The Russian Empire

Posted by PITHOCRATES - February 11th, 2014

History 101

The Europeans built Larger Ships and used Advanced Navigational Skills to sail from Europe to the Far East

The Anatolian peninsula (roughly the area of modern day Turkey) has long been a trade crossroads.  It’s where the Black Sea (and the rivers into Europe and Russia) met the Mediterranean Sea.  It’s where Europe met Asia.  Where East met West.  All important long-distant trade traveled through the Anatolian peninsula.  Right through the Bosporus.  The straits between East and West.

The Greeks, the Persians, the Romans and the Ottoman Turks all coveted this region.  When the Western Roman Empire fell the great Italian city-states rose.  They dominated the Mediterranean.  And the trade through the Bosporus.  Where the Silk Road for centuries brought riches from the Far East into Europe.  The Italian merchant banks controlled that trade.  Until the Eastern Roman Empire (the Byzantine Empire) fell to the Ottoman Turks.  Which, lucky for the Europeans, happened at the time of the Renaissance.  Bringing an end to the Middle Ages.  And ushering in the modern era.

It started in Italy.  And then spread into Europe.  A rebirth (hence Renaissance) of all that Greek learning.  Which shifted the trading center from the eastern Mediterranean to Europe.  Where the Europeans built larger ships and used advanced navigational skills to sail from Europe to the Far East.  Bypassing the Silk Road.  And the Ottoman Turks in the Anatolian peninsula.  Making the Europeans the new rich traders.  Knowledge and wealth created more ships for trade.  And advanced armies and navies.  Making the Europeans the masters of the world.

Peter the Great pulled Russia out of the Middle Ages by making it more European

While the Mediterranean and European nations were ushering in the modern world not all of Asia followed them.  Russia in particular remained in the Middle Ages.  A vast land full of disparate peoples.  Not a unique and singular Russian people.  Until Ivan the Terrible came along.  The Grand Prince of Moscow from 1533 to 1547.  Then Tsar of All the Russians.  Ivan the Terrible united Russia by conquering it.  But at a cost.  Continuous wars killed a lot of Russian people.  Which left a lot of farmland fallow.  Giving Russia a chronic problem they would have for centuries.  The struggle to feed themselves.

Tsar Peter the Great (1682 – 1725) modernized Russia.  To be a more modern country like those in Europe.  He even went to Europe incognito to learn as much as he could about advanced European ways.  And had Europeans help him pull Russia out of the Middle Ages.  He made his army to be like European armies.  Learned about shipbuilding.  And built a Russian navy.  Which was a problem as the only access to the sea Russia had was the Arctic Ocean via the White Sea.  Which meant, of course, war and conquest.  He fought the Swedes for access to the Baltic Sea.  And he fought the Ottoman Turks for access to the Black Sea.

The disparate people of Russia were not all that happy with his ideas or the money he spent.  So he brutally suppressed any discontent.  Peter built his navy.  And a new capital on the Baltic Sea.  Saint Petersburg.  A European cultural center.  And the Imperial capital of Russia.  He also attacked the Ottoman Empire.  And lost.  Losing his Black Sea ports.  But Russia would return to fight the Ottoman Turks.  Under Catherine the Great.

The Bolsheviks killed Tsar Nicholas and his Family and ushered in the Oppressive Soviet Union

Catherine the Great ruled during Russia’s Golden Age.  Continuing the work started by Peter the Great to modernize Russia.  Making Russia a great European power.  Through military conquest.  And diplomacy.  She was even an international mediator.  And established the League of Armed Neutrality to protect neutral shipping from British attacks during the American Revolutionary War.

Catherine pushed Russia’s borders out largely at the expense of the Ottoman Empire.  And the Polish–Lithuanian Commonwealth.  These conquests cost, though.  And she turned to the nobility to pay for them.  In return she supported the nobility.  But the wealth she got form the nobility came from the serfs (basically slave laborers) working their land.  Which took a lot of work to pay for her conquests.  Leading to a peasant uprising or two.  But serfdom would continue in Russia.  Tsar Alexander I advanced the status of Russia with his defeat of Napoleon.  They even called him the Savior of Europe.  But serfdom remained as the Industrial Revolution took off in Europe.  Halting the modernization of Russia.

Tsar Alexander II emancipated the serfs in 1861.  Ending the landed aristocracy’s monopoly of power.  Serfs left their lands.  And moved into the cities.  Selling their labor.  Industrializing Russia.  Still, their freedom favored the landed aristocracy.  Who were compensated for their serfs’ freedom with a tax paid by the freed serfs.  Which little improved the life of the freed serfs.  And did little to ease the revolutionary fervor long simmering in the Russian people.  Especially those outside the nobility.

When Tsar Nicholas II entered Russia into World War I things did not go well for Russia.  Military losses, food shortages, fuel shortages, inflation and striking factory workers made the nation ripe for revolution.  Tsar Nicholas went off to command the Russian Army personally.  Leaving his wife Alexandra to run the country in his absence.  Who turned to Grigori Rasputin for help.  Which didn’t help quell the revolutionary fervor simmering in the Russian people.  They didn’t like Rasputin.  Or the Tsar.  And made Tsar Nicholas the last emperor of the Russian Empire.  Which the Bolsheviks made permanent.  By killing Nicholas and his entire family.  Which ultimately ushered in the Soviet Union.  One of the most oppressive regimes of all time.

