Fiscal Irresponsibility 30, Grexit is another socialist failure

Hey Joe, what's happening? An economy that has been on budget deficit for decades should not aspire to have a fiscal surplus? Always living beyond one's means, never living below one's means? Populist but lousy, Joe.

These are screen shots of Joe Stiglitz's tweets last night. The man is playing populist politics here. Tsipras and the Greek majority have declared loudly and clearly that they won't aspire for fiscal surplus, that endless deficit and borrowings are cool and their entitlement mentality is correct. Simply because they are in the Eurozone, they shd be entitled to e ndless bail outs by other Euro economies. Lousy and opportunist thinking.

I replied to Joe Stiglitz on twitter. I doubt if he will bother to respond, the man's head is full of ego and populism.

This chart is from zero hedge's tweet yesterday. This is one reason why Greek debt mess isn't spreading to other banks. 

Greece debt keeps rising and Joe Stiglitz thinks the debt should continue rising via more EU bailout funds. The creditors are irresponsible and insensitive while the debt addict, the debtor is right and cool? Lousy.

Here is a breakdown  of Greece debt, from CNN Money, February 2015. 

No sympathy for Greece leftism and socialism. EU regional central planning is better for its national central planning. Equally heavily-indebted Cyprus, Ireland and Portugal managed to escape a full blown fiscal crisis because they heeded EU's austerity conditions. Greece did not, and things are worsening, not improving. Chart from Bloomberg. 

Tsipras and the rest of Greek socialists, other international socialists, should be ashamed of this development. News from Business Insider, 'Events are nowspinning out of control' in Greece

July 07, 2015.

Varoufakis resigned in the middle of the night on Sunday, and news broke that Tsipras and Varoufakis' replacement — Euclid Tsakalotos — would head to Brussels for an emergency meeting on Tuesday. When they showed up at the meeting on Tuesday, they didn't have a plan.

A report from Reuters on Tuesday indicated that Greece's banks only have 2 days of cash left. And this after ATM withdrawals have been limited to 60 euros per day for over a week now.

And from Bloomberg,  EU Tells Tsipras the Party’s Over as Euro Exit DoorSwings Open, July 08, 2015.

"In a tense and at times emotional meeting, Tsipras’s European peers told him he’d failed to appreciate the efforts the continent’s voters and taxpayers had made to help the Greek people and blamed him for escalating tensions across the region. Six officials agreed to share their knowledge of the private talks while asking not to be named because of the sensitivity of the historical moment.

“Party time at the expense of others in Greece has come to an end,” Lithuanian President Dalia Grybauskaite said. “Europe and the euro area are surely unprepared to pay for the irresponsible behavior of the new Greek government.”

Hard choice but realistic advice from a friend, a true blue economist, Dr. Butch Arroyo:

"There's a minuscule chance that a deal can be worked out by Sunday, but it's just that-- minuscule. Greece should now declare a general default and wipe out their debts 100%. Nationalize the banks, introduce a new drachma, force conversion of euro deposits into new drachma, get their public finances under control with sensible expenditure cuts and more serious efforts to curb tax evasion-- essentially self-directed austerity. To cushion the economic blow the government should seek aid and investment from expatriate Greeks (privatize those ports and utilities) and try to get direct financial support from potentially sympathetic countries like China, India, the US, the trade surplus countries of the Middle East and Southeast Asia, and maybe even Russia. The EU should in turn own up to their own failings and facilitate this exit by at the very least not taking any punitive measures such as rescinding Greek membership in the European economic community, and by providing humanitarian aid. The monetary union never made sense for Greece, and Greece didn't make sense for the monetary union. But they can and should remain in the EU--just not the eurozone. Preserving their membership in the European common economic area and EU nationality of their citizens will help in the coming adjustment.

It's looking to be a very hard road ahead for the Greeks. But on the upside their young citizens can now hope for growth at the end of the hardship. It has been done before-- Argentina in 2002 and before that Malaysia in 1998 were able to survive being cut off from world capital markets and were able to grow again within four years of their crisis. Much will have to change internally to get there. I only hope for them that the Tsipras government or whatever government comes after can rise to the enormous challenges ahead."

I agree with Butch. The Greeks should end their hypocrisy and opportunism of getting money from the Eurozone countries while ignoring the conditions set by their Euro creditors. Call it a spade. If they must ignore the austerity conditions, they should be consistent and ignore, dump the Euro as well. They will get more respect from other countries if they become more realistic than continuing the hypocrisy.

