigate forward. Wow does that sound Keynesian.

Varoufakis helped shed the light for me on the nature of this “bailout” and that’s why I like him, but he’s a Keynesian, and doesn’t realize that Keynesianism got us into this mess in the first place. Another example: I read another article he wrote about how Greece can’t be Argentina, which defaulted a decade ago, devalued its currency, and then rebounded. Greece, says Varoufakis, cannot be Argentina because Greece has no currency to devalue. He’s right, but the point is this:

Devaluing a currency, he says, is beneficial for any nation in debt, because it allows the nation to get out of debt. Well sure, a State can get out of debt by pillaging the value of its citizen’s savings and destroying its peoples’ wealth and paying debt back in garbage. They call that “devaluing a currency” in Orwellian language. What it really means is STEALING from citizenry. One day a government spends too much money so it decides to make your money worthless so it can pay back in worthless junk. Sounds great.

Varoufakis, for a Keynesian, is very smart, but he is a Keynesian nonetheless. He’s an economic tactician, recommending tactical moves to get out of a crisis without understanding the real, root cause of it all – a MORAL cause. Maybe Europeanizing everything and having the ECB issue bonds will technically get Europe out of debt in a mega Keynesian centralized way. But everyone will be dirt poor if it succeeds, because it means that the ECB will steal the value of every Euro in Europe by printing it into oblivion to pay the bonds it issues for the rest of Europe.

Why the circuitous Orwellian route of “ECB Bonds”? Just tell it like it is. Steal value from European savers. Just take it. Have the ECB issue bonds and then print the money to pay for them. Why not just do it more directly? Have the Eurozone completely centralized and pass a law that every Eurozone bank account has to give X% of their savings to pay the Euro debt. Just steal the money outright instead of printing it into oblivion.

So Varoufakis’ solution is basically: If European governments don’t get their act together and steal much more money much more quickly from the people, then the Eurozone will collapse.

Well OK. But the root cause of it all is the very fact that you allow a government to print money.

My solution? Get rid of the Eurozone and privatize money. Let people use what they want to use, and the best money will have the most value.

Never again will a government be able to simply steal your money by printing it.

Much like Leftists here in Israel who keep trying to find the perfect way to make peace, who do not realize that peace talks are inherently immoral if they give up Jewish land as a precondition, economic Leftists, or Keynesians, do not realize that the inherent structure of the system of currency backed by force is immoral and must be torn down. Israel leftists will never find peace beyond theft of Jewish land. Keynesians will never find economic solutions beyond theft either.