Viva la Europa

We are currently witnessing the biggest play of fools in the history of the world in Europe. These mistakes happened 100 years ago when trade broke down across Europe leading to one of the largest wars the world had seen to that point.

In international politics there are some major theories which talk about how to bring peace to the world. One which has some support is the Democratic peace theory which (as the name implies) is the theory that democracies don't go to war with each other.

However, the theory which has very solid support is the interdependent peace theory. The idea is that if you trade with other countries you will not go to war with them. The strength to this theory is it explains why Europe doesn't go to war with Russia while given tensions democratic peace theory predicts war. European leaders have no incentive to go to war because of the imports and exports they have with Russia.

Now when it comes to the ongoing austerity crisis and depression in Greece, this theory implies a lot for the future. If Greece severed it's connections with the European Union they will very likely find another ally. Given their treatment by the EPP I don't see too many short term incentives for them to stay in the EU.

Putin is currently very interested in expanding his power and we have seen him reach out to Greece in particular as being his next target in his power grab. Given the human rights records of the other countries he has close relations with,  Kazakhstan, Iran, Belarus, Syria, and North Korea being the most impressive examples, I find no reason to believe this change in international relations will bring anything good to Greece or Europe. If this pattern were to continue than than I see no reason Putin would then try in a carrot and stick approach to expand to Italy, Spain, and Portugal. Adding over 50 million people to his alliance is something I can see him do.

Now, this is far more than just a shift in power relations and who the biggest ally of these medium sized nations will be. I expect that as Putin grows his relationship with these countries we will see the same pattern of a reduction in the validity and transparency of elections like we see in Russia today. This will be a massive reduction in the human rights in those countries just like the Franco regime. I see nothing besides EU membership standing in the way.

We also see another trend in the EU today which is already eroding their rights. What is happening today in Hungary is very disturbing and hopefully won't expand to other countries. The current prime minister of Hungary has been accused of undermining human rights by multiple human rights organizations. https://www.hrw.org/europe/central-asia/hungary The EPP is not willing to hold their member accountable to the laws of the European Union, further proof of their true intentions of undermining liberalism and the EU. This was never about Greece's debt from the start. It was about undermining the largest barrier to fascism in Europe.

Before the EPP gained power in the EU we did not see the problems in Greece and Hungary that are happening today. I love Europe and don't want to see an erosion in their liberties or a failure of one of the greatest political experiments in human history. None of this was inevitable and it was all artificially manufactured. It is time for those who love Europe to stand up to the EPP and Putin and save the EU.

The last two breakdowns in trade was in the years prior to the first and second world wars. The current erosion of trade and human rights is a threat to world peace and must be stopped.

Austerity is turning out to be Merkel wasting German taxpayer dollars

http://www.bbc.co.uk/news/business-25291036

I am reading this article and the one thing that comes to my mind is none of this had to happen. Everything that has happened with the European economy over the past few years was always completely unnecessary and all of the responses have been wrong.

If we review the European economy in 2008 the picture was very different. Greece and Germany (the "model good" and "model bad" economy the media loves to talk about) were doing just about as well in their economic statistics, and one wouldn't anticipate anything that Merkel has turned out to be for the world.

Then the economic collapse of the world happened. Greece and the United States had been having good economies for a good long while on paper, and all three had been running annual deficits since 2001 when the so-called "fiscal conservatives" were in power in these countries.

The reason Greece had a deficit in the first place is that the government didn't have income to pay for the goods and services people in developed countries expect. It is the same in every country where some people get all the benefits of being in the country but hide their money in income tax free countries to avoid paying money. This was why they had a deficit and besides that one factor, everything else in 2009 was not looking unusually terrible. All of the countries in the EU were looking really good.

Today there are riots on the street in Greece and Spain because their economies is so poor today.

The EU government (led by the European People's Party, EPP, the right wing organization) decided the solution to the lack of revenue for the government to provide countries was to fire millions of public workers and somehow through magic this was going to balance the budget.

