It was in the news that he (or possibly the prime minister) said that they are planning to employ an "unorthodox" strategy that "have never been tried before" to pull the country from the mess it is in. One one hand it's interesting to see what comes out of it, but on the other it sounds quite a bit like gambling. Except this time it's with the real economy.
Greece is in trouble. There is no way they could repay the debt if they tried, unless they confiscate everyone's savings. The only sensible thing is to default on the debt, as had happened many times before when investors made the imprudent choice bought government bonds that were never going to be paid back. It is only then the toxic assets can be cleansed out of the economy so it can continue to grow, rather than being stuck in some sort of bad zombie bank equilibrium like Japan had been for the past 20 years.
They did default. It was the biggest default in history. But it happened 3 whole years ago so I get why people forget about it.
The interest rate on their current debt is extremely low (2.6% of GDP, with a debt/gdp ratio of 175%), and if they ever decide to make some serious structural reforms and start growing again, the debt/gdp ratio can be brought down to very manageable levels. If they reach their pre-cris GDP high their debt/gdp would be ~120%, which is high but reasonable and easily repayable given continued growth.
Exiting the EU and setting up their own currency so they can control their own interest rate to limit capital inflows that caused the over-spending and malinvestment in the first place would be a serious structural reform I would like to see them to undertake.
The last default wasn't sufficient in cleansing the situation, most of the debt was rolled over only with new terms. The previous GDP high was only because of excessive capital inflows causing malinvestment and overconsumption - it would be akin to your bank lending every member of your family including your children $1,000,000 at 0% interest rate. Some of you may spend it irresponsibly and they would be the ones who spend the most. This increases your household spend making you look richer than you are. In the end the bank isn't getting their money back because you just don't have enough $1,000,000's left because it was spent on new clothes and expensive cars. Your family isn't going to ever get back to pre-crisis spending high, even given continued growth in your family's income, and especially not if you have to continue to pay interest on that debt.
They did not default. It was a voluntary "haircut" if I remember the rules aright. Which is to say everyone had to agree to get less money back but the credit default swaps were not triggered.
One hedge fund at least did not sign up to the haircut and got full face value back by playing chicken on whether they'd defaulted.
* as had happened many times before when investors made the imprudent choice bought government bonds that were never going to be paid back*
I would just argue that it's not imprudent. They get higher than "risk free" yields, and many times get bailed out. On average they still outperform the risk-free rates.
Right. But if people diversify across all risky government bonds, even after defaults, they'll outperform people who only invest in the ultra-safe governments. The yields are higher to entice people to take the risk, and live with the volatility.
It's a game of Germany getting fed up with paying for the rest of the EU. I think it's a safe bet that if Greece is going to show a middle finger to the EU, the EU will have no choice but to reciprocate. Spain and Portugal were in a similar situation as Greece, but if you are to believe Frau Merkel, the austerity policy is working for them and they are recovering well.
>It's a game of Germany getting fed up with paying for the rest of the EU.
The eurozone economy has been largely run in a way that benefits germany. When germany needs low interest rates the euro zone gets them and to hell with whether that suits Spain or Greece or Italy.
And the bailouts that were given are not handouts, they are loans.
If a bank lends you money they are not 'paying for you'.
But .. why shouldn't the most productive member of the Eurozone get what it wants, while the least productive members of the Eurozone, get whats left? Economics 101: if you reward bad behaviour, you get more bad behaviour.
>It's a game of Germany getting fed up with paying for the rest of the EU
fed up with giving out loans that end up back in Germany due to how much Germany exports to them as well...
Germany's obligations on austerity politics is what put Spain and Portugal in this mess to begin with. There's absolutely no economic argument for austerity in a 2008-style situation. People stopped spending, so the solution is for the government to stop spending as well?
It bothers me when people post statistics out of context. If the unemployment rate was 48% and now it's 24% that's an amazingly successful policy to cut unemployment by half. If it was 12% and now it's 24% clearly something is wrong if unemployment doubles. Honest question, what is going through your mind when you post a statistic like that with absolutely context? How, to you, does this prove a point one way or the other?
I think the context in this case is the usual, everyday awareness of typical unemployment rates, which politically conscious individuals tend to have.
For instance, at the very least people probably have heard that U.S. unemployment has been anywhere from 9% to 5% in recent years. And we know that things were pretty bad when unemployment was 9%, and surely 24% is a lot worse than 9%.
If you were good at U.S. history, you might recall that our great depression had similar unemployment rates. There's just about no context where that's a good number.
Long and short of it though, the economy is growing, though very slowly. Economic growth, even small amounts, quarter over quarter, is much more cause for optimism than economic decline, which was the course it had been on up til 2013 Q1.
Yeah, don't really want to play the nazi card, here, but I can't help to remember "Arbeit macht frei" when I hear that "Spain, good boy!, good boy!, keep on starving and some wonderful will happen, tomorrow, or maybe in forty years, trust us..."
Nobody thinks here that we are "recovering well". This is not only about the rate of unemployed, you need also to think about the quality of the new jobs.
An then you need to think also about different types of new poors. About 4 millions of spaniards could not afford an accurate household heating in 2012. ACA estimates that beetween 2400 and 9600 people have died prematurely in Spain each year those last years because, after the banks shamelessly steal all his life savings, they can't pay for home heating. More people that the victims of car accidents. Don't worry, Angela, just old useless people.
I'd like to hear exactly what you mean by this. On face value I'm assuming it's just hyperbole - complaints about inflation, or investments in property/equity which crashed etc.