A good chart from The Telegraph, Europe is blowing itself apart over Greece - and nobody seems able to stop it, July 07, 2015.

The Greek majority should kick out socialist thinking in their minds. Tsipras and Varoufakis are just the embodiment of their socialist aspiration. They can never socialize wealth forever. They can only socialize poverty forever.

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See also: 
Drug Price Control 23: Greece's Pharmacy Nightmares, January 13, 2012 
Weekend Fun 34: Greece to Become a Social Network, May 19, 2012 

Fiscal Irresponsibility 21: Eurozone Debt, GDP and Unemployment, March 06, 2012 
Fiscal Irresponsibility 24: More on the PIIGS and European Debt, May 16, 2012

Fiscal Irresponsibility 28: Greece's Public Debt and Populism, February 09, 2015 

Fiscal Irresponsibility 29, On the so-called DBM "Underspending" in 2014, June 20, 2015

Fiscal Irresponsibility 26: On the $1 B Philippine Loan to the IMF

Yesterday, I posted this in my facebook wall.

The $1B PH loan to the IMF for Eurozone reserve fund won't come from tax money but from BSP's international reserves. It is within BSP's mandate and resources to do so. Still, I don't support helping to bail out fiscally irresponsible governments with more loans when those governments have lots of state-owned enterprises, financial instns and assets that can be privatized to raise domestic revenues, instead of endless taxation and borrowings.

I was happy to see some serious exchanges and comments from some friends, below. I am posting these comments without asking the permission of these guys for two reasons. One, my fb wall is a public wall anyway, and  two, many of the points raised here are no-nonsense ideas and would greatly help educate the public on the merits and demerits of this recent move by the central bank/BSP.
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Malou Tiquia I just totally do not agree to it...

Butch Arroyo But if you were the BSP what else would you do with the $s? BSP evidently doesn't want to sell the $s to the local economy and make the PHP stronger. So it has to push out the $s. But everything else out there they could put it into is either risky (and wouldn't be allowed to count towards "international reserves"), or safe but very low-yielding. A loan to IMF might be the highest-yielding of the alternatives that are acceptable for designation as international reserves.

The European bailouts are painful and costly result of policy mistakes of the EU in not enforcing the fiscal and public debt requirements of the original Maastricht agreement. I agree that those governments (the borrower govts for sure, but also the Germans, who weakened fiscal discipline in the EU by themselves violating the fiscal pact) deserve the wrath of their constituents. But until they get voted out they are (unfortunately) still the democratically elected leaders of these countries. If the leaders of the center countries (FRA, GER) still favor a bail out of the problem governments rather than allowing an exodus from the monetary union, the IMF will probably have to go along, since the only other countries who could vote it down-- US, UK, and, Japan-- probably support preservation of the monetary union.
From PH perspective, as long as the bailout lenders retain seniority, $1B to IMF is probably a small portfolio risk for the BSP.

Nonoy Oplas Thanks Butch. If I were the BSP, I will use some of my $77 B gross international reserves (GIR) to buy and hoard more gold plus other precious metals. My beef is that by pooling rising amount of bail out money, it will create moral hazards problem for those indebted countries. They have many govt-owned corporations, financial institutions, national parks, military camps and other assets, things that can be privatized to raise local revenues to deal with their spending requirements and debt obligations. I have not encountered much literature that those governments are taking this measure. Rather, they made limited or bogus austerity then issue some warnings that their debt problem can "spiral to the global economy unless the world will send them more money."

By not participating in the creation of more moral hazards problem with that IMF bailout money, the PH government is sending a signal both to itself and the rest of the world, that it is time to really look inwards, there are several options and solutions that can be internally generated, aside from endless borrowings and issuing a blackmail of global fiscal crisis unless they are given more bailout money.

Jules Calagui It is high time that we create a Sovereign Wealth Fund. We can set aside $20 B to start one and still left with over 6 months of GIR to cover 7 months of imports.

Benson Te The Bangko Sentral ng Pilipinas is a creation of the Philippine Congress REPUBLIC ACT No. 7653 and hence every exposure it does exposes Philippine taxpayers.

To give you an example, the liabilities of the old central bank (central bank ng Pilipinas, according to Malcolm Cook valued at over 300 billion were shifted to the newly created, off-budget Central Bank Board of Liquidators. In short, the liabilities of the old central bank was passed on the taxpayers.