But the problem was that firing millions of employees was going to dry up their spending, and the contraction expanded to the private market, which is why Spain and Greece have unemployment rates north of 20%. The only major change over the past few years has been the austerity, with crashing demand for services and businesses folding as they are unable to get income to stay afloat as the economy contracts which feeds on itself.

The European Union government took a situation that was not ideal and turned it into a depression.

What should have been done is look at the issue, Greece needs to keep borrowing more money to pay the previous borrowers which means the interest will be compounded, and if Greece was ever unable to get borrowers (which I am unaware of any time this has ever happened, it sure didn't happen to Japan with their Debt/GDP ratio over 200%, the highest in the world) it would mean they would need to find some way to pay creditors, but this wasn't happening. If Greece wanted to pay off its debt it would need to find a way to cover the debt (which is preferable and keeps a high credit rating) or write it off (and no one would ever lend to the Greek government again). The solution then is to find revenue to cover expenses. This is not what the EU Parliament mandated however, and Greece has found their economy contract in an epic proportion, because they tried to screw a screw with a chainsaw.

Greece today has a demand curve that has shrunk which means there is no money to be made by starting a business (which is how economies grow) and it needs to grow somehow.  Being part of the Eurozone, it is represented in parliament and the decisions with the central bank are made together, and as long as the EPP controls parliament they are unlikely to do measures that will move the demand curve north so that starting businesses becomes profitable. People won't start making businesses in Greece if they are basically destined to fail. They need to adopt Keynesian economics and expand the demand curve by hiring unemployed Greeks and Spaniards so that it becomes profitable to start businesses because that is the only way the economy will grow.

On top of all these mistakes the northern states now need to subsidize the southern states to grow their economies so the EU can stay strong, which will waste French and German taxes on something that never had to happen. Fiscal conservatism at its finest.

Unless if the EPP wants to destroy the EU, and if that is the goal they are doing exactly what they would want to do, because continuing austerity from parliament will turn into so much apathy towards the north and parliament (and the majority of Europeans live in the North) which has the potential to divide the European Union. The resentment has the possibility of being a powerful force to drive Golden Dawn and other xenophobic parties into power in Greece and Spain (think Franco) on the anger towards Northern European governments which will be bad for the world.

I would rather see the EU work towards getting Greece, Spain and now Cyprus on their feet. Merkel (the de facto leader of the EPP and EU) saying that they will not support Cypriot banks is what really caused the current recession which was completely unnecessary and poorly though out. If someone wanted to destroy the Europe Union they would vote for the EPP because that is exactly what they are doing. If someone wanted to start a fascist revolution the first step would be removing the Schengen Treaty and Council of Europe which will remove the peaceful regional means of communication between national government and remove the peaceful means of reconciliation which can't lead to anything good.

I really hope the EPP is removed from power in the next election after their brutal mismanagement of the world's richest continent. I may be American, but Europe is our strongest ally and largest trading partner and I plan on going back to Europe ASAP, so I have a lot riding on the next election as does everyone in the world.

One extra source:
http://www.csmonitor.com/Business/The-Circle-Bastiat/2010/0503/Why-are-Greeks-not-paying-their-taxes

The Eight Countries, what we can learn from Japan

The following pieces of common wisdom that I hear in today's political debate bother me:

1. Debt kills economies. I can understand how a deficit that is really high could be a real drain on tax revenue eventually through the marvel of compound interest, but no country is to that point yet, there are other factors at play in Greece.
2. To have a developed nation you will have a high debt.
3. The Euro is a doomsday machine, countries need to maintain their own currencies to be viable, to merge countries in one currency is a terrible idea.

