Be Very Worried about Greece!

Riots in Greece this week ...Abondoned house in the Palouse Hills, Eastern Washington


Protesters filled the streets of Athens today, setting fires to banks, attacking policemen, and otherwise venting anger at the "austerity measures" being forced upon them. I'm not realy sure who they are protesting against. Their government is in between a rock in a hard place. It's broke! The result of decades of borrowing from the future (AKA rampant debt). Well guess what...it's the future, and the young folks of Athens aren't too happy with their worthless I.O.U.'s from the past.
In comes the E.U. to the rescue. Germany, among other EU countries, plus the IMF have generously prepared a $165 billion bailout package for our feta friends. How generous. Hold on though, this isn't a Christmas present. It's just more debt!! What better way to solve your massive debt problem than refinancing it with brand new debt, only this debt doesn't come cheap at all. Greek 10-year bonds, being sold to the EU and the IMF in the guise of a "bailout" are running at 9.51% interest right now. If my math is correct, that means that somewhere in the neighborhood of $400 billion would then be coming due in the 2020 timeframe to pay off that generous gift. Where is that all supposed to come from? It's not going to come from anywhere, because it's a ludicrous proposition. The rotting corpse of debt is simply being swept under the rug. This bailout will seal Greece's fate.
Why should we be worried here in America? Well, Greece's 2010 national debt is expected to be 120% of its GDP. Where do we stand in America? According to the National Debt Clock : http://www.usdebtclock.org/index.html , our debt currently stands at 90.1% of GDP. The UK is close to 100%. The only thing that keeps America from becoming the next Greece is faith that the U.S. can stand behind its debt. How does the U.S. maintain this faith? Quite simply, it's a pyramid scheme. Much like the Greek bailout, our current debt obligations are being paid off with new debt. It gives the illusion that the U.S. is 'good for it.' But at some point, it must become apparent to a critical mass of potential buyers of U.S. treasury bonds that the promise of future repayment is an empty one. In order to cajole the U.S. economy into breakneck action (because the bright lights in charge see massive economic growth as the only way out of this trap), the Federal Reserve is keeping interest rates on borrowers super-low (0.2-0.75% depending on the instrument...http://www.federalreserve.gov/releases/h15/update/ ) to encourage people to take on new debt obligations, while funding its own operation through much higher interest rate debt that it takes out on Treasury Bonds (3.6,4.6 percent for 10,30 year bonds, respectively...http://www.bloomberg.com/markets/rates/index.html). As Ilargi puts it over at theautomaticearth,
"Wall Street banks can borrow from the Fed at 0.25%-0.5% right now, then walk a few -virtual- blocks down the street to the Treasury Department, buy Treasuries that yield 4% today and likely much more in the months and years to come, and basically sit on their hands while the money flows in."

So the U.S. is already rapidly selling out its future, while crossing its fingers for a ninth-inning rally of ginormous economic growth, within our energy and materially constrained economy.