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Trade, Colonization, South Africa and Apartheid

Posted by PITHOCRATES - December 10th, 2013

History 101

Alexander Spread the Advanced Greek Civilization from the Mediterranean to the Indus River Valley

The first civilizations grew up on the great rivers.  The Nile.  The Tigris and Euphrates.  The Indus.  And the Yangtze.  For the river was the source of life.  The flooding of its banks produced the rich black earth that gave us farming.  They helped us irrigate land further from the banks.  And they allowed the spread of civilizations.  For these rivers provided our first means of transporting people and cargo.  Allowing food and goods to travel between settlements.  This cross-pollination of settlements of different people and resources flowered into the great civilizations of the world.

The Chinese civilizations along the Yangtze grew in isolation from the rest of the world due to the geography at first.  Then, later, by choice.  The other three great civilizations came into contact with each other.  The Egyptians on the Nile spread east and made contact with the Sumerians of the Tigris and Euphrates.  Who were in contact with the Harappan of the Indus River valley.  These civilizations traded with each other.  And fought with each other.  As their civilizations flourished they attracted the attention of envious neighbors.  Who wanted what they had.  And conquered them.

Wars pushed boundaries back and forth.  Civilizations rose and fell.  One of the last great empires of the ancient world, the Persian Empire, bumped into a new rising power.  Athens.  Which was conquered by a Greek-trained king from the north in Macedonia.  Whose son, Alexander, went on to conquer the known world.  Spreading the advanced Greek civilization from the Mediterranean world to the Indus River valley.  Creating a Greek-speaking world steeped in science and philosophy.  Creating a greater Hellenistic civilization out of the lands Alexander conquered.  The shared Greek culture allowing an explosion of trade and commerce.

In Time the English and the Dutch would Bump Heads in South Africa

The Romans adopted Greek knowledge and used it for great engineering projects.  Roads, aqueducts, ships, weapons of war, etc.  Soon the Roman Empire displaced the Hellenistic civilization and spread even further.  Ironically, it was the cost of empire that began the fall of the Roman Empire.  High taxes to fund a huge army on the frontier and to pay for a massive bureaucratic state.  Including welfare programs.  The empire first collapsed in the West.  It lasted another 1,000 years in the East as the Byzantine Empire.  With its capital in Constantinople (modern day Istanbul, Turkey).  Named by the Roman Empire Constantine the Great.  Who helped turned the Roman Empire Christian.

Constantinople was the center of the world.  It was where East met West.  Where Europe met Asia.  All trade from the East went through Constantinople on its way to the West.  For the Silk Road passed through Constantinople.  Making it a very rich city.  As it controlled trade.  After the fall of the Western Roman Empire the great Italian city-states rose.  Venice, Milan, Florence, Genoa, Pisa, Siena, Lucca and Cremona.  With their merchant banking they controlled the Mediterranean trade.  Until the Muslims conquered Constantinople.  Which is when the center of economic power moved north to Europe.  Thanks to advances in navigation that allowed ships to sail around Africa to the East.  Bypassing the Muslim-held Constantinople.

It was the Age of Discovery.  And the great European powers discovered new lands full of valuable resources.  The Portuguese and the Spanish lead the way.  And were soon followed by the Dutch.  And the English.  These nations established colonies around the world.  And, in time, the English and the Dutch would bump heads in South Africa.  Where they discovered gold.  Leading to a century of conflict between the British Empire and the Dutch settlers.  Known as Boers.  During the Napoleonic Wars the British defeated the Boers in Cape Colony in 1806.  And officially took possession of the colony in 1814.  Then it was Britain’s turn to send settlers to the region.  As a prosperous colony at the southern tip of Africa would come in handy for the empire that controlled the trade routes with the most powerful navy in the world.

Mandela Languished in Jail in part because of his Being a Communist

The Boers resented British rule.  And they didn’t like their abolishing slavery.  So they moved north.  Establishing two Boer independent republics.  The discovery of diamonds and more gold would make the region the richest and most powerful in southern Africa.  There was only one problem.  They didn’t have the manpower.  Or an industrial base.  Which led to another wave of immigration.  Mostly from Britain.  Which soon outnumbered the Boers.  Tensions led to the two Boer Wars.  The second one being the longest, costliest and bloodiest war the British fought in the century following the Napoleonic Wars.  With the British ultimately winning the African territories from the Boers in 1902.

The contested areas were all absorbed into the British Empire in 1910 as the Union of South Africa.  And became independent of the British Empire in 1931.  As the foreign powers fought over the African lands they pushed aside the native blacks.  And segregated them.  In 1948 the National Party rose to power.  And began to make segregation law.  The official beginning of apartheid.  Where the whites lived in a first-world nation (which they built with their capital along with black labor).  While the blacks lived in third-world conditions.  The African National Congress (ANC) fought apartheid.  Which was good.  But the ANC was a communist organization during the height of the Cold War.  Which did not make it a friend of the Western World.  Nor was Nelson Mandela.  Who was a communist.  Mandela co-founded the militant wing of the ANC in 1961.  Umkhonto we Sizwe (MK).  Which planned a campaign of sabotage against the apartheid government.  Landing Mandela in jail for 27 years.