I have chosen seven different countries in very different and some very similar economic situations very deliberately to examine this point. When I have extended certain comparisons here I have found that the examples below are not anecdotes. The information here is mostly from the CIA, IMF, and World Bank via Wikipedia:

1. Australia is one of the most developed nations in the world, ranks second on the human development index, has the 17th highest GDP in the world (top 9%), has universal health care, a debt that is 20% of their GDP, and is currently increasing their domestic investment in mass transit. Their currency is one of the most traded in the world. Their Ease of Doing Business Ranking is 9th. They are a net importer of oil.
2. Japan is one of the most developed nations in the world, ranks 12th on the human development index (top 6%), has the third highest GDP in the world, has universal health care, a debt worth over 200% of their GDP, unemployment under 5%, and is currently increasing their domestic investment in mass transit. Their GDP Growth rate is -0.7%, and their population growth rate is -0.4%. Their currency is one of the most traded in the world. Their Ease of Doing Business Ranking is 13th. 70% of their energy is from fossil fuels, and are a net importer of oil.
3. Greece is one of the most developed nations in the world, ranks 29th on the human development index (top 15%), has universal health care, a debt worth 160% of their GDP, unemployment over 20%, and is currently divesting their domestic investment in mass transit. their GDP Growth rate is about -6%. Their Ease of Doing Business Ranking is 78th. They are a net importer of oil.
4. Germany is one of the most developed nations in the world, ranks 9th on the human development index (top 5%), has universal health care, a debt worth 81% of their GDP, unemployment around 5%, and they have one of the world's best transportation systems. Their GDP Growth rate is between 0% and 1%. Their Ease of Doing Business Ranking is 20th. They are a net importer of oil.
5. Brazil is one of the fastest growing economies in the world, ranks 85th on the human development index (top 45%), has a mixed health care system, a debt worth 54% of their GDP, unemployment around 5%, and are currently growing their transportation system. Their currency is growing in importance. Their GDP Growth rate is over 2%. Their Ease of Doing Business Ranking is 127th. They are a net exporter of oil.
6. Equatorial Guinea is one of the fastest growing economies in the world after the discovery of oil, ranks 136th on the human development index (bottom 27%), their health care system is undeveloped, a debt worth 3% of their GDP, and their transportation is aged. Their GDP Growth rate is 18.6%. Their Ease of Doing Business Ranking is 155th. They are a net exporter of oil. They use the CFA Franc with 5 other countries.
7. Chad is one of the most undeveloped countries in the world, rank 183rd on the Human Development Index (bottom 3%), their health care system is non-existant except for international aid, a debt worth 9% of their GDP, and their transportation is decrepit. Their GDP growth rate is 1.6%. Their Ease of Doing Business Ranking is 184/185. They are a net exporter of oil. They use the CFA Franc with 5 other countries.
8. Mauritania is another one of the most undeveloped countries in the world, rank 159th on the Human Development Index (bottom 15%), a debt worth over 90% of their GDP, and their transportation network is decrepit. Their GDP Growth rate is 1.5%. Their ease of doing business ranking is 159th. They are a net exporter of oil. They have their own currency.

What can we learn from the standings of these seven countries? First of all, the common beliefs about debt do not hold up to these samples, or any large collection of countries. Rich countries have high debt and poor countries have high debt. Rich countries have low debt and poor countries have low debt. Rich countries spend significant money on education and health care and poor countries don't. The belief that sharing a currency between different nations will harm countries holds no water. 

The trend between these different countries shows that investment from a government can make or break an economy. Chad has almost no economy to speak of after years of war and bad government. Japan has the #1 highest debt in the world measured relative to GDP yet still is seen as a good investment. It is easy to do business in Germany, Japan, and Australia, and they have three of the most vibrant economies in the world and are quick to recover. Australia didn't even have a measurable effect from the recession that occurred outside of Australia. Greece, Chad, and many other African nations have had bad government for a long time, and their economies are suffering. This correlation is very strong. The correlation with debt is non-existent, no matter how large the sample is.

