European Debt Crisis

Ace Rimmer

For those who don't know, the European Nations are going through a debt crisis because they spent too money and ended up having a debt mountain the size of the USA debt mountain. Now the crisis spread from Ireland to Greece to Italy and now to Spain which is a problem because Spain to big to bailout out and too big to fail. Also the problem might spread to France because Mr Hollande has said that he will spend his way out of trouble which is bad because France can't afford it.

Obā-san

Cool Story Bro.

Spacey

we should take the EU and push it somewhere else

Ace Rimmer

Yeah it will be a cool story when one of the pillars of the world economy collapses.

^Because this isn't an EU problem but an European one

Obā-san

And then we'll have ANARCHY AND CHAOS!!!!!

PAAAAAARTAY!!!!!

Misery

COOL STORY BRO

Spacey

inb4 sex pistols

Anonus

(Admin Hat On)

Stop being snide.

(Admin Hat Off)

Obā-san

snide/snīd/

Adjective:

Derogatory or mocking in an indirect way: "snide remarks". (of a person) Devious and underhanded.

Anonus

Well, rude then.

Justice4243

I think this thread is a good example of why it's not a good idea to try to take subtle digs at other countries when attempting to discuss serious issues.

The flippant responses weren't a great way to react, but I see where they are coming from.

NOW, on to business.

This seems to be a good article to bring people up to speed.

I thought it interesting the a bailout might cost twice as much for Spain as it did for Greece.  One must wonder if countries in the EU will get sick of this at some point. My understanding is Germany was already very reluctant to participate in the last bailout. 

Hopefully this gets fixed before it all hits the breaking point.

Ace Rimmer

I thought it interesting the a bailout might cost twice as much for Spain as it did for Greece

Why so? I mean the Spanish Economy is the 4th largest in the Eurozone and the 5th largest in the EU. Its 4 times larger than Greece but most of the Spanish problems happened because people and companies over-borrowed money as opposed to the Government over borrowing.

My understanding is Germany was already very reluctant to participate in the last bailout.

Yes they were, which why they dug up the Stability and Growth Pact which they violated in 2003.

Justice4243

"Why so? I mean the Spanish Economy is the 4th largest in the Eurozone and the 5th largest in the EU. Its 4 times larger than Greece but most of the Spanish problems happened because people and companies over-borrowed money as opposed to the Government over borrowing."

I was going off the article. Sadly, I haven't been keeping my ear too NPR (National Public Radio) as much as of late because the local music stations haven't been sucking as much, so my knowledge of the Spain situation is lacking compared to how much attention I paid to Greece.

Though, the article mentioned that the banks are basically in dire straits directly because of the housing market collapse. So, people aren't paying their mortgage, banks aren't getting money, and these are also "too big to fail" banks so the government might need to bail them out. 

This is pretty much exactly what happened in the US, BUT looks like their's a caveat. The US was still in financially good standing that the government simply took on more debt to temporary solve the problem ("Come on, foreign banks! You know we're GOOD for it!") . 

Spain, on the other hand, is not in a position to bailout it's banks. So IT might need a bailout so it can bailout the banks.

But this is just what I know from past situations, and this one article. If you have a different point of view, I'd love to hear it. /sincerity mode.

Ace Rimmer

No, that sums up the Problem with Spain. The housing bubble burst pretty badly which caused the Government to lose out on taxes and forced it to pay out more unemployment benefit so the deficit ended up being at about 10% of GDP.

Which, btw, is what happened in Ireland except the Irish decided to bailout its banks.

Justice4243

So, regarding Spain being "too big to fail". 

I did get a vibe that, in regards to Greece, letting the whole thing crash in burn seemed to be something of a "viable strategy" back when the bailout was being discussed for that county.

Is the idea that Spain is simply too large and integrated to the rest of the Eurozone that a collapse could easily drag a few more counties down with it?

Ace Rimmer

I think that its the fact that Spain is too large and its collapse may put the Euro into a tailspin that it may never recover as it may send jiggers down investors backs

Justice4243

"Spain's economy might collapse!" certainly carries more weight then "Greece's economy might collapse."

Ace Rimmer

Yeah, its all it is :p

Theres no rational reason at all

Gelzo

I'm no economist, but I think we should have every major world economy collapse at the same time to the same degree. Then it's like nothing went wrong in the first place. If everyone has the same debt per capita, we can just absolve it all, be rid of the tangly mess, and come out even steven.

Justice4243

The owners of the bonds, banks, big companies, and such, probably have a few things to say about that. 

But, shine em'. :P 

Ace Rimmer

And all the poor people,

Greek Society is breaking down, people are deliberately infecting themselves with TB and what not to get sickness pay and healthcare

Justice4243

"TB"?

You don't mean "teburculosus", do you?

Viani

So the country is in debt, and what does the country do when it can't pay back it's dues? Does the entire country file for bankruptcy or something, or does it get involved with those Country-sized loan sharks?