FYI

Giovanni Rodriguez Agree with you Noy, the financial crisis in Europe and the world is the culmination of a failed experiment - fiat money !

Todd Foster So a country who still has many scratching out subsistence levels of living is loaning to a country, so it's residents can better afford their new "right" of do-overs on their vacations, if they got the sniffles on vacation #1? That's just plain evil.

Malou Tiquia Butch Arroyo, I really do not agree with your "small portfolio risk for BSP line. Point of the matter is we need the money here and not to support a failed system worldwide. Bail outs have proven to be not the right thing to do and really the Phils as lender is just a stunt to project the "breakout nations" status. Why not use the $ locally? BSP has to be creative, instead of FER what Jules Calagui posted is something worth considering. With SWF, it maximizes long term return, with foreign exchange reserves serving short term currency stabilization and liquidity management. There is a way to go than serve the ends of IMF. The world is in search of a new economic order and IMF has been part and parcel of failure of nations to handle responsibly fiscal and monetary policies. I fully share Nonoy Oplas' position here. Its time to go back to the drawing boards and bailouts are not the way to go! That's IMHO.

Casey Phyle The only thing that could possibly justify the Phils lending $1B to save Europe is the hope of not losing an important export market. But that is a vain hope, as lending to people who owe more than they can ever pay back is not the smartest thing to do. Borrowing more only makes their hole deeper. Some say it was intended like that by the money power who, on the way to NWO or One World, wants to force its will on the nations. So far that appears successful. The Philippines should not tie its raft too tightly to a sinking ship that will probably go down this year. On the other hand, the Philippines have been the recipient of western aid for long enough and have improved their situation at least this far. Now that they have a little cash on the side they probably thought it was only right to reciprocate and show some solidarity. Difficult to judge. That 1B would have stayed with the CB anyway and never gone to the people. Now the Phils will have a marker from IMF/Europe for $1B, with gold at $1600/oz.

Pilipinas Forum 23: On Debt Repudiation

As of end-September 2011, total debt of the national government was P4.87 trillion. This is P206 billion (or 4.4 percent) larger than its year ago level. See the Bureau of Treasury (BTr) Press Release last December 09.

As of October 2011, there were 38.5 million employed Filipinos. This means that each employed Filipino, young and old, fully- or under-employed, is indebted by P126,515.00. And it's not even personal or household debt. It is government debt, to be passed on to each taxpayer in this country. That's how great, sensitive and welfarist the government is.

And there's more debt: contingent debt, mainly guarantees by the national government which can become part of the outstanding debt stock if the guarantee recipient (a government corporation or financial institution, etc.) cannot pay its debt. This is P583 billion as of September 2011. And that's how great, sensitive and welfarist the government is.

More than seven years ago, we have a lively exchange of ideas on the question: Is repudiation of public debt a good option? That was in pilipinasforum@yahoogroups.com, an online discussion group which I formed and co-moderated since 1999. The voices of "repudiate the debt" are still with us until now, coming from different sources. So perhaps these exchanges will help clarify the issue.

This is more than 20 pages long, so get your most liked snacks. Special thanks to Dr. Butch Arroyo, my batchmate from UP School of Economics in 1984, for his elaborate discussion of the subject. Butch is an Economics Professor at the Johns Hopkins Univ. in Washington, DC.
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On Debt Repudiation
March 2004

About debt repudiation, I am attaching below Butch Arroyo's posting in PF about the subject. He posted this in reaction to a privilege speech given by Sanlakas party-list Cong. JV Bautista, arguing for "selective debt repudiation".

Pilipinas Forum 20: Turbulence, Chaos Theory and the Stockmarket

Another long exchange here (12 pages) in pilipinasforum yahoogroups more than 9 years ago, on turbulence and chaos theory, applied to business and economics, the stockmarket especially. Enjoy!
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Turbulence, Chaos Theory and the Stockmarket
Feb 2002

Our friend Fidel Nemenzo sent me this one related to Dr. Muriel's lecture tomorrow evening at WSPC, AIM re. "the application of turbulence theory in stocks trading". Fidel obtained his PhD Math from Sophia U, Japan; he's the only number theorist in this country. He's teaching now at UP Diliman.
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Pards, mukhang interesting ang lecture ni Dr Muriel sa AIM. Dr Muriel is known for his ideas on turbulence, the nature of which is one of the main problems of chaos theory. One of the characters in Jurassic Park, Ian Malcolm, was a chaos mathematician. Jurassic Park was an example of a non-linear dynam ical system. Conventional (or the common-view) science (Newtonian) says that the physical world is a machine, governed by equations. If one knows these equations, and all the "initial conditions" in a a given system, just plug in these "conditions" into the equations and you can predict what happens to the system. This is what the creator of Jurassic Park believed: if you know all the "equations" what govern everything in Jurassic Park and the behavior of its creatures, plus the most accurate observations of the system, then you can predict everything that can possibly happen, and maintain control over it. Sabi ni Ian Malcolm mahirap yan, at halos impossibleng i-predict kung ano ang pwedeng mangyari. Chaos can arise out of the most "orderly" situations. Which is what happened.