Then why is Japan in so much debt and seeing their economy decrease? First of all, their economy for the majority of the last decade has grown, they have been slower to pull out of this current recession but are on the upward slope at this point, in two or three years the Japanese economy will probably be growing again with or without government intervention, alongside a population that will inevitably continue to shrink. Japan also has one of the lowest tax rates in the world as opposed to Australia which taxes Capital Gains at a very progressive rate. The Japanese stock index fell 50% in 2008, and the people who withdrew those funds have seen very low taxes, which means there is no short-term incentive for keeping your money invested during the hard times because you won't have to pay a lot of taxes, compared to Australia where withdrawing all of your funds in one calendar year will mean you will pay a very high rate of taxation. This means that over the past 4 years Japanese companies have not had the financial resources they need to grow and hire more people, which has caused their economy to slow down, as opposed to Australia's which is still growing. Every other major factor is equal in this situation.

The difference between Germany and Japan is that the German stock index has not plummeted nearly as much as the Japanese stock index, and had a shorter distance to grow back after the collapse. German companies still have capital to grow with, while Japanese companies are strapped for cash. The American market is more like the German market, because the stock markets here in America have rebounded already since 2008 while Japan has yet to finish their recovery.

The root of the matter between the Japanese, Greek, Australian, and German government debts is linked very closely to taxation. All of these countries have very solid safety nets, and the countries whose economies are struggling have very low taxes for capital gains. Risky and dangerous group mentality in these two countries have left businesses with little cash. In Australia, the higher taxes for large withdrawals within a single calendar year have made a very stable stock market where no one would even consider withdrawing their entire stock accounts because of the taxes that would come into place. German banks still have a lot of confidence in them and have capital to work with which means that Germany hasn't collapsed. If there was a panic in the Frankfurt stock exchange like the Tokyo stock exchange (which we haven't seen yet) it would be disastrous to the German economy. That hasn't happened yet which is why German companies are still growing and the German GDP is still rising.

There are a few major points I want to make that follow this data:

1. Good government matters! Having a good government with responsible policies is good for the economy and makes a tremendous difference.
2. If you have a debt, the answer is really simple, you are spending more than you take in, and you need to either cut spending or raise revenue. The answer will usually include raising revenue since most government services go to things that must be done and are public goods in developed countries. This means taxes might rise, but on who will always be a matter of contention between greed and economic efficiency.
3. Progressive capital gains taxes make a huge difference in the way people act in the stock market.
4. Most economic collapses are due mainly to CONFIDENCE which is why Germany hasn't gone to the dogs but Greece has.
5. Low barriers of entry to the market are important, as can be seen in this selection (and once again, any large selection) where countries with high barriers to small businesses forming have routinely depressed economies, as opposed to developed countries. When Georgia moved from high barriers of entry to low barriers their economy boomed, and have been seeing GDP growth around 10%.

Paul Krugman alluded to this in one of his posts last month, and didn't have as much data as I have done... it seems the house of cards that is laissez-faire/Reaganomics/austerity is falling down in data. He also reported that austerity apparantly hurts the economy. It feels good to be validated.

Update on 13 December 2013: I claimed Australia is one of the few countries that taxes capital gains as regular income and their economy didn't collapse, but on closer examination while their economy didn't see a recession, their stock market did collapse, making me doubt the accuracy of my previous statement, so it has been retracted. Apologies.

Oh, apparantly according the IMF I was right about the Austerity crisis

http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/12/imf-austerity-is-much-worse-for-the-economy-than-we-thought/

Would you look at that, the IMF releases a report saying exactly what I posted here: http://stidmatt-views.blogspot.com/2012/07/greece-majoritys-story-and-real-story.html way back in July.

I like being right. Now stop firing Greeks, stop firing Spaniards, and embrace economics. Just as I said, and just as the IMF agrees with me, not these far-right conservatives that think firing people will improve the economy.