Mandela languished in jail in part because of his being a communist.  For they didn’t want what happened in Southern Rhodesia to happen in South Africa.  Alignment with the Soviet Union.  And bloody civil war.  This is what they feared if the ANC/MK rose to power under the charismatic Mandela.  Civil war in South Africa fueled by the Soviet Union to aid in their war with the West.  As it turned out, though, Mandela was more like Abraham Lincoln when he emerged from jail.  Who told his generals that once the American Civil War was over there was to be no reprisals or retaliation against the South.  For once the war was over they would move on together as Americans.  Both North and South.  Which made the peace that followed much easier on the South.  Allowing the nation to heal her wounds more quickly than if there had been a period of bloody purges and reprisals.  And this is the gift Mandela gave to South Africa.  Allowing the nation to move forward after apartheid without bloody purges or reprisals.  Which is why South Africa went on to become one of the BRICS (Brazil, Russia, India, China and South Africa) economies.  While another former member of the British Empire in Africa, Southern Rhodesia (today’s Zimbabwe), suffers corruption, poverty, human rights abuses and one of the lowest life expectancy in the world.  Because Mandela spoke of peace and reconciliation when released from prison.  Not vengeance.  Like they did in Zimbabwe.

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Alphabet and Writing

Posted by PITHOCRATES - November 27th, 2013

Technology 101

(Originally published November 23rd, 2011)

The Necessary Information to Survive in Prehistory was Minimal and did not Require a Written Language

Hunters and gatherers had little need for language.  For they did little in life but hunt, gather, eat, sleep and propagate the species.  Much like wildlife today.  Such as feral cats.  Abandoned house cats.  Who mate and produce more feral cats.  And these animals are survivors.  They hunt.  Gather food from human garbage.  Eat.  Sleep.  And reproduce.  If you ever had any in your neighborhood you know that they can be very loud, too.  Making a variety of sounds.  Meows, cries, growls and hisses.  Not an advanced language.  But sufficient to survive.  And enough to keep you from trying to pick one up.

Early man was similar to feral cats.  They had a limited language.  That allowed them to survive.  And make modest advances.  They made tools out of stone.  Used fire.  Made clothes from animal hides.  Even left art on the walls of caves.  Far more than any wild animal ever did.  But they didn’t do much more.  If they did it was probably nothing to write about.  Because they didn’t.  Write about it.  Either because they had no written language.  Or because they were a modest people.

History starts with written language.  Before that we have only archaeology.  And best guesses.  But based on the archaeology they weren’t doing much.  Other than surviving.  And in these prehistory times life was pretty simple.  See above.  The necessary information to survive was minimal.  Eat.  And don’t die.  It wasn’t necessary to write that down.  So they didn’t.  Memory was more than sufficient.  And it was like that for millions of years.

The Phoenician Alphabet was the Basis for the Greek and Latin Alphabets

But then the simple became complex.  There were food surpluses that allowed a division of labor that led to trade.  And a burgeoning economy.  Which required a more sophisticated way of communicating.  And a system of maintaining records of economic exchanges.  For memory and talking just wasn’t good enough anymore.

In the 4th millennium BC, in Mesopotamia, this began with clay tokens to represent an economic commodity.  And the first system of accounting was simply counting and storing these tokens.  But as the division of labor produced an ever more complex economy, the number of tokens used became too great.  So they represented the economic commodity with a symbol scratched in a clay tablet.  Instead of counting tokens they read these tablets.  We call this writing cuneiform.   Which was later used to write down the spoken Sumerian language.

Over time we developed alphabets.  We represented the sounds of the words we spoke with letters.  The Phoenician alphabet being one of the first alphabets.  Used by one of the greatest traders and merchants of all time.  The Phoenicians.  Which spread this language around.  Giving rise to Canaanite and Aramaic.  Aramaic giving rise to Arabic and Hebrew.  Incidentally, all languages without vowels.  But the granddaddy of all alphabets was Greek.  Which added vowels.  And formed the basis for Latin.  As well as all other western languages.

We Know about the Glory of Greece and the Grandeur of Rome because they Wrote about It

Athens was the cradle of modern civilization.  The Athenian empire grew because it was based on a complex trade economy.  Ditto for the Roman Empire.  At the height of their power the civilized world spoke their languages.  Conducted their trade in Latin or Greek.  Wrote their laws in Latin or Greek.  Conducted their diplomacy in Latin or Greek.  Why?  Because they could.  Their alphabets and their written language allowed them to manage the complex.

And they wrote.  A lot.  We know so much about Greece and Rome because we can read what they wrote.  And we can build on the glory that was Greece.  And the grandeur that was Rome.  Because we, too, have complex trade economies.  Giving us comforts in life that not even the Greeks or Romans could have dreamt about.

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Greek and Latin Books, the Printing Press, the Gutenberg Bible, Newspapers, Desktop Publishing, the Blogosphere and the Internet

Posted by PITHOCRATES - October 16th, 2013

Technology 101

(Originally published December 28th, 2011)

Monks worked by Candlelight Painstakingly Copying by Hand the Great Books of Greek Knowledge

Alexander the Great spread Greek thinking and the Greek language throughout much of the known world.  From the Mediterranean to the Indus Valley.  Everywhere Alexander went he built new cities. Where that Greek thinking took hold.  Astronomy.  Geometry.  Architecture.  Engineering.  Philosophy.  Etc.  The Greeks impressed the Romans.  Even though they conquered them.  But the empire they built used that Greek thinking they so admired as its foundation.  They studied the Greeks.  Mastered their language.  Read their books.  And translated the Greek books into Latin.  The new universal language.

