Rural migration (tic-toc… tic-toc)

It’s been some time since I wrote one of my “tic-toc” posts and although till then what I was writing about could have been considered speculation, this Guardian article bears out some of the logical outcomes I was pointing out.

There are also other aspects of this article that are interesting from my point of view. I am going to post the entire article and intersperse my comments throughout.

http://www.guardian.co.uk/world/2011/may/13/greek-crisis-athens-rural-migration

Debt, unemployment and poverty is causing mass unrest and thousands to seek a cheaper lifestyle outside the capital

High in the hills of Arcadia, in a big stone house on the edge of this village overlooking verdant pastures and a valley beyond, a group of young Athenians are busy rebuilding their lives.

Until recently Andritsaina was not much of a prospect for urban Greeks. “But that,” said Yiannis Dikiakos, “was before Athens turned into the explosive cauldron that it has become. We woke up one day and thought we’ve had enough. We want to live the real Greece and we want to live it somewhere else.”

Piling his possessions into a Land Rover and trailer, the businessman made the 170-mile journey to Andritsaina last month. As he drove past villages full of derelict buildings and empty homes, along roads that wound their way around rivers and ravines, he did not look back.

“Athens has failed its young people. It has nothing to offer them any more. Our politicians are idiots … they have disappointed us greatly,” said Dikiakos, who will soon be joined by 10 friends who have also decided to escape the capital.

They are part of an internal migration, thousands of Greeks seeking solace in rural areas as the debt-stricken country grapples with its gravest economic crisis since the second world war.

“It’s a big decision but people are making it,” said Giorgos Galos, a teacher in Proti Serron on the great plains of Macedonia, in northern Greece. “We’ve had two couples come here and I know lots in Thessaloniki [Greece’s second biggest city] who want to go back to their villages. The crisis is eating away at them and they’re finding it hard to cope. If they had just a little bit of support, a little bit of official encouragement, the stream would turn into a wave because everything is just so much cheaper here.”

GR: Mr. Galos is oblivious to what exactly has caused this crisis which is in fact government intervention. Seeing the devastation wreaked on his nation, Mr. Galos calls for more of what has caused the crisis in the first place in the form of “official encouragement” in order to nudge those that are sitting on the fence to make the move because, as he says, “… everything is just so much cheaper here”.  But that’s exactly the problem and Mr. Galos does not see it. As is always the case, things are “cheap” till government encourages people to make use of something. The moment government encourages some entities to do something, prices will automatically rise not least because when economic actors perceive that there are funds to be had from the government they will feel no compunction at all to take advantage of the perceived free money… because it is government money… and government money is not perceived to be any natural person’s money… but, of course, it is and sooner or later it has to come out of our taxes or increased cost of living somewhere. Similarly, politicians are naturally inclined to give away funds as a way to garner votes from interest groups. Crucially, debt based fiat money allows politicians to be profligate because unlike value based money fiat money is perceived to be cost free. All that is needed, it is thought, is to expand the debt. And, anyway, in an electoral democratic system, a politician is never around to see the extent of the ramifications his/her policies engender.

The trickle into Proti Serron might have gone unnoticed had the village not also been the birthplace of the late Konstantinos Karamanlis who oversaw the nation’s entry into the then European Economic Community in 1981. An alabaster white statue of the statesman in the village square is adorned with the words: “I believe that Greece can change shape and its people their fate.”

Nearly sixty years after they were uttered, a growing number of Greeks, at least, are beginning to wonder whether the old man was right. The drift towards the bright lights of the big cities were by Karamanlis’ own admission one of the great barometers of the country’s transition from a primarily agricultural society into an advanced western economy.This week, as the IMF and EU debated ways of trying to re-rescue Greece and observers openly wondered whether the country would have to leave the euro, Greece appeared more adrift than ever, tossed on a high sea of mounting anger and civil disobedience from people who have lost trust in their politicians, and at the mercy of markets that refuse to believe it can pull itself back from the brink of bankruptcy. “The reality is that these people, they are in deep shit,” the managing director of the IMF, Dominique Strauss-Kahn said recently. “If we had not come they would have fallen into the abyss. Two weeks later the government would not have been able to pay civil servants’ wages.”

GR: Mr. Strauss-Kahn is a product of his environment and cannot therefore admit the perversity of his statement. The IMF rides ostensibly to the help of countries distressed by debt by offering… more debt… Of course, if you understand the nature of debt based fiat money, then you also understand that supranational entities such as the IMF exist precisely to prop up the monetary construct. Debt based fiat money can only exist in an environment of expanding credit regardless of the natural characteristic of debt to conform to the law of diminishing marginal utility. Had the IMF not offered assistance, Greece wouldn’t be any worse off. Look to Iceland for a glimpse of what can be achieved if only politicians had the balls to stand up to banking interests. But of course. A politician is by definition someone that lives by expedients so that biting the hand of the entity that finances your politically expedient programs is not done.