Greece, the majority's story and the real story

I was reading the news and saw this article: http://blogs.aljazeera.com/blog/europe/why-greeks-voted-way-they-did

The part that stuck out to me was "Greeks don't like being told what to do." which gives the false impression that Germany is forcing the post-Lisbon Treaty rules down Greece's throat like some sort of new Roman Empire, only now based in Brussels. Nothing could be further from the truth. First, for something like the Lisbon Treaty to come into effect, every member nation needs to affirm it through a national referendum. Greece did this with an overwhelming majority affirming their support to the European Union and a system closer to the Nationalist US Constitution than the pitifully Federalist Articles of Confederation which failed in our own history. That is myth number 1.

So, there is absolutely no doubt in any intelligent person's mind that Greece's economy is collapsing. Here is a report I wrote for myself based on real-world statistics to cover the scope of this problem, and the rest of my conclusions based on the evidence.

The “Debt Crisis”

Statistical overview

Part 1
The Statistics
Current claims of Greece that are widespread on global media are “Their debt is killing their economy”, “The Euro is killing Greece”, among others. The same is being said about Ireland, Spain, Portugal, and Italy. Let’s see if the facts fit this theory.

Statistic 1
The highest indebted nations in the world, Public debt as a percent of GDP are the following: (IMF, 2011 via Google data) (all countries with >100% GDP in debt plus one)

• Japan (229.77%)
• Greece (160.81%)
• Saint Kitts and Nevis (153.41%)
• Jamaica (138.98%)
• Lebanon (136.22%)
• Eritrea (133.82%)
• Italy (120.11%)
• Barbados (117.25%)
• Portugal (106.79%)
• Ireland (104.95%)
• United States (102.94%)
• Singapore (100.79%)
• Iceland (99.79%)

For comparison, Libya has no debt.
Statistic 2
The real GDP growth of the preceding 13 countries. (CIA, World Factbook 2011)

• Eritrea 8.2% (#11)
• Singapore 5.3% (#62)
• Iceland 2.4% (#127)
• Barbados 1.8% (#142)
• Saint Kitts and Nevis 1.5% (#151)
• Jamaica 1.5% (#151)
• Lebanon 1.5% (#151)
• United States 1.5% (#151)
• Ireland 1.1% (#162)
• Italy 0.6% (#172)
• Japan -0.5%
• Portugal -2.2% (#182)
• Greece -6%

Libya has a GDP growth rate of 10.6%. (International Monetary Fund, 2010) Not far ahead of Eritrea.

The 10 fastest growing economies in the world (CIA, World Factbook 2011)

1. Qatar
2. Ghana
3. Mongolia
4. Turkmenistan
5. Iraq
6. China
7. Papua New Guinea
8. Argentina
9. Turkey
10. Sri Lanka

Libya is not included in this, but would be ahead of Sri Lanka in 2010, in 2011 its growth shrunk considerably. ( http://www.bbc.co.uk/news/business-12523038 )

Statistic 3
Unemployment of the 13 most indebted nations if available, along with their trend. (IMF and Eurostat 2012, from Google data)

1. Spain (24.3%)
2. Greece (19.37%) at the peak, expected to decrease
3. Ireland (14.45%) at the peak, expected to decrease
4. Portugal (14.43%) at the peak, expected to decrease
5. Jamaica (13%) steady
6. Barbados (11%) just past the peak, expected to decrease
7. Italy (9.5%) Expected to peak in 2014 at 9.82%, then decrease
8. United States (8.16%) peaked in 2010, decreasing
9. Iceland (6.3%) Peaked in 2010, decreasing
10. Japan (4.5%) steady
11. Singapore (2.14%) steady

Libya had an unemployment rate of 30% in 2004, along with an extremely tiny debt by any measure. (CIA World Factbook)

Statistic 4
European nations by size of surplus or deficit (CIA, 2011, USD) Euro nations underlined, EU members italicized.

