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Germany: One slick customer rounding up the PIIGS


I was reading Der Spiegel because if you want to hear about what’s going on in Europe right now it’s incredibly hard to find an English journal that will bother to cover it anywhere nearly as fully as even the very pro-socialism Der Spiegel. The article was discussing how their fearless leader – High Chancellor Merkel – is going to fix Greece and the other countries that are right on the cusp of falling.

Basically, the problem arose because these countries borrowed money they had no intention of ever paying back. I wrote another post about it, go take a gander.

So, what’s the madame chancellor’s plan?

  1. Keep lending money just as before, but with in-specific new rules that are yet to be announced.
  2. Tax the transactions
  3. Forbid speculative trading

Why these things?

  1. She has no intention of stopping the problem. Elections are on the horizon – she can’t finish her term as the chancellor that made Greece “dry up” like an alcoholic in a drunk tank. This is the new soft and cuddly Europe, and in particular, Germany.
  2. That’s right – the EU wants to make money on their own money lending. So, Greece is desperate for money, and they can still get it, but they have to pay taxes on it now – so they don’t get as much because the EU wants a slice of what Germany and the USA are giving away (USA is on the hook for $50 Billion). This is supposed to be a disincentive to making bad loans… even though it’s the EU making the loan and taxing themselves to do it. Riigghht. They just want that free $50 Billion from the USA.
  3. Speculative trading is actually kind of useful. It works like this:
  • A price on a group of derivatives is falling – let’s say we’re starting at $100.
  • When the price hits $80 Billy decides he wants to do what’s called a “put” on the derivatives. This means that Billy will pick a price less than $80 and will pay up front that amount for a number of the derivatives (let’s say $40 for 100 of them – $4000).  This creates a contract that is set to expire – in the US it’s usually 90 days to 6 months, I don’t know about Europe – I seem to recall it’s longer and can’t be exorcised until a certain amount of time has passed. Anyhow, Billy can call in that put when the price falls to $40. At that time, the place he bought it from will pay him the price that they were at when he purchased the put contract – so $80 each. He’d double his money. If the price never falls to $40 – then Billy is just out $4000.
  • This is useful because if a lot of people get puts on a group of derivatives, and the rate that the puts are collected drops (say that 50% were being collected, but now only 15% of them get collected) – that means that a bottom has been reached or is very near, AND the holder of those derivatives is making free money – pushing the price back up.
  • Without speculative trading – a bottom will be hard to find without going bankrupt. It can be likened to falling out of a tree and hitting branches on the way down versus falling down a well and not knowing when the bottom is going to destroy you – nothing is slowing you down and you don’t know when you’re going to go “splat”.

So, I stared at this for a bit and thought – this doesn’t make much sense. They aren’t fixing the problem, they’re just drawing out the inevitable and taking advantage of a bad situation at the expense of Greece, USA and (in my opinion) soon to be Spain. People generally do not take kindly to that, I mean that’s what happened in …. BAM! That’s when it hit me. This is nearly an identical thing that happened to Germany back in 1929. The only difference this time is that it’s not Germany being taken advantage of by the USA, it’s Greece being taken advantage of by Germany.

I did a quick google for “How did Hitler rise to power” and found this:

After the Wall Street Crash of 1929, the US called in its loans to Germany, and the German economy collapsed. The Number of unemployed grew; people starved on the streets. In the crisis, people wanted someone to blame, and looked to extreme solutions – Hitler offered them both, and Nazi success in the elections grew. Germans turned to Nazism because they were desperate.

Now the only question is, “which extreme solutions will the Greeks be offered?”

Take a guess in the comments section and get a chance to be entered in a drawing to win a pony!

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