The Roman world was an advanced world.  And a Latin world.  The great minds throughout the Empire spoke and studied in Latin.  Which helped to diffuse this knowledge throughout the known world.  For you were never outside the Latin world.  The common people may not have spoken Latin.  Instead speaking the common language of their people (French, German, English, etc.).  But in their universities they all spoke Latin.  For educated men everywhere spoke Latin as their second language.  The language of knowledge.  Education.  And of the Church.  Where the masses were in Latin.  Until the Great Schism in 1054, that is.  When Greek replaced Latin in the Eastern Orthodox Church.  But Latin remained the language of the Catholic Church in the West.

It was the Church and their medieval monks that brought this knowledge forward through the Dark Ages.  For it wasn’t dark in their monasteries.  Where monks, the few people who could read and write, worked by candlelight painstakingly copying by hand the great books of Greek knowledge.  Making this knowledge available for the select few who could afford these works of art.  Which they were.  For each one was one of a kind.  Which made them rather costly.  And unavailable for the common people.  Including the Bible.  No, these belonged to the wealthy.  The universities.  And the Church.  Until a German goldsmith came along with a brilliant idea.

The Printing Press gave us Inexpensive Books, Newspapers, Censorship and Revolution

That idea was moveable typesetting.  Individual letters arranged to spell out lines of text.  Clamped together with other lines of text.  Placed into a press.  Smeared with ink.  Then pressed onto paper.  In this way Johannes Gutenberg published the first mass-produced book.  The Gutenberg Bible.  And knowledge would never be the same.

Printing spread.  As did the mass production of books.  Reading was no longer for the well-to-do or Church clerics.  Everyone was learning to read.  And they were reading books.  In their own language.  Which put an end to Latin.  Because the printing press made books so cheap they printed them in all sorts of languages.  Making knowledge more readily accessible to the common people.  Anyone who wished to learn to read could.  And did.  Thanks to Gutenberg.  And the printing press.

But not only books were printed.  Knowledge was taking shape in a new form.  Newspapers.  And this type of knowledge was powerful.  People throughout a kingdom knew what was happening in their kingdom.  And what was happening in other kingdoms.  And they more often questioned authority.  So much so that it ushered in a new government policy.  Censorship.  As governments tried to suppress unfavorable news.  Such as the British blockade of Boston Harbor.  Soon Boston’s problem was everyone’s problem as the news traveled throughout the American colonies.  Escalating what the British thought was a Boston problem into a revolution in America.  And later in France.  After the French read all about the American Revolution in their newspapers.

Desktop Publishing, the Blogosphere and the Internet has Revitalized the Free Press

With newspapers came newspaper advertising.  A great medium for advertisers to promote their goods.  And a cash cow for publishers.  Advertisers kept the price of newspapers low.  Making them affordable to the masses.  Giving publishers great power to control information.  Which they did.  Newspapers started out as tools of political parties.  Alexander Hamilton and Thomas Jefferson viciously attacked each other in print.  Through anonymous editorial content.  So using newspapers for political purposes is nothing new.  But in the age of advertising the stakes were much higher.

Newspapers soon assumed an air of neutrality.  They weren’t tabloid news anymore.  But journalism.  Reporting the facts so their readers can make their own conclusions.  And they were neutral for awhile.  But the captive audience of a large daily was just too much to pass up.  Papers could influence and shape opinion.  And many did.  With clear biases even though they denied it.  Frustrating their readers.  Who began to look for other sources of news.  And they found a big one.  So big that it is destroying the giants of print media.  Shrinking these newspapers’ circulation numbers.  And with them their advertising revenue.  So what was driving people away from the once storied titans of news?  The Internet.

The Internet has revolutionized the way we get information.  And has revitalized the free press.  We can get news from anywhere without it going through the editorial filter of a politically connected publisher.  Desktop publishing and the blogosphere allow anyone to write and publish at little to no cost.  Some blogging platforms are free thanks to online advertisers.  Now anyone can report, think, opine and publish.  Technology has made the costs of electronic publishing almost free.  Gone are the days when you needed mammoth printing presses, typesetters, copy editors, delivery trucks etc.  Today all you need is a computer.  Or a cellular device.  And an Internet connection.

People in the Middle of the News can Report the News in Real Time thanks to Micro-Blogging

Few newspapers today can afford to stay in business with their low circulation numbers and lost advertising revenue.  But people have never been more informed.  Sources of news and opinion are electronically everywhere.  For a fraction of the cost.   With some of that news being published within seconds of the news event happening.  From anywhere in the world.  Thanks to the Internet.  And micro-blogging platforms such as Twitter.  Even if the news arrives to us in a foreign language we can use an online translator to read it.  With some simple copy and paste commands.  News has never been more convenient.

People in the middle of the news can report the news in real time.  A process that started with the Greeks and the Romans.  Who diffused all that Greek knowledge.  That a lot of monks brought through the Dark Ages to the age of print.  Feeding our insatiable hunger for knowledge.  The printing press gave us inexpensive books.  In our common languages.  And the newspaper.  That eventually gave us desktop publishing.  The Internet.  And instantaneous knowledge.  All of this without having to learn Latin to boot.  Good for us because that is one thing the Internet can’t do well.  Translate Latin.  For that you need a person.  Or years of education.  And who has the time these days for that?  I mean, we can’t even wait for a daily newspaper these days to get our news.