History of a huge scam, that maybe not all people out of Spain know:
Actors: Rodrigo Rato, managing director of international monetary fund between 2004 and 2007. President of Bankia 2010. Goes public to stock exchange hiding a huge deficit to the investors whereas telling everybody that the bank is doing lots of money. The bank must be rescued later with 10 Billion Euro from the spanish workers I think. Bankia selled also preference shares to blind people, illiterates and old retired people. Most of them lost all his money and a lot of them lost also his houses.
Miguel Blesa: A personal old friend of Jose María Aznar. Politic and President of the supervisory board of Caja Madrid, that crashes and became Bankia.
Meanwhile in Bankia, Blesa, Rato and other top officials where spending and charging to Bankia millions of public money to black credit cards given by himselves. The money from the spaniards was spent in gas, clubs, skying, wine, jewels, expensive clocks, restaurants...
And retired people were informed that his life-savings just dissapear "im-so-sorry-sob-sob".
If Greece submits to an austerity plan, it loses because its people will suffer as it is doing so at this present time.
If Greece defaults on it's obligations, there will budget surpluses immediately to spend on services. In the short term they would suffer some financial difficulty from not being able to access world credit markets but in the long term the economy will recover much more quickly.
If Greece defaults, they can lose, or they can win.
The only danger would be an invading EU/NATO army coming to confiscate their assets.
There's already been a lot of gambling with the economy, and that has brought us here. If there was ever a time for unorthodox economic strategies in Greece, it's got to be now.
If anyone is interested, Yanis also guested on the EconTalk podcast in 2013, talking about Valve's corporate structure and plans for solving Greece's financial woes.
I'm disappointed Valve employees don't blog anymore. Abrash is now at Oculus and I doubt Yanis works with Valve anymore. The linux team seems to have gone silet on blog post.
As the article points out, Valve hired him because of how he described the Germany-Greece relationship, and Valve had a very similar problem with virtual economies.
Apparently he was going to experiment with those virtual economies and learn some useful lessons about real economies. I'd love to know what exactly he did at Valve, but if he learned something useful there, that might help with the Greek-German problem.
A cynical answer is: I bet the Greeks would take anyone they could get; because who the hell would want the job? It was either going to be someone from Goldman Sachs or a crazy person. Since the Greek people would probably tar and feather anyone sent by Goldman, it had to be a crazy person. I hope he does well. It's a lot easier to write papers and give talks than it is to assume a job like "Finance Minister of Greece in 2015".
He definitely has a massive battle to fight with the Greece's problems. I'm quite interested in what he does and I think it might work. My understanding is they want to finally put an end to this loaning money and looking the other way while they kick the can down the road. It's a gamble but at this point there is no way they can pay back the debt anyways.
More precisely, he will attempt to get Greece into bankruptcy - the situation before the elections was relatively sustainable (AFAIK), as far as the debtors are concerned, but the problem was that Greece and its people were being sucked dry - taxes increased, spending cut, public companies firesold, widespread unemployment (25%, youth 50%), GDP collapse (20%). Greeks didn't want to live like this (would you), especially since only they were suffering, not the institutions that were lending them the money in the first place ("every addict has a drug dealer").
The new party, Syriza, which Yanis is a part of, is trying to reduce the debt burden in a way that would be acceptable to the rest of EU, e.g. by shaving off part of the debt / delaying the repayment / restructuring it so that it's only paid when the economy grows (as German debt after WWII) - which technically is a bankruptcy.
OK, the penny just dropped for me. This is the same Yanis who wrote a masterful analysis of destruction and the Eve economy. The same guy who's an expert in game theory. The guy who is now finance minister of Greece.
Yep - this name jumped out at me because I heard it on the radio this morning (synchronicity!). He is now the Finance Minister of Greece, so he's got some bigger fish to fry than how much that virtual hat should cost.
Holy cows, I got a very strong sense of Deja Vu, just after reading the first few paragraphs. I immediately jumped to the "posted" field and realized that I had already read it earlier, most likely through the same link that you have posted.
That alone is enough to illustrate the situation. If you must have a cherry on top, worldwide derivatives are likely in excess of 1 quadrillion dollars.
> That alone is enough to illustrate the situation. If you must have a cherry on top, worldwide derivatives are likely in excess of 1 quadrillion dollars.
That's the `notional' of the derivatives. That's more or less a made up number, and has not much to do with how much money actually changes hands.
The way the notional derivatives are defined, you'd actually want to see huge numbers there. It means that exploitable price differences are so small, that you need lots of gearing to make money off of them. Small price difference === other market participants get a fair price on buying and selling.
So what did they learn ? It was a very promising blog, but for all we know, nothing came out of his time at Valve. Even a failure to learn anything new would be an interesting report with regards to what they did (or didn't do) with the games' economies.
The bit about Econometrics seems a bit out of place and wrongheaded. I know this is a popular criticism of Economics in general, but I've always thought it rather non-nonsensical.
What's wrong with it? If you can't run a controlled trial, then it's hard to finger causality. You can consider parallel natural experiments as occur in different polities, but there are so often many confounding factors.
You can grow more confident in a strategy as the stats pile up, but it's not nearly as cut and dried as a physics experiment.
It was in the news that he (or possibly the prime minister) said that they are planning to employ an "unorthodox" strategy that "have never been tried before" to pull the country from the mess it is in. One one hand it's interesting to see what comes out of it, but on the other it sounds quite a bit like gambling. Except this time it's with the real economy.