Gelzo

That's fucked.

I guess this sort of shit happens eventually when you have a lackadaisical work culture, huh?

Ace Rimmer

You don't mean "teburculosus", do you?

I do

So the country is in debt, and what does the country do when it can't
pay back it's dues? Does the entire country file for bankruptcy or
something, or does it get involved with those Country-sized loan sharks?

In the 19th C, the British would send a gunboat till you agreed to pay up, in the 21th C, Merkel forces you out and replaces you with someone who agrees to austerity measures :p

Justice4243

For a bit of perspective 

http://money.stackexchange.com/questions/3746/where-do-countries-national-governments-borrow-money-from 

"A state that defaults on debt will first hit its own most vulnerable citizens. In addition, the fall-out will result in a savage cut in ratings. Countries like Argentina and Zimbabwe, which have both refused to repay their debts even to the IMF, are currently unable to raise investment at all. This has a tremendous impact on local economic development."

So, looking like Argentina or Zimbabwe is a possible outcome of people not willing to invest in a collapsed economy.  

I believe, basically it means your country is out of money, and no one is going to give you more money just so you can spend it on booze and drugs, you damned homeless country! 

Then the bum country can't get work and starts to smell and spirals all the way down to the  third world...or something.

Justice4243

"I do"

"That's fucked."

Ace Rimmer

Default isn't an option for Eurozone countries though

Viani

So entire Countries get in debt by borrowing from other countries, right?

"Hey China, hey china"

"Wa fak u want Merrika?"

"I need around 4 mill, you think you can help me?"

"Oh fine but onry if you pay me bak or I make you wok off plank, got it Merrika?"

"Yeah, sure dawg, gimme dat mill."

Justice4243

Indeed,  it's doubtful the rest of the first world wants to see a real life version of "Road Warrior" in Spain.

Ace Rimmer

So entire Countries get in debt by borrowing from other countries, right?

Its mostly private investors though

Gelzo

Ace Rimmer

The EU already went cap in hand to China, only to get told

"We can no afford to bail you out"

Justice4243

"So entire Countries get in debt by borrowing from other countries, right?"

Sort of...one of the key things that's happening in Spain (as it happened in America) is that banks had a lot of money in the form of housing loans. 

But when people couldn't pay those loans, the banks found out they didn't have money so much as property that's quickly becoming worth much less than what we thought it was worth. 

And, you can't really parcel out property as a way to pay your costumers who have real and not bullshit money in the bank. 

So the bank finds it needs more real money. Now, the government may or may not have enough real money to help out the banks. They do not want the banks to belly up, partially because it could make a bad situation worse (more unemployed, plus the US at least has policies in place to pay people back some to all of their money if a financial institution that had it implodes). 

So the government will borrow from more people who have real money to keep the banks afloat. But there's possibly a limit to how much other governments are ready to loan out their real money especially if there's not a good chance they're going to get it back.

At least, that's the quick, dirty way I'm seeing it.

I'm hardly an expert here, though. 

Ace Rimmer

UK in double dip recession

The United Kingdom's construction industry continues to struggle and the decline has pushed the UK economy back into a recession.

lee4hmz

Eventually, if this sort of thing keeps going, the economic policy goes from being about austerity or taxes or whatever to "fuck this, we're invading our neighbors and stealing shit". That is how wars start, which is not what anyone wants.

Justice4243

^^Looked like the same happened to Spain (they double dipped back into recession) probably why they got attention. 

^ Certainly the worst case scenario. So far, I don't think we're that close, though the riots in Greece where unnerving. 

lee4hmz

Yeah, I don't think World War III is going to break out anytime soon. Literally no one wants that.

Ace Rimmer

Oh btw,

The Dutch coalition government collapsed because they were unable to reach an agreement on cutting their budget.

They had to reduce their deficit from 4.6% to under 3%.

Justice4243

So what got put in it's place?

Or is Holland just in total anarchy, right now? 

I like to imagine this involves people lobbing chocolate at each other from their respective windmills.  

Ace Rimmer

The Netherlands currently has a caretaker government but elections wont happen until September because of the Summer recess.

Justice4243

Fascinating. What exactly is the caretaker government? Are these some Dutch officials, or does the European Union have people set aside to take control if it's deemed a country can't handle their own stuff? 

Ace Rimmer

It is Dutch MPs IIRC, is it was EU people running the show, that would be end of the EU. The EU is like the Federal govt of the US from 1783 to 1789 but the nations in the EU are actual sovereign states rather than quasi-states like in the US.

Justice4243

Gotcha. The notion of a "caretaker government" is pretty foreign to me.

Then again, the US had it's own budget issues regarding either balancing or decided to raise the debt limit, (I think we raised the debt limit, because fuck it, if we can't figure this out, might as well borrow more money until the entire system collapses and we help usher in the new Apocalypse /political biased showing) the US would have continued to function, but we wouldn't be able to pay certain things.

