Greece is falling apart, the guys who created 2008 never get arrested for it, no new regulation has been passed, and the world slips deeper and deeper into debt while Goldman Sachs keeps getting richer and richer.

Somebody with a background in economics convince me that we aren't all hosed.

As someone with a background in AWESOME, believe me when I say you'll be fine.

It's your unborn children that are utterly screwed.

and bitcoin collapsed

I would just like to say that before the whole crash thing I had never heard of Goldman Sachs or Lehman Brothers.

Thank you.

I thought it funny.

man, *****in' collapsed

Greece has been falling apart for a while now. and i would be willing to guess its not just the people you think it is who are "responsible" for 2008.

Where does Greece's main source of revenue come from? Probably tourism right? Who the hell has money to spend on vacations like that these days?

Greece is such a third world country in a vague disguise. Same with Italy.

[/FGR Judgement Based on National Postal Services]

Sorry for large block of text, but here's my best shot at a quick explanation with a little bit of theory about the crisis currently.

Greece isn't falling apart because of the 2008 crisis fool. Greece has had a long history of rampant government corruption, absurdly high public sector benefits. It was absolutely crippled from expansionary fiscal policies that did not work (not saying expansionary fiscal policy is bad here, just that it did not work for them). 2008 probably didn't help though.

We aren't necessarily hosed. Getting "hosed" in this case is a large function of speculation. Things could go a myriad of ways. What is most likely is that there will be some austerity measures forced upon Greece by the IMF/Euro Bank, and they will have to cut back on public pensions, spending, etc. That first response is the big one that the Greeks don't want to give up. Even though their pensions are a huge part in tanking their economy, they are refusing to give up their generous benefits, because hey, they've had them forever and are used to them. The Greeks like to blame their corrupt politicians, and they definitely have a point, but they are also being a bit shortsighted when they don't admit that having a public sector as large as their's and having public sector benefits plans as large as their's is not a good thing, precisely because of situations like this. It's putting your eggs in one basket. Pensions, spending, and cheap credit just got out of control. They were getting paid in pensions way more than usual causing massive early retirement, which meant an even greater burden on the government. And tax evasion is apparently second nature to people there, according to the few Greeks I do know and met while in Europe.

Greece is not the only problem. Spain, Portugal, Ireland, and I believe now Italy are closing in on eerily similar situations. It's kind of like a Mark 1 Currency Crisis. In order to continue financing domestic expenditure, central banks use their foreign reserves to fund the expansion. Let's consider the exchange rate fixed (for the most part, it is with the Euro). As expansion keeps occurring, foreign reserves keep depleting. Basically speculation is the big key here, and that's what people are worried about with the Euro. Speculators will try and sell their domestic currency as foreign reserves get depleted, as their domestic currency is becoming more worthless with continuous fiscal expansion. With the increase in the money supply that came from people selling their domestic currency, the bank will have to use all their foreign reserves to keep the exchange rate pegged near the fixed level. With the loss of foreign reserves so great, this pushes money supply back down and causes appreciation in the exchange rate. So there's a push that is appreciating the exchange rate, and there is a push that comes from depreciation as the government continues to finance debt and interest rates rise (which leads to a depreciation in exchange rates). Eventually, these points meet and that's when the theoretical crisis happens. You have expansionary fiscal policy, but absolutely no foreign reserves to fund it. AKA, speculators know you are screwed. So to return to Greece scenario, it's slightly different because they are part of a large currency union. But overall, its the history of expansionary fiscal policy without any sort of recourse that is what has speculators worried. That's the theory. In practice, we already see Greece instituting some sort of austerity measures, so much of what I just said doesn't apply. The theory above applies with an assumption of continuous fiscal expansion even up to the point where they completely have a loss of foreign reserves, as well as assumptions that speculators are very very very smart and can see all of this.


The Euro might be able to maintain a single departure from Greece. In fact, other things constant, if Greece were allowed to exit the Euro and devalue their new currency considerably, they could make their exports much more attractive and most likely they'd start to see a boost....

Originally posted by Couchman:

Where does Greece's main source of revenue come from? Probably tourism right? Who the hell has money to spend on vacations like that these days?

Exactly correct. Greece's big export is technically "tourism". If the currency were allowed to depreciate against other currencies, trips to Greece would cost a lot less, and they might get that boost they need.

Most people agreed that Greece should have never been allowed into the EU in the first place. Problem is that if these other countries start becoming like Greece, then the speculation gets a lot worse. A collapse of the Euro would NOT be fun. The world could probably handle the EU kicking Greece out, maybe even another country, but probably not more. While the EU has its fair share of pretty poorly performing countries, it also has quite a lot of good ones which keep it on sound footing. I'd reckon that the existence of these other good countries will prevent the Euro from crashing.