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The Greek Crisis is Now Threatening the Credit Rating of the Stronger Eurozone Members

Posted by PITHOCRATES - July 29th, 2012

Week in Review

Since 2009 we’ve been hearing about the European sovereign debt crisis.  Also known as the Eurozone crisis.  And here we are in 2012.  Despite numerous rescue packages and recovery plans the crisis continues on.  Greece can’t borrow money in the credit markets because no one believes Greece will ever be able to pay them back.  For Greece has been running some pretty big deficits.  Which has accumulated an enormous pile of debt.  Resulting from their large spending obligations for public sector wages and pensions.  They don’t have the money.  They can’t borrow the money.  So a massive Greek default is likely.  Which because of the common currency will be felt throughout the Eurozone (see Germany’s AAA rating under threat after Moody’s cuts outlook by Jamie Dunkley posted 7/24/2012 on The Telegraph).

Moody’s warned the outlook for the ratings of Germany, Luxembourg and the Netherlands is negative because the threat of a Greek exit from the eurozone and the need for greater financial support for struggling eurozone countries from the strongest members of the bloc.

In a statement, issued after the close of the US markets, it added: “The level of uncertainty about the outlook for the area and the potential impact of plausible scenarios on member states, are no longer consistent with stable outlooks.”

Not some pleasant choices.  Have a Greek default damage your credit rating.  Or make your taxpayers pay for another nation’s debt.  Which begs the obvious question.  Or should.  How is having other people pay for spending you can’t afford going to solve your problem of spending more than you have?  If Greece doesn’t cut their spending nothing will change in the long run.  They will need another emergency bailout following this emergency bailout.  Because this emergency bailout doesn’t address the source of their trouble.  Excessive government spending.

Keynesians encourage excessive government spending because they think it’s stimulative.  That it creates economic activity.  In fact the Keynesian solution to the Greek crisis is more government spending to stimulate the economy.  Which begs the obvious question.  Or should.  If government spending does all of this why after all of their government spending is Greece on the precipice of bankruptcy?  Huh?  Answer that one smart Keynesian person.

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Greek Debt Crisis, Social Democracy, Welfare State, Keynesians, Inflation, Tax Evasion, Common Currency and the Eurozone

Posted by PITHOCRATES - June 19th, 2012

History 101

Higher Debt Balances accrue Higher Interest Costs that Reduce Income

The Greek debt crisis has been in the news for a long time.  Which has contributed to the Eurozone sovereign debt crisis.  Most people understand that it’s bad.  But they may not understand how bad.  Or understand what exactly happened.  What caused it.  And why they can’t fix it.  For it’s been a crisis since 2009.  And all we hear is that it’ll be apocalyptic if we don’t bail out Greece and save the Euro.  Which would be bad.  As most apocalypses tend to be.

To get a general understanding we’ll use an analogy.  Let’s say you just got a new job and are now earning $80,000 annually.  Your future is bright.  And you’re very happy.  You buy a big house.  And you run up your credit cards furnishing it with lots of nice stuff.  Because you’re earning $80,000 a year and can easily afford it.  Well, perhaps not easily.  But you can still put food on the table.  And take a nice vacation with your better half.  But then a recession sets in.  They cut your bonus.  And some of your benefits (taking a large health care deduction out of your check).  But that house payment remains the same.  As do your credit card bills.  So you cut out the vacation.  And eat more hamburger and less steak.  To adjust to the lost income.  Then worse comes. 

You lose your job.  Go on unemployment.  Which doesn’t pay your bills.  So you desperately look for a new job.  In the bad economy the best job you can get pays only $50,000.  Which is a lot more than unemployment.  But a far cry from $80,000.  You can keep making your house payment.  But you have to slash nonessential spending.  And cut up your credit cards.  Because those high credit card balances require a payment that’s almost as big as your house payment.  Almost your entire paycheck goes to your creditors.  All because you started spending money you didn’t have because you thought that $80,000 job would never go away.  In fact you spent based on what your income would grow to.  Beyond that $80,000.  This is the Greek debt crisis.  Only without the spending cuts.

A Policy of Constant Inflation Monetizes Old Debt and Bumps People up into Higher Tax Brackets

Like the rest of Europe Greece became a social democracy.  Which is socialism-light.  The people learned they had the keys to the treasury.  All they had to do was to vote for people who liked using that key.  And they did.  Government spending soared beginning in the Seventies.  The public sector grew.  Creating a lot of government jobs.  With some generous pay and benefits.  But the country was also a welfare state.  Which meant everyone got a state pension.  State health care.  And other state social benefits.  You didn’t have to work for the government to enjoy the generosity of the state.  And the state was generous.

And the generous government spending just grew more generous.  Strong economic growth allowed more spending.  And more borrowing.  (From 2000 to 2007 Greece led the Eurozone in economic growth.  Which probably sealed their fate.  Because the increased spending during boom times they could never sustain during bad economic times.  And bad economic times were coming.)  Budget deficits became a part of the Greek government.  For they were also Keynesians.  Who believed in the value of running deficits.  And accruing debt.  They devalued their currency.  Which helped make their exports cheaper.  And it monetized their debt.  A policy of constant ‘but manageable’ inflation made old debt worth less.  And easier to pay off.  Just as inflation made people’s savings accounts worth less over time.  But running budget deficits year after year increased their outstanding debt.  Starting slowly at first.  Then growing greater.   Prior to 1984 Greek debt as a percentage of GDP was below 40%.  By 1998 it was above 60%.  By 1990 it was above 80%.  By 1994 it was above 100%.  By 2010 it was above 140%.  By 2011 it was above 160%. 

