Musical chairs of the dominos… (Greece, Portugal)

Who will be the first domino to keel over? Dubai? Greece? Portugal? Ukraine?… the United Kingdom?….  Round and round we go…


The agency placed the country [Greece] on credit watch negative, meaning it is likely to lose its A- rating within months. The country already has the lowest credit rating in the eurozone, but has come under greater scrutiny amid fears that its newly-elected government may avoid imposing significant cuts on the public finances. […] Mr Trichet indicated that the moves carried out so far by the new government had not been sufficient to arrest the fiscal crisis. He said to the European parliament: “we all know the very important and courageous decisions that will have to be taken” […] S&P also revised its outlook on Portugal’s sovereign-credit rating to “negative” from “stable”, blaming a deterioration in public finances. […] It [the agency] added that trimming the budget would likely be complicated by structural weaknesses in the economy and weak competitiveness that would hamper growth.

The emphasis is mine. Let me parse that for you. Public finances must be cut because state tax revenue is disappearing whilst we are simultaneously bailing out banks and corporations and we are financing military campaigns.

With regards to the “important” decisions Trichet alludes to, he means cutting social costs like mail delivery, public transport, refuse collection, road maintenance, health care and pensions to name but a few. That is because the money you have mandatorily contributed not only to taxes but towards health care  or pensions has never been saved. Governments make use of this money as it pours into the state coffers. The money is not there. The money that is supposed to be there is only represented by a book-keeping entry to signify that the government will eventually make good on your pension claim. The reason governments feel no compunction to physically set aside these funds is because governments feel confident in  perpetually expanding inflation. Thus governments are confident that by making use of the money received today, they will be able to pay it back in devalued currency in the future. Hence the reason that inflation is vital to the existence of government. Hence the reason that, in the absence of inflation, governments will become insolvent.

The “structural weakness” that hinders budget trimming schemes is unemployment whilst “weak competitiveness” mostly relates to excess industrial capacity.


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