Our "Armed Forces" where a potential thing that wouldn't get paid, and that's pretty damn scary. 

Obā-san

If we didn't raise the debt ceiling we would have defaulted.

Ace Rimmer

Gotcha. The notion of a "caretaker government" is pretty foreign to me.

Caretaker governments are quite common in nations that use PR voting because coalition governments are fairly unstable. Countries, like the UK and US tend to form majority governments because of FPTP.

Then again,
the US had it's own budget issues regarding either balancing or decided
to raise the debt limit, (I think we raised the debt limit, because
fuck it, if we can't figure this out, might as well borrow more money
until the entire system collapses and we help usher in the
new Apocalypse /political biased showing) the US would have continued to
function, but we wouldn't be able to pay certain things.

Yes I know, the news here was treating it like the end was nigh because of all the things that would happen if there was a budget crisis/default as everyone would have useless money

Justice4243

"If we didn't raise the debt ceiling we would have defaulted."

I'm not saying it was worse than the alternative, but actually BALANCING the budget like what was expected would have been much better than just raising the debt ceiling  and arguing about what to do for another several months until it looks like we need to make a decision or raise it AGAIN.

^I think the reality is there where some services we wouldn't pay and medicare would be late if they didn't raise the debt ceiling. The money would have come from somewhere, and probably from people who probably weren't armed to the teeth, but it would still be less than ideal and pissed off a lot of people.

Obā-san

You assume governmental budgets should work like household budgets.

Behold, an economic copypasta explaining why it isn't necessarily bad:

Many people think that deficits and debt are bad because they believe owing money is bad in general.  Those people are idiots.  You can't just say "$15.6 trillion is a lot of money, therefore the government is screwing up."

Owing a large amount of money might be bad if it means that people don't think you will be able to pay it back.  If that's the case, they won't loan you any more money.  This is not the case for the US.  People are not worried that the US will default on its debt (fail to repay it), and they continue to lend the government money.

Borrowing a lot of money might also be bad if interest rates are high.  That means you don't get very much money now, but have to pay a much larger amount later.  You don't get very much bang for your buck, as it were.  For the US right now, this is not a problem because interest rates are low.

Owing a large amount of money can be bad if the government owes it to people in foreign countries.  When it comes time to pay back the debt, the money flows out of the US economy, and very little of it will come back.  If the money is owed to Americans, paying back the debt means Americans get richer.  How exactly is that a problem?  Most of the US government's debt is owed to Americans, but an increasing percentage of it is owed to foreigners.  It isn't that big of a problem now, but it is getting bigger and bigger.

Owing a lot of money can be bad if it means you will have to dramatically raise taxes in the future in order to pay for it.  These higher taxes mean people's standard of living will be lower.  This is probably true for the US.  If we keep borrowing today at the same rate, future taxes will have to be higher. 

Owing money might actually be a net benefit if you use it to do something that improves the long term economic outlook of a country.  By spending the money wisely now, it is possible to increase national income more than the amount that must be paid back.  For the same reason, it can be smart to borrow money for college because you increase your income by more than the amount of your student loan payments.

Spending money on things like education, infrastructure, or research and development, or stimulus packages can actually be a good thing, even if the government has to borrow to do so, since we're likely to be richer in the future.  Borrowing money to spend on things like elective wars or health care for retired people is not such a good thing, since these probably won't make us richer in the future.

Justice4243

Ummm, no. I'm assuming it shouldn't be as hard as the parties are making it out to be and something should be done about it sooner rather than later.

To borrow from your own post:

"Owing a large amount of money can be bad if the government owes it to people in foreign countries.  When it comes time to pay back the debt, the money flows out of the US economy, and very little of it will come back.  If the money is owed to Americans, paying back the debt means Americans get richer.  How exactly is that a problem?  Most of the US government's debt is owed to Americans, but an increasing percentage of it is owed to foreigners.  It isn't that big of a problem now, but it is getting bigger and bigger."

I think what you quoted oversimplifies things a bit. There are downsides to lower interest rates, such as savings account and similar such things not being as worthwhile to persue. 

And also :"Borrowing money to spend on things like elective wars or health care for retired people is not such a good thing, since these probably won't make us richer in the future."

What exactly is the point that is trying to be made here? That we should stop supporting retired people? It might be true from an economical standpoint, but it's pretty much unfeasible to ignore as things stand now. 

I suppose there something to debate in the advantages and disadvantages of medicare, but unless things get REALLY dire, no politician would even think of seriously attacking medicare unless they just stopped giving a fuck about their ability to get elected to things.

Ace Rimmer

I'm dont want to sound liek a dick but the US debt crisis is different from the European one.

Justice4243

It sure is! 

There's some similar situations and comparisons to be made, but the US isn't really in danger of disintegrating into broke-ass nation states ,yet.