The Keynesians don’t see a problem with this.  Because they believe if you keep depreciating the currency the older debt just goes away.  It’s like redeeming a $100 savings bond from 1875.  Back then $100 was a lot of money to the government.  Today it’s the loose change they drop from their pockets that isn’t worth bending down to pick up.  Metaphorically, of course.  In time with steady inflation those old debts simply become chump change.  And there’s something else Keynesians love about inflation.  It’s a hidden tax.  Sometime it’s not possible politically to raise taxes.  So they can use inflation to bump people into higher tax brackets.  Making them pay a higher percentage of their income to the government.  Which brings us to another Greek problem.

At the Heart of the Greek Debt Crisis is the Welfare State

Greece is a welfare state.  Like other welfare states they have to fund that welfare with taxes.  So they have high tax rates.  Because it’s what the people want.  That welfare state.  Which requires those high tax rates.  But they have a problem.  People don’t like paying taxes.  Especially the Greeks.  Who have taken avoiding paying taxes to an art.  Which plays a big problem in the Greek debt crisis.  People demanding all of that government spending.  Yet refusing to pay the taxes to pay for it.  Causing great problems.  Especially when they joined the common currency.  The Euro.

The common currency changed things.  They could no longer depreciate their currency.  Because it wasn’t their currency anymore.  It was the Eurozone’s currency.  Joining the Euro was like giving a bunch of people credit cards and telling them they had to restrict their purchases so that their annual deficit and total debt fell below certain percentages of their income.  And those numbers to join the Euro were as follows.  Their deficit had to be below 3% of GDP.  And their debt had to be below 60% of GDP.  If all the members kept within these limits they would maintain their good credit rating.  And be able to use their ‘credit cards’ responsibly.  And not shock the European Central Bank when they opened the credit card statement at the end of the accounting period.

It appears that Greece massaged their numbers with some creative bookkeeping to meet the requirements to join the Euro.  And to stay within the currency union they may have misreported their economic numbers.  (When the crisis began the Greeks officially reported that their deficit was 5% of GDP.  Which exceeded the allowable 3% but was salvageable.  After some outside audits they revised their 2009 deficit up to 15.6% of GDP.  Making the crisis more of an apocalypse).  Why did they do this?  Because they wanted to keep spending.  But they couldn’t depreciate their currency anymore.  The economy was in recession which higher tax rates wouldn’t help.  Not to mention all of the tax evasion.  So that left borrowing as their only avenue to sustain that excessive government spending.  Sort of like trying to solve the problem of having your credit cards cancelled for nonpayment by getting new credit cards to use to accumulate even more debt that you can’t repay.  They’ve gotten one bailout package already.  And a second one is theirs if they commit to some austerity.  Which the people have rejected.  At least those rioting in the streets.  And considering how generous those benefits had been it’s hard to blame these people.  For life as they knew it is over for them.  Thanks to irresponsible government spending that made them dependent on the government.

So there are a lot of factors that caused the Greek debt crisis.  But at its heart is one thing.  The welfare state.  For if there was no excessive government spending they wouldn’t have had those large deficits.  Debt.  Or debt crisis.

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The US and UK are pressuring Germany to print Euros and guarantee Greek Debt

Posted by PITHOCRATES - May 20th, 2012

Week in Review

Greece is in a world of hurt.  Their government spends too much money.  And their people answer calls for austerity with riots.  They simply refuse to address the problem that got them where they are.  Too much spending.  If they continue to reject austerity measures to bring their spending in line with their ability to pay for it they’re going to be cut off from future loans.  And broomed out of the Eurozone.  That won’t be pretty.  Because if others don’t prop them up they simply won’t be able to service their debt.  They will default on their sovereign debt obligations.  And the banks who have loaned large sums of Euros to them will struggle to recover from these losses.  Many of them simply won’t be able to.  Once the banks start failing the contagion will spread throughout Europe.  And the world.  Bringing on a worldwide recession.  That could easily slide into a depression.  And all of this because of excessive government spending.  There’s a lesson to learn here.  STOP SPENDING SO MUCH.  But no one ever learns this lesson.  Especially when Keynesians are running the government.

They’re talking about your typical Keynesian solutions.  More of the same that got Greece into the trouble they’re in.  Quantitative easing.  Printing money.  To stimulate these troubled economies with…wait for it…more government spending.  As if they can fix their debt troubles with higher consumer prices.  Which is what you get when you print more money.  Especially when the supply of money grows at a rate greater than its economy grows.  So prices will rise while the value of the Euro will fall.  It’ll make their exports cheaper.  But it’ll also make the value of all those outstanding sovereign Euro bonds worth less.  Those bonds all those banks are holding.  Giving them a negative return on their investment.  Pushing these banks closer to insolvency.

And it doesn’t end there.  The strongest economy in the Eurozone is Germany.  They know a thing or two about inflation thanks to the hyperinflation in Weimar Germany that gave the world Adolf Hitler.  So the Germans have governed responsibly.  By living within their means.  And their people have been paying a lot of taxes to pay for all of those Eurozone bailouts.  A nation that has truly gone above and beyond.  Their reward for responsible governing and selfless sacrifice?  They’re asking the German taxpayer to assume the Greek debt (see David Cameron and Barack Obama lead charge to save the eurozone by James Kirkup posted 5/19/2012 on The Telegraph).

