Tuesday, June 30, 2015

Greece and a financial system gone to hell

It still seems incomprehensible to me that a small economy such as that of Greece (representing 0.4% of the World’s GDP) can have such an impact on global finance. Yet somehow this minnow economy has the international markets in a tizz as the world waits with bated breath on the outcome of an austerity pact referendum that should for all intent of purpose be meaningless. The truth is that Greece is more than just that. It is the financial equivalent of a cardiac enzyme that provides insight into a circulatory system that is on the verge of or has just undergone some type of heart failure.

The financial system is broken and has been so for some time. Too much wealth or at least apparent wealth is backed up by nothing. Take the derivative market – at present it is valued at around 750 Trillion dollars – yes that’s trillions of greenbacks – making it ten times larger than our best value of real wealth – international GDP which sits at the 75 Trillion mark. But what are derivatives? A future that hedges us against contingencies – the promise of a promise with money itself being the original IOU. In reality it is another instrument to generate wealth for those eager to stay at least one step ahead of a giant pyramid built on clay. In short to cheat the system.

And so it is with much of finance – its very structure is built on an illusion in that it multiplies the real to produce a virtual wealth that in turn forms the ‘new clothes’ of an emperor class (at whose apex sits the Davos elite). It is fairy dust, as insincere as the kiss from a prostitute, but as hyped beyond intrinsic value as perhaps nothing else in human history.

Enter stage left Greece, a dying remnant of a once great civilization reduced to pathos by demographic suicide, historical turmoil, poor leadership and the entitlement culture of a stifling contemporary socialism. To survive it had to glean and scoop, borrow and beg, taking what it could from the bloated beast of the European financial appendage to keep abreast an economy so mismanaged and revenue poor (thanks to tax cheating and a lack of innovation) that it could barely stay afloat.

Until it no longer can. The buck had to stop and it did. The Northern Europeans called in the loans and the Greeks as predicted have been found wanting. But bad decisions have consequences and bad consequences (such as giving Greece the loans in the first place or better still allowing them to join the eurozone) multiply with a zeal especially when the system is geared by its very nature to do so. A butterfly flaps its wings and sends tremors through the financial Babel Tower and so it is with this blowback from the Greeks.

The clay must shift only time will tell us how far. But it will eventually reset. Some of the gnomes will cash in on their profits, others will crumple afoot. This should serve as a warning but it will soon be forgotten. One can count on that. We are experts at camouflaging our weaknesses and the financial system of nebulous wealth is defined by such a paradigm. This is its essence. Expect another crisis, perhaps Portugal or Spain or one of the former East Bloc countries in five or six years from now.
The clay may have shifted but at the end of the day its nature has not changed.
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