Ironically, it is the medicine doled out under last year’s draconian EU-IMF €110bn (£96bn) rescue programme, implemented to modernise a sclerotic economy, that has made their lot worse. Twelve months of sweeping public sector pay and pension cuts, massive job losses, tax increases and galloping inflation have begun to have a brutal effect. GDP is predicted to contract by 3% this year – making Greece’s the deepest recession in Europe.

GR: The author of the article at once identifies the problem and then negates it. GDP is contracting simply because it had been artificially inflated for so many years prior. If anything, GDP is reverting to its true intrinsic value. The public sector in Greece like in the rest of Europe but, particularly in Latin Europe, is bloated because it is politically expedient to just hire people in order to garner votes from unions and interest groups. One of the most glaring examples of political expediency of the past 3o years was the Italian airline Alitalia where over staffing and staggering losses reached biblical proportions over the years.

In Athens, home to almost half of Greece’s 11 million-strong population, the signs of austerity – and poverty – are everywhere: in the homeless and hungry who forage through municipal rubbish bins late at night; in the cash-strapped pensioners who pick up rejects at the street markets that sell fruit and vegetables; in the shops now boarded and closed and in the thousands of ordinary Greeks who can no longer afford to take family outings or regularly eat meat.

“We’ve had to give up tavernas, give up buying new clothes and give up eating meat more than once a week,” said Vasso Vitalis, a mother-of-two who struggles with her civil servant husband to make ends meet on a joint monthly income of €2,000.

GR: Not to detract from the real drama Ms. Vitalis is experiencing but one of the less intuitively related advantages of decreased consumption is a decrease in the rate of depletion of food stocks, a diminished carbon foot print and the concomitant beneficial effects that counter the devastation of the environment that has, in large part, been brought about by aberrant inflationary monetary policies over many decades. Greens the world over should embrace this crisis. Reduced consumption of animal protein could allow the replenishment of fish stocks that have been decimated over the years as well as the re-stocking of staples that no longer need to be used to rear live stock. Prices drop, the environment is saved and food stocks get replenished. Everyone’s a winner.

“With all the cuts we estimate we’ve lost around €450 a month. We’re down to the last cent and, still, we’re lucky. We’ve both got jobs. I know people who are unemployed and are going hungry. They ask family and friends for food,” she sighed. “What makes us mad is that everybody knew the state was a mess but none of our politicians had the guts to mend it. It was like a ship heading for the rocks and now the rocks are very near.”

GR: Bingo! Except that we are already on the rocks. And, yes, it has been clear for many decades that the system is mathematically not viable… but politics being the expedient animal it is… what is happening was a foregone conclusion… and we are no where near the end of it all...

Greeks also know that with their economy needing another financial lifeline, and few willing to lend to a country in such a parlous state, it will also get much worse before it gets better.

GR: Once again. The author of the article fails to recognize the problem of insolvency brought about by too much debt. Particularly when every single country in the world is afflicted by the same problem. You see, in a global economy, for as long as only one or two countries are afflicted by too much debt as, for example, Japan was in 1989, increasing the debt burden appears to help because a country could still sell goods and services to other countries. But, as time goes by and each country feels the necessity to expand their credit market in order to stimulate the national economy, the diminishing marginal utility of debt ensures that at some point all countries will be buried in debt simultaneously. At that point, more debt no longer helps. And this is the point we are at today.

“In the past, the future always implied hope for Greeks but now it implies fear,” said Nikos Filis, editor of the leftwing Avgi newspaper. “Until this week people thought that with all the measures the crisis would be over in a year or two. Now with the prospect of yet more austerity for more aid, they can’t see an end in sight.”

With unemployment officially nudging 790,000 – although believed to be far bigger with the closure of some 150,000 small and medium-sized businesses over the past year – there are fears that Greece, the country at the centre of Europe’s worst financial debacle in decades, is slipping inexorably into political and social crisis, too. Rising racist tensions and lawlessness on the streets this week spurred the softly spoken mayor of Athens, Giorgos Kaminis, to describe the city as “beginning to resemble Beirut”.

GR: Greece is not at the center of Europe’s crisis. Greece was merely the first in Europe to succumb to the debt crisis. Others have followed Greece since and still more will follow in months to come or till politicians will grow a pair and we let global banks fail.

Yannis Caloghirou, an economics professor at the National Technical University of Athens, said: “Greece has become a battleground, at the EU level where policymakers have made the crisis worse with their lack of strategy and piecemeal approach, and among its own people who no longer have trust in institutions and the ability of the political system to solve the situation. My concern is that the country is slipping into ungovernability, that ultra-right groups and others will grab the moment.”

