The European Union has supposedly reached a deal on Greek government bonds. The announcement sent stocks soaring in the United States. The "leaders" of France and Germany, along with the rich bankers, have reached this deal and come to the rescue again. I'm guessing the rich bankers agreed to this deal because a 50% haircut looked better than a 100% haircut.
This will be done at the expense of German taxpayers. It will eventually be at the expense of anyone who holds euros. It looks like even China will be getting involved. The stupidity of the Chinese government astounds me. I guess it isn't good enough that they keep buying U.S. government debt. They figured they would find another place even more insolvent and buy there too. Of course, we also don't know if the Federal Reserve is playing any role, although there is a lot of speculation on the internet that QE2's main purpose earlier this year was to capitalize the European banks.
This whole so-called agreement just kicks the can down the road. Not only that, but it ultimately makes the problem worse as it takes more money out of the hands of productive individuals and it throws it away for more Greek spending. It is a giant misallocation of resources.
This agreement to cut the Greek bond values by 50% will not solve anything in the long run. The interest on debt is only one expenditure of the Greek government. The problem is that the government there has created a massive welfare state and has made promises that cannot ultimately be delivered.
Imagine an individual with $50,000 in credit card debt. You bail him out and pay off half of his debt for him, which reduces it to $25,000. That would be fine if the individual were working to pay off the rest of the debt. But what if the individual kept spending more than he takes in every month. Paying off half of his credit card debt would ease the burden on him temporarily by reducing his credit card payments. But if he is still running a deficit, even without paying any interest on debt, then he will end up being back where he was before. The individual will end up back in debt with $50,000 in credit card balances. Meanwhile, you will have wasted $25,000 with your original bailout.
Greece has a spending problem. To be more specific, the Greek government has a spending problem. It has made big promises that cannot be fulfilled. There are a high percentage of Greek citizens who are living off the government dole. They work for the government. They retire early with big government pensions. Their game is coming to an end. They are going to get one last bailout, coming mostly from Germany. They will keep asking for the impossible. The government there has created a massive welfare state and a welfare mentality.
While I don't have any specific numbers, I have heard that some rich people are getting out of Greece. This would make sense. There is no future there. The parasites will keep trying to suck blood out of their hosts until there is none left. I would recommend for anyone living in Greece to get out. There is no future there, unless there is a dramatic turnaround in the mentality of the general population.
The U.S. is in trouble too, along with a whole bunch of other places. The one good thing about the U.S. is that the welfare mentality is not as strong. There is a welfare/ warfare state in the U.S. In Greece, it is just a welfare state. The U.S. can cut its warfare state. The welfare state is not as far advanced, even with Social Security and Medicare.
It's possible there will be another bailout of Greece down the road. I think it would involve money creation by the European Central Bank. But there is a limit to all of this. Eventually, I think they will let Greece go. The citizens of Germany and other countries will revolt. Greece will probably drop out of the EU. Perhaps the whole European Union will break apart.
The Greek welfare recipients can keep asking for a free lunch, but the laws of economics will eventually end it. The German taxpayers will get tired of buying lunch for others. And the Chinese will run out of money when their own problems become more obvious.