1. United Kingdom (-$202 billion)
2. France (-$149 billion)
3. Spain (-$130 billion)
4. Italy (-$97 billion)
5. Netherlands (-$39.1 billion)
6. Germany (-$37 billion)
7. Greece (-$30 billion)
8. Belgium (-$22.3 billion)
9. Ireland (-$22 billion)
10. Austria (-$14 billion)
11. Turkey (-10.4 billion)
12. Poland (-$8.3 billion)
13. Czech Republic (-$8.1 billion)
14. Romania (-$7.8 billion)
15. Ukraine (-$6.4 billion)
16. Slovakia (-$5.8 billion)
17. Slovenia (-$2.2 billion)
18. Lithuania (-$2.11 billion)
19. Serbia (-$2 billion)
20. Cyprus (-$1.62 billion)
21. Latvia (-$1.1 billion)
22. Finland (-$800 million)
23. Georgia (-$660 million)
24. Albania (-$465 million)
25. Kosovo (-$320 million) unofficial user
26. Montenegro (-$200 million) unofficial user
27. San Marino (-$58.3 million)
28. Luxembourg (-$39 million)
29. Monaco (-$3 milllion)
30. Vatican City ($13 million)
31. Andorra ($14 million)
32. Moldova ($24 million)
33. Liechtenstein ($83 million)
34. Bosnia and Herzegovina ($549 million)
35. Belarus ($1 billion)
36. Croatia ($2.4 billion)
37. Switzerland ($3.4 billion)
38. Russia ($6.6 billion)
39. Norway ($71 billion)

Libya ($0) (IMF via Google Data)

Statistic 5
Populations and deficit per capita. (Wikipedia which is from each nation’s census data)

• Ireland $4794.85
• United States $4,350
• United Kingdom $3,244.35
• Spain $2754.79
• Greece $2,727.27
• Netherlands $2320.89
• France $2,280.03
• San Marino $1828.33
• Austria $1663.77
• Italy $1598.51
• Cyprus $1473.61
• Slovenia $1073.07
• Slovakia $1065.13
• Czech Republic $766.88
• Lithuania $662.30
• Latvia $496.15
• Germany $451.22
• Romania $409.60
• Montenegro $319.86
• Serbia $280.87
• Poland $217.35
• Kosovo $184.56
• Albania $164.21
• Finland $147.87
• Georgia $147.68
• Ukraine $139.47
• Turkey $139.18
• Monaco $83.37
• Luxembourg $76.61

Libya $0 (IMF via Google Data)

Remarks

This shows a striking difference from what we will see in the media. Greece is always talked about having such a large deficit, yet they have 1/20th that of the prosperous United Kingdom. This is undisputed among reliable sources. How then does Greece have such a large debt? My hypothesis the marvel of compound interest. If Greece borrows $30 billion a year over fifteen years, and owe 10% on those accounts, then it adds up to $495 billion, and their GDP is about $300 billion, which fits. 160% of $300 billion is $480 billion. The UK on the other hand, has a debt worth 82.5% of their GDP, with a $2.5 trillion GDP is a $2.06 trillion dollar debt, 4.3 times the size of Greece’s debt.

Perhaps all the European Union needs to do is change their rules on the maximum size of public debt and further distress can be diverted. It is in the hands of Merkel and Sarkozy.

It is also hypocrytical for them to talk about Greece when in reality, being such a small country compared to the countries in Europe, their deficit is far smaller than those other nations. The amount the average Greek would add to their taxes to balance the budget is ⅔ that of what every Briton would have to add to their taxes to balance their own budget, but people don’t talk about it. The media doesn’t mention it. Their debt burden is far below Japan, which is really not much higher than it was before the earthquake, the debt burden then was 160% of their GDP, what Greece is now, and their economy despite having a deficit over twice the value of their economy is still relatively strong. Other factors are at play.

