Greece, In The Twilight Zone, The New Reality Show

Meet Mr. Yanis Varoufakis.  He is the world’s leading expert in Game Theory and the current finance minister of Greece.  He is about to meet Volker Kauder, the caucus leader for Angela Merkel’s Christian-Democrat led bloc in the German Parliament.  Mr Kauder has just called the new Greek government bond replacement program “Half-baked”.  Together the two men will meet in the Twilight Zone.  Rod Serling couldn’t have a better scene or subject for one of his episodes.  I would believe that the proper forum for these meetings would be some sort of extreme reality show, complete with close ups and retakes and lots of reruns.

As each year passes I think this era or age or generation or what have you, will be remembered not as the millennials but as the reality show challenged, perhaps the realities for short.  A reality show is really nothing more than the exaggeration of the minutiae of life.  Is every minute of Kim K’s life so dramatic and important that we should hang on her every word so speechlessly?  I mean, who is she?  An ex pronstar who would do any and everything in front of a camera and now is married or isn’t married to some Black rap performer.  Mr Varoufakis is quite the expert when it comes to game theory and “life games” such as the “Prisoner’s Dilemma” and other social cooperation type games.  Unfortunately most of these formal games are only attempts at understanding behavior.  In the real prison world Mr Varoufakis would be at a severe disadvantage because most individuals behind bars are not given to critical or logical thought.

So in the “real world” of political thought, if there is such an animal, we are bound to find that critical thinking and logical thought have little to do with political outcome.  As a case in point.  According to the Maastricht Treaty, the EU monetary policies for the euro was suppose to keep member nations to less than sixty percent debt to GDP.  Right now we have Greece at 175%, Italy at 133%, Portugal at 130%, Ireland at 117%, Cyprus at 112%, and Belgium at 105% debt to GDP.  It is further expected that both Spain and France will be, this year, at 100% or better debt to GDP.  Of course almost every country in the EU owns a piece of the Greek debt except for Greece, who only borrowed the money.  And all the others except for the eight listed have debt to GDP of less than sixty percent.  So our first question is, who are the prisoners and who are the jailers?  Ah, now the game changes a bit.

The other players are: the International Monetary Fund, which was suppose to be a development fund for emerging nations and not an international bank for bailout loans; the European Central Bank, which was the creation of the European Monetary Union, the issuer of the euro; the European Monetary Fund, which creates the European Monetary Emergency Fund and a host of other funds like it for the sole purpose of bailing out those countries who were foolish enough to buy Greek government bonds and have bought other government bonds that may or possibly default some time in the future.  Got all that?  You see, the European Union has evolves a socialist style of non elected government, much as the Communists under Stalin, which is why it has had heads of the EU Commission and Parliament who were/are communists, and that is why the EMU acts as if it believed in MMT or Modern Monetary Theory, and can create as much money out of thin air as is needed when member nations can no longer pay not only the interest on their government bonds to those member nations who hold their government bonds, but can threaten to default on the principle as well.  Or to put it another way, Europe is one sick puppy and normally it would be deemed a act of human kindness and SPCA approved policy to put that animal down.

So let the games begin.  First Greece will declare war on debt extracted by its neighbors by making it issue debt it cannot possibly service, let alone pay back.  Then it will seek to renegotiate that same debt so that those shaggy bonds will get a haircut.  Ah, but that might trigger a credit event and a new set of players rise from the cesspool.  Financial engineering, which is a contradiction in terms, is really about trying to spread the risk of credit default by issuing a type of financial insurance on bad loans.  We take out fire insurance on our houses, accident insurance on our automobiles, and life insurance on ourselves.  So financial geniuses have devised financial instruments like Collateral Debt Obligations and derivatives, of which there is an estimated total worth of over 100 trillion dollars.  Or to put it another way, the world’s collective GDP is only less that 20 trillion dollars each year.  Hummm, this seems a little more problematic than government debt, which is, or course separate, and then the mind starts to boggle.  If a million playing card manufactures took a million years could they ever make enough cards to build such a representative house of cards of debt?  My conservative answer would be, NO!

Well, the game is in play.  No member country of the EU wants to host a meeting with the Greeks, I think they will do well to beware Greeks bearing gifts.  The Greeks are playing a game of renaming things so as to fool the others at the table, assuming they can get them to sit down, after all, there are plenty of chairs.  Chairs only become scarce when it comes time to sign on the dotted line.  As Christine LaGarde has said, “A debt is still a debt”, until it is a credit event.  We should see it rain credit events when summer passes and the fall turns chilly.  The majority of Greek debt maturing this year is in the months of July and August.  Just in time for our theme song, Autumn Leaves.

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