GR: As a person Mr. Caloghirou is entitled to his opinion. As an economics professor Mr. Caloghirou fails to grasp the dynamic that is afflicting Greece. A debt crisis is not due to lack of strategy and piecemeal approach. It is due to too much debt that has been piled on by deliberate political decree. So, the strategy was not so much lacking as it was aberrant.

Nineteen months into office the ruling socialists, riven by dissent and increasingly disgust over policies that ideologically many oppose, are likewise beginning to show the strain of containing the crisis, with the prime minister, George Papandreou, being forced publicly to whip truculent ministers into line.

A mass exodus of the nation’s brightest and best has added to fears that in addition to failing one or perhaps two generations, near-bankrupt Greece stands as never before to lose its intellectual class. “Nobody is speaking openly about this but the prospects for the Greek economy are going to get much worse as the brain drain accelerates and the country loses its best minds,” said Professor Lois Lambrianidis, who teaches regional economics at the University of Macedonia.

“Around 135,000, or 9% of tertiary educated Greeks, were living abroad and that was before the crisis began. They simply cannot find jobs in a service-oriented economy that depends on low-paid cheap labour.”

GR: Other than to say that exodus of  people whether bright or not is not a big deal, Mr. Lambrianidis hits the nail on the head although I suspect he does so unwittingly. Namely, Mr. Lambrianides identifies the problems of a service based economy but, from what we are given to understand from this limited quote, fails to realize that a service based economy is the inevitable consequence of debt based fiat money.

Just as in Arcadia where the young are choosing to start anew, Greece, he says, needs to rebuild itself if it is to survive its worst crisis in modern times.

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3 Responses to “Rural migration (tic-toc… tic-toc)”

  1. bertusmaximus Says:

    well if you look at the design of the eurosystem as but one example, at its core is the premise that banks operate of credit or a least as intermediaries to all european entities including governments. so banks become the focal point of providing leverage to all parties and that leverage is accentuated by accrual based banking books which assume no default risk with the endorsement of bank and accounting regulators.

    in other words, if you wanted to be a primary dealer in italy you were expected to lose money in that business in return for cheap financing from the ECB. funny that the BIS had no risk weighting on government bonds or presupposedly AAA paper.

    personally, i think this is a great example of group-think and poor risk management on the part of the banks rather than someone being able to co-ordinate all this. WAMU, IBK, HBOS, AIB etc were all domestic players with poor management and the first ones to go down. the global full service banks should have been broken up and Glass-Steggal re-instituted.

    also, every client participates in auctions with primary dealers whether it be QE treasury purchases, PIIGS debt purchases by the ECB or standard treasury auction. the WHOLE financial system benefits from this, not just primary dealers though as the banks closest to the central banks they do bear a comparative advantage.

    anyway all banks need financial markets to keep expanding for margin and to safeguard their collateral. otherwise, the result is what has happened to japan, as bank consolidation is required across the board which is where the lobbying to protect the status quo comes about.

    looking at politicians across the board, one would tend to think they are accomplices in the short term group think but complete idiots in failing to acknowledge the longer term impact of their actions as their terms (time) in power dictate.

    thanks for the great blog btw

  2. bertusmaximus Says:

    excessive mispriced credit and energy have been the cornerstone of western development with the USA leading the propaganda machine targeting consumption by individuals and governments as a substitute for wealth.

    the longer it takes for these issues to be acknowledged and addressed, the harder the fall will be. one day, the can you have been kicking becomes a barrel and you break your foot on it.

    you seem to think banks are the problem … yes they are the dealers of credit but the pushers … well that’s central banks, politicians, corporatism and a hollow/shallow/immoral/lazy plebiscite.

    • guidoamm Says:

      It is not that I seem to think banks are the problem. Not all banks are created equal. However, the banks that gravitate around the Federal Reserve and in particular the Primary Dealers are the sponsors of the monetary construct. As such, they are directly and ultimately responsible for the inherent destructiveness of a system that touches all aspects of human life.

      The hollow/shallow/immoral/lazy plebiscite have been rendered so by deliberately aberrant policies instigated by the need of the monetary authorities to obfuscate the true nature of the system they sponsor. Why, for example, in the ostensibly democratic West has there never been debate as to what monetary system should be adopted? And why debt based fiat money having been chosen, is the setting of interest rates perpetrated by decree behind closed doors in the presumably democratic West?

      The global banks are at the heart of this latest crisis. The pushers of their policies are the politicians. These facts have been established and cannot be disputed. The only thing that remains to be debated is whether the politicians are willing accomplices or whether they are genuinely mere unwitting useful idiots.

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