If you look at Greece what you see is consumer confidence with Greek banks is in the toilet, while they are not with Germany. This mindset has gone viral across the world, and we are currently seeing a bank run. More than this, it is from people abroad, in other words, divestment. With little to no equity and the government running out of funds due to the bank run, there is no one to bail out these banks and give them equity so that their depositors can continue to receive their interest and lending can continue from the banks. With no equity, this becomes impossible, and this has happened before in the United States. This is the same reason why people looking for a solution to the Israeli-Palestinian conflict speak of divesting from Israel, because that strategy in Greece is killing their economy. With less lending power, small businesses are unable to begin (which are one of the major drivers of economic growth in every economy) due to lack of credit, and unemployment rises to almost 20% due to lack of jobs due to lack of credit due to the bank run.

This has happened before in the United States. The bank runs of the pre-Federal Reserve era when the American government contracted the printing of currency to banks saw many bank runs as people were (rightfully) never confident in banks and our domestic economy was weak for over 30 years from the end of Reconstruction to the beginning of the Federal Reserve. If we (America) wanted to see our number one trading partner in terms of gross value of goods stay up, we would use our influence to work with brokering a solution between the Europeans and find an answer. If Europe goes, the rest of the world goes. If the European Union were a nation they would have the largest GDP in the world, and have trade with practically (if not literally) every nation in the world. They must not fall.

The solution needs to include breaking a deal that Europe will reanalyze their banking system and merge their banking deposit insurance mechanisms on a union level to prevent future problems. The Greeks need to pay slightly more in taxes, to decrease the amount they will soon need to pay to the people who bought Greek bonds around the world, and then they can spend more on education and health care, or pay less in taxes. Nevertheless, confidence in Greece must be restored. There is no option in this.

The current path they are following is austerity, to put as many government employees as they can on unemployment insurance (how much money will this really save?) and cut back on services. Through this policy of unemploying people Greece is seeing an unemployment of over 20% and growing. Before austerity began in 2009 their unemployment was on par with the average of the European Union. In fact, before austerity, Greece’s unemployment had been below Germany for four years! (Google Data) Austerity changed all that by firing government workers. Once the government workers are all fired, they don’t have as much purchasing power and the private sector loses revenue. The current neoconservatives in Europe and the United States use the same policy with deficits. Here is the question to show why this policy has never worked (The recession in the beginning of the Reagan years was due to skyrocketing oil prices that shocked the economy):

1. You are running a business and are running a deficit. What do you do?
1. Cut revenue.
2. Find ways to increase revenue.
3. Cut spending.
4. Find better marketing strategies.
2. You are running a government and are running a deficit due to a bad economy. What do you do?
1. Cut revenue.
2. Find ways to increase revenue.
3. Cut spending.
4. Use your power to increase the amount of money in the economy to prevent a bank run. Increase employment by hiring temporary government workers to upgrade aging infrastructure.

The answers to the questions:

1. You are running a business and are running a deficit. What do you do?
1. By cutting revenue your net profit will continue to shrink. You will need to close store fronts and you will lose potential revenue when your market is in better days, at that point you will be beaten by the competition.
2. You will get more money and bring your business afloat.
3. Your business will shrink. By closing store fronts you will lose potential revenue for when your market turns around.
4. By marketing better more people will know about your business and you can get more customers.
2. You are running a government and are running a deficit. What do you do?
1. By cutting revenue your deficit will expand. You will owe whatever you don’t make now (+ interest) later and need to make extra revenue anywhere from 6 months to 30 years from now.
2. By increasing revenue your deficit will shrink.
3. By cutting spending you will probably fire a lot of employees who will then move on to unemployment which as the government you will have to pay. Their loss of purchasing power will expand to the private sector through less revenue for businesses. See: Great Depression.
4. By decreasing unemployment more people will keep their houses, have purchasing power, and be able to continue to live their lives regularly. With the money continuing to flowing steady, you have the definition of a healthy economy. Businesses will not shrink and employees will have the means to start their own business if they wish. By hedging the bank’s equity they will continue to have money to pay their depositers interest which will mean that the chance of a bank run is diminished greatly.