Angela Merkel of Germany came under intense pressure to do more to support the struggling currency by putting German economic credibility behind the debts of weaker economies like Greece…

There is growing agreement among G8 leaders that the answer to the eurozone crisis is for members of the single currency to “mutualise” their debts, meaning strong members like Germany partly guarantee the debts of weaker ones like Greece.

Mrs Merkel has resisted any such plans, reluctant to ask German taxpayers – who already resent the bill for helping other eurozone countries – to underwrite the budgets of indebted southern Europeans…

That’s fair.  Except to the Germans, of course.  The problem is if the Greeks don’t reduce their government spending the underlying problem will remain.  Excessive spending.  Which means they will need bailout after bailout.  One or two or three just won’t do it.  And it will delay the inevitable.  And take more people with them when this Keynesian house of cards implodes.

Giving people benefits is easy.  People love you for your generosity.  Taking benefits away is very, very difficult.  People will hate you.  The longer you wait to start the more difficult it will be to cut these benefits.  And the more the people will hate you.  Which is why it is so difficult to govern responsibly.  Because politicians find it is easier to buy votes with generous benefits than it is win votes with good ideology.  This is why governments everywhere embrace the failed policies of Keynesian economics.  Because it gives legitimacy for the easy way of winning elections.  Buying votes with excessive government spending.

And this is the ultimate problem in the Eurozone.  Keynesian economics.  For if governments did not deficit spend or ‘stimulate’ their economies with monetary policy there would be no Eurozone sovereign debt crisis.  Being debt free makes everything easier.  Because you don’t have to borrow.  Service your debt.  Or roll it over.  You have none of those headaches when you live within your means.  Just look at the Germans.

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Private Bondholders asked to lose 53.5% of their Holdings in new Greek Bailout Agreement

Posted by PITHOCRATES - February 26th, 2012

Week in Review

Be thankful you don’t have any Greek bonds.  If you do you have nothing to be thankful about (see Greece submits its debt cut offer posted 2/24/2012 on BBC News).

Under the proposed debt swap, banks and other private creditors are being asked to take a 53.5% loss on their Greek bonds.

Ouch.  If you had your retirement savings invested in Greek bonds you won’t be able to retire as planned.  Imagine that.  Say you had saved $250,000 and put it into some of the safest investments out there.  Government debt.  Because unlike private corporations they have the power to tax.  And will always be able to repay their debt.  Until now, that is.  Instead of getting your $250,000 back you’ll only get $116,750 back.  That’s a worse hit than homeowners took during the subprime mortgage crisis.  Even though their mortgages are underwater at least they have a chance of getting their lost value back.  Not these Greek bond holders.  Once this deal goes through they lose their money forever.  And 53.5% is a lot to lose.

Will this solve their problems?  Not unless they severely cut their government spending.  And with Greeks in the streets rioting that will be easier said than done.  Which means they will continue to spend.  Run deficits.  And borrow money.  Putting them right back on the road they’re trying to get off.  And just who is going to take a chance on buying Greek bonds when the current bondholders just lost 53.5% of their holdings?  Here’s a clue.  It won’t be as many who bought them before the 53.5% write-down.

This will not likely end the Eurozone debt crisis.

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Fitch follows S&P and Downgrades Eurozone Countries which doesn’t Help the Eurozone Debt Crisis

Posted by PITHOCRATES - January 29th, 2012

Week in Review

First Standard & Poor’s.  Now Fitch.  Things are not looking up for the Eurozone (see Greek debt deal hit by eurozone ratings downgrades by Angela Monaghan posted 1/28/2012 on The Telegraph).

Following similar action from rival Standard & Poor’s (S&P) earlier this month, Fitch downgraded Italy, Spain and Slovenia by two notches and Belgium and Cyprus by one notch. Fitch took no action on France’s AAA credit rating despite S&P downgrading the country two weeks ago.

The rating agency warned that the eurozone crisis would only be resolved “as and when there is broad economic recovery” and with “greater fiscal integration”.

It was also being reported last night that the German government wants Greece to hand over control of tax and spending decisions to a ‘budget commissioner’ appointed by the rest of the eurozone, before the country gets its second bail-out.

The budget commissioner would have to power to veto decisions made by the Greek government, according to a proposal seen by the Financial Times, marking a significant step-up in the EU’s powers over the sovereign governments of member states…

Eurozone finance ministers said that while there were still considerable challenges ahead, they believed in the future of a united eurozone.

They’re still trying to save the Eurozone because they can’t save the Eurozone.  Greater fiscal integration?  Hand over tax and spending decisions?  Having a veto over other sovereign nations?  It sounds like to save the Eurozone will require some erasing.  Of the borders between these sovereign states.  Something that sovereign states don’t like.  Being conquered.  Only with Euros and debt.  Instead of artillery and bullets.  Or sword and lance.

So to save Greece all the Greek people have to agree to is to become a vassal of the greater power.  Sort of a step back in time.  To the days of feudalism.  Where the poorer states serve their lord.  Who serves their sovereign.  The new Eurozone structure.  Whatever that may be.  Where the stronger member states will be among the nobility and have greater privileges than the poorer states.  Who will be among the serfs.  Grateful for the generosity of their masters.  And showing due gratitude and obedience.

