Shaun Kenney

I listened to this the other day on BBC Radio:

Children are being abandoned on Greece’s streets by their poverty-stricken families who cannot afford to look after them any more.

Youngsters are being dumped by their parents who are struggling to make ends meet in what is fast becoming the most tragic human consequence of the Euro crisis.

It comes as pharmacists revealed the country had almost run out of aspirin, as multi-billion euro austerity measures filter their way through society.

The report is worth reading, if not a bit hyperbolic.  The picture of the child in the UK Daily Mail is, indeed, a stock photo… not an abandoned child.  In fact, that child is probably making money compared to some.

Greece’s inability to cope with its spending is the reason for the shortfalls, and austerity without a plan for economic growth is no plan at all.  Austerity measures inevitably create that downward spiral unless the government can arrest the decline in government spending and/or peel back the socialist command economy.

The nations of Eastern Europe after 1989 have much to teach in this regard.  Romania and other nations more deeply wedded to the idea of socialism as a mode of economy took their time adjusting to the European common (and relatively, more free) market, whereas nations that had socialism imposed such as Czechoslovakia and Poland were very quick to throw off those shackles.

The result?  Poland thrives alongside Germany as one of Europe’s more stable economies.  The Czech Republic continues to thrive as well, alongside several Eastern European economies that are emerging in the region (Croatia, Hungary, Slovenia, and even tiny Kosovo).

The lesson?  The sooner you allow the old system to collapse and allow the free market to clear the muddy stream, the faster one can resolve issues of poverty and bureaucratic largess.  The longer you wait, the more painful the recovery.

This is a boldfaced scam:

A survey last year by two Chicago-area finance professors, Paola Sapienza at Northwestern University and Luigi Zingales at the University of Chicago, found that roughly three out of 10 mortgage defaults in 2010 were by homeowners who could afford to make their payments, up from 22 percent in 2009.
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“It’s a looming problem that’s in the shadows,” said Jason Kopcak, a mortgage trader at Cantor Fitzgerald who advises lenders on how to value the loans on their books. “It’s very worrisome to mortgage lenders.”

Researchers point to a number of forces that are driving borrowers to walk away from their mortgages. At the top of the list is the estimated 12 million homes that are underwater, meaning the owners owe more than they are worth.

…and you know who makes the money when you default?  Mortgage lenders.  Bankers.  Realtors.

If you own an asset, keep it.  If you can afford an asset, keep it.  This is basic Austrian economics, folks… doing this just means someone else snaps up your asset at a fraction of the cost, with the fees going back to the industry.

Remember that these guys want liquidity in the market.  Liquidity keeps them in business.  Everyone holding onto their homes until the storm blows over means fewer transactions.  Fewer transactions means fewer fees.

We’re in Year 4 of a five-year credit crisis, folks.  About eighteen months to go before Americans have paid off their credit cards, their ratings recover, and they feel better about spending again.  This isn’t rocket science, folks…

So instead of acting to save the old Eurozone, Germany appears to be opting for a more compact and stable Eurozone– abandoning the PIIGS to their fate, and the world economy with it.

Sounds simple enough.  Let them fail.

The implications for the world economy, on the other hand, will be much more profound.  Apparently, someone in Berlin has determined that a brief double-dip and Club Med fire sale will allow the Germans to emerge stronger in the long run.

Cold calculus, but it just might be better for the long-term health of the global economy as well.