Notice the similarity of these two questions, they are the same question, all I changed was which sector is getting less workers. Every good businessman will have the same answer to question 1, (there are two correct answers which together can bring a company to the Fortune 500 list) increase revenue or improve marketing, however, while Democrats will continue those answers in Question 2, b and d, Republicans will answer with a and c which are the wrong answers to the first question. Since the questions are practically the same, the answers shouldn’t change. If we look at Greece we see this is the case. Austerity in business and austerity in Government have the same reaction. Higher unemployment, more uncertainty, and collapsing profits for businesses. Just like how the Great Depression began.

If Merkel really wanted to improve the situation in Europe she would convene an emergency session of parliament to discuss solutions with the other nations of the European Union and be bold and fix these current issues. She will do the strategy a businessman would do, to increase revenue and stop laying off workers. It has never worked before, and it isn’t working now. They would switch to a Keynesian model to increase employment to increase government revenue to cover the deficits, increase confidence in investors, rein in the deficit, and keep their economies running. (I wrote this in May, a month before she started moving, basically, I was right.)

The only difference in the root cause of the crisis between Greece and Germany is the level of austerity. That is what the statistics tell us.

Why the new bailout for Greece will not work.

Just logged on to Wikipedia today to look at the news because they always cover the biggest news stories on the top of the page and found to my delight that Greece will get a second bailout. This could have been a wonderful thing for Europe and the United States, and will be different from the first, because several variables have changed.

1 History facts
First, the first bailout was in April 2010, during that time Papandreou was Prime Minister, which except for 5 years his party PASOK had been in power since 1993. He was a highly corrupt Prime Minister and ineffective at leading his country, leading them to financial ruin and taking in almost no money. If you want a balanced accurate look at the history of this mess I highly recommend NPR's Planet Money's 340th episode from January 24th 2012 which explained the issue perfectly. The biggest issue is people didn't pay their taxes, the same reason America has a large deficit with such low spending (relative to the countries of Canada and all nations of Northern Europe) That is pretty much all you need to know about the issue.

2 Current situation.
Papademos is the new Prime Minister of Greece. He has been the Governor of the Bank of Greece from 1994 to 2002, and Vice President of the European Central Bank from 2002 to 2010. This guy is an experienced economist. This is his first political office that has not had economics as his prime function. He is also has been a Columbia University faculty member, John F. Kennedy School of Government faculty member, and National and Kapodistrian University of Athens faculty member. This guy has experience with the subject! He is 64 years old and a member of the Trilateral Commission and Academy of Athens. His school of economic thought is pro-Europe (which is good). Unfortunately he is a supply-side economist, also known as trickle down, the policy of America's most failed President in the realm of economics, Herbert Hoover. Nothing else matters. (source: http://www.bbc.co.uk/news/world-europe-15643454)

Europe is now officially screwed. America should not bail them out, Papademos as a supply-side economist will abuse it, and Greece needs to kick him out as fast as they possibly can and replace him with a Stockholm school economist. According to history, this will happen. Papademos will not save Europe.

Europe needs to kick Greece out of the eurozone now. They need to figure out how to fix their own problems, because they will not learn if they are part of the Europe. There needs to be a new resolution so that a country can leave the Eurozone while staying in the Schengen Area (the only shred of hope for the Greek economy I can see now.) because they will not solve the problems. Supply-side economics is extremely traditional, and has never solved any economic downturn. With this fool in charge of Greece and the opposition of Merkel and Sarkozy to having countries leave the Euro I fear for the world.

Greece must stay in the schengen zone though, because if New Dawn came to power Greeks need to keep contact with the rest of Europe. If Greece left the free travel zone war becomes a possibility.

I wrote this in February 2012.
I hope I am wrong.