It’s a simple plan.  But knowing the history of Europe one that is not likely to work.  Not in an age when the trend is towards independence.  Not subjugation.  Hell, even Scotland is talking about their independence from the United Kingdom.  So to think the Greeks are just going to surrender their sovereignty is wishful thinking.  Not in the land where Western Civilization was born.  Not in the country that contains the once great city-state of Athens.  That inspired Alexander the Great.  And the Romans.  No.  That’s just a wee bit too much history for the Greeks to surrender.

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Classical Greece, Persian Empire, Hellenistic Period, Roman Empire, Italian Renaissance, Venice, Florence and Government Bonds

Posted by PITHOCRATES - January 17th, 2012

History 101

The High Cost of Mercenary Soldiers and a Bloated Bureaucracy brought down the Western Roman Empire

Classical Greece dates back to the 5th century BC.  Lasted about 200 years.  And was the seed for Western Civilization.  Classical Greece was a collection of Greek city-states.  There was no Greek nation-state like the nation of Greece today.  The city-states were independent.  And often waged war against each other.  Especially Sparta and Athens.  Athens is where we see the beginnings of Western Civilization.  Sparta was a city-state of warriors.  While Athens kicked off science, math and democracy, Sparta bred warriors.  And boys trained from an early age.  Or were abandoned to die in the wilderness.

Adjacent to Classical Greece was the great Achaemenid Empire.  The First Persian Empire.  The empire of Cyrus the Great.  Which extended from the eastern Mediterranean all the way to India.  Some of those Greek city-states were on the eastern coast of the Mediterranean.  Did not like Persian rule.  And the Ionians revolted.  Supported by Athens.  The Ionian Revolt (499 BC) was the first in a series of Greco-Persian Wars.  Persia’s Darius the Great was tiring of the Greek’s insolence.  And set out to conquer the Greek mainland.  Only to get turned back at the Battle of Marathon.  His son Xerxes returned to Greece to complete the work his dad started.  King Leonidas of Sparta delayed him at the Battle of Thermopylae for three days.  But he defeated the vastly outnumbered Spartans and marched on to Athens.  Where he sacked the abandoned city.  But he would lose the subsequent Battle of Salamis naval engagement.  Losing his navy.  Forcing Xerxes to retreat.

The Greek city-states united to fight their common enemy.  And won.  With the common enemy defeated, Sparta and Athens returned to fighting each other.  In the Peloponnesian War.  Where Sparta emerged the dominant power.  But the constant fighting weakened and impoverished the region.  Making it ripe for conquest.  And that’s exactly what Phillip of Macedon did.  He conquered the great Greek city-states.  And Phillip’s son, Alexander the Great, succeeded his father and went on to conquer the Persian Empire.  Creating the great Hellenistic Period.  Where the known world became Greek.  Then Alexander died.  And his empire broke up.  Then the Romans rose and pretty much conquered everyone.  And the known world became Romanized.  Built upon a Greek foundation.  Until the western part of that empire fell in 476 AD.  Due in large part to the high cost of mercenary soldiers.  And a bloated bureaucracy.  That was so costly the Romans began to debase their silver coin with lead.  To inflate their currency to help them pay their staggering bills.

In Exchange for these Forced Loans the City-States Promised to Pay Interest

The history of the world is a history of its wars.  People fought to conquer new territory so they could bring riches back to their capital.  Or to defend against someone trying to conquer their territory.  And take their riches.  Taking riches through conquest proved to be a reliable system of public finance.  For the spoils of war financed many a growing empire.  It financed the Roman Empire.  And when they stopped pushing out their borders they lost a huge source of revenue.  Which is when they turned to other means of financing.  Higher taxes.  And inflation.  Which didn’t end well for them.

With the collapse of the Western Roman Empire the world took a step backwards.  And Europe went through the Dark Ages.  To subsistence farming on small manors.  The age of feudalism.  Serfs.  Wealthy landowners.  And, of course, war.  As the Dark Ages drew to a close something happened in Italy.  At the end of the 13th century.  The Italian Renaissance.  And the rise of independent Italian city-states.  Florence.  Siena.  Venice.  Genoa.  Pisa.  Much like the Greek city-states, these Italian city-states were in a state of near constant war with each other.  Expensive wars.  That they farmed out to mercenaries.  To expand their territory.  And, of course, to collect the resulting spoils of war.  These constant wars cost a pretty penny, though.  And built mountains of debt.  Which they turned to an ingenious way of financing.

These Italian city-states could not pay for these wars with taxes alone.  For the cost of these wars was greater than their tax revenue.  Leading to some very large deficits.  Which they financed in a new way.  They forced wealthy people to loan them money.  In exchange for these loans these city-states promised to pay interest.

Renaissance Italy gave us Government Bonds and a new way for a State to Live Beyond its Means

The vehicle they used for these forced loans was the government bond.  Used first by the Italian city-states of Venice and Florence.  Which were very similar to today’s government bonds.  Other than the being forced to buy them part.  The bond had a face value.  An interest payment.  And the bondholders could then buy and sell them on a secondary market.   The market set interest rates then as they do now.  The market determined the likelihood of the city-state being able to pay the interest.  And whether they would be able to redeem their bonds.

When there was excessive outstanding debt and/or war threatening a city-state’s ability to service their debt interest rates rose.  And the face value of existing bonds fell.  Because if the state fell these bonds would become worthless.  When state coffers were full and peace rang out interest rates fell.  And bond prices rose.  Because with a stable state their existing bonds would still be good.  Just like today.  So if you’re into government bonds you can thank Renaissance Italy.  And their wars.  Which gave birth to a whole new way for a state to live beyond its means.

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