Struggling Global Economy It's the Debt, Stupid!

By: Mike_Shedlock

For those still wondering why the global economy is struggling, the simple answer is "It's the debt, stupid."

We will return to the global economy in a moment, but first consider the plight of Greece.

A detailed study shows that of €215.9 billion in Greek aid, only €9.7 billion went to Greece. The rest went to banks and other creditors.

Greece still has to pay back the rest, and is struggling to do so.

Bailouts for Banks, Not Greeks

With insiders warning that Athens may soon be in need of more aid, a new study finds that the Greek bailouts so far have benefited European banks, not the Greek people.

Please consider Study: Bailouts for Banks, Not Greeks

After six years of ongoing bailouts amounting to more than €220 billion, or $253 billion in loans, Greece just cannot get out of crisis mode.

It is tempting to blame those who refused to reform the country's pensions and labor markets for the latest calamity. But a study by the European School of Management and Technology, a copy of which Handelsblatt has obtained exclusively, gives another perspective. The aid programs were badly designed by Greece's lenders, the European Central Bank, the Europe Union and the International Monetary Fund. Their priority, the report says, was to save not the Greek people, but its banks and private creditors.

This accusation has been around for a long time. But now, for the first time, the Berlin-based ESMT has compiled a detailed calculation over 24 pages. Their economists looked at every individual loan instalment and examined where the money from the first two aid packages, amounting to €215.9 billion, actually went. Researchers found that only €9.7 billion, or less than 5 percent of the total, ended up in the Greek state budget, where it could benefit citizens directly. The rest was used to service old debts and interest payments.

Generosity Explained

That bailout was "very generous". How do I know?

On March 7, 2016, German Finance Minister Wolfgang Schauble told reporters "We were very generous with Greece".

Well, clearly that proves it.

And in the refugee crisis €6 billion goes to Turkey. But Greece got a very generous handout too.

What did Greece get? Oodles of advisors and other officials to help Greece process refugee paperwork more efficiently. Clearly, that's very generous (to Merkel, who prays this problem goes away).

Greece made numerous mistakes with debt, with refugees, with reforms (or lack thereof), but this "generosity" bit is total nonsense.

US, Asia, Japan, EU, IMF

Returning to the rest of the world, the central bankers, the IMF, and economists in general keep overestimating the global recovery.

Why?

It's the debt, stupid!

Choking on Debt

The central banks and the IMF are hell bent on cramming more debt down the throat of a system that is virtually choking on debt.

Curiously, and although the IMF announced in April that it was worried about public debt, it's proposed solution was to spend more.

Spend More Now, Worry About Medium Term Later

IMF's Brilliant Solution

1. Spend more now
2. Worry about the medium term later
3. Ignore the long term

The IMF's brilliant plan is guaranteed to work because the medium term eventually becomes the short term and we never have to worry about the long term.

It's that kind of thinking that gets you the big bucks.

For more details, please see IMF Chief Worried Over Public Finance, Urges Countries to Spend More.

Also consider Atlas Crumbles Under Weight of Italian Banks.

Meanwhile, the IMF quietly attempts to absolve itself of its role in the Greek bailout fiasco.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2016 Mike Shedlock, All Rights Reserved.

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