The central goal of chaos theory is the study of systems that exhibit chaotic or "random" behavior. Parang may contradiction dito: the search for order within disorder. May tula si Wallace Stevens, " ... A violent order is disorder, and a great disorder is an order. These two things are one." This describes what happens in most natural systems. (Or even "social" systems, like a crowd. The most orderly crowd can metamorphose into an unruly mob in an instant, just as the perfect storm may just be over the horizon of the calmest sea.)

Another example of a "chaotic" system is the stock market, thus the growing interest in the mathematical theory of chaos among economists. Stock brokers and currency traders know that prices quoted in any financial market can change unpredictably. Huge volumes of money are made or lost in sudden bursts of activity. Classical mathematical models of finance cannot explain this behavior, for volatility is central to the behavior of financial markets. Which is why new explanations of market behavior are being sought using ideas from chaos theory. Or even fractals-- pero saka ko na lang ito i-e-explain.

The way fluid flows, or the behavior of a plume of smoke-- these contain both order and disorder. The term physicists use is turbulence-- which is chaotic and unpredictable. The study of turbulence is a key problem in physics. Conventional theories may be able to explain the smooth flow of water when the tap is turned on lightly. But nothing explains the turbulent flow of water when the tap is strong. Dr Muriel has proposed a theory which explains such behavior. I guess that's what he hopes to do in his AIM talk-- to shed some light on the volatility and unpredictability (turbulence!) of financial markets using his ideas on fluid flow. Both types of systems exhibit essentially the same activity. I can't go to the lecture; kwentuhan mo na lang ako.

- Fidel Nemenzo

Chaos theory may well become one of the most important theoretical fields in the 21st century (aside from relativity and quantum physics). I have been fascinated with how seemingly innocous changes in the initial conditions can have multiplier effects which are often complex and unpredictable. The most popular example is known as the "Butterfly Effect" in which the flapping of a butterfly's wings for example in Germany (I'm still in a thrall with the "butterfly" ending in "All Quiet on the Western Front" flick. Thanks Gina!) could cause miniscule atmospheric changes and which, given a time horizon could affect weather patterns in Pampanga. And think of how a very small change in testosterone level of an individual could trigger a nuclear war (ala Dr. Strangelove). So it could be like goodbye mankind, hello dinosaurs kind of thing.

Anyway, the latest experiment on the chaos theory involved sending a random signal to the Pioneer 10 spacecraft which is already in the edge of our solar system (before it will get blasted into smithereens by a Trekkie in the future, he he he). As Fidel pointed out, even the random dripping of a faucet has an order behind it. In other words, there's beauty in madness. or a method behind every madness.

- Glenn de Guzman

Pilipinas Forum 16: On Rice Trade Liberalization

Here's another long discussion (16 pages long!) from different people, on liberalizing rice trading in the Philippines, made in pilipinasforum yahoogroups. As usual, get your popcorn or other favorite snacks while reading the exchanges 10 years ago.
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On Rice Trade Liberalization

August 2001

Theory: there is gain from trade. Trade allows people of countries who do not produce certain commodities cheaply, access to these products through imports; at the same time, trade allows people who efficiently & cheaply produce certain commodities to export these goods, giving them the foreign exchange revenue to finance their imports. Thus, countries' welfare increases.
NEDA favors early liberalization (convert present import quotas into tariffs, and later on, lower tariff rates) of rice trade since trade protection to the sector is time-bound. But DA wants to keep the quantitative restrictions (QRs) on rice.

Before, only the state-owned NFA imports rice from abroad. Starting this year, private traders will be allowed to import rice up to 20,000 MT. But they must pay a minimum "equalization fee" of P3,240/MT or P3.24/kilo for the March 2 auction, on top of the 50 percent tariff.

Current World Rice Prices. Prices as of end-February range at $190/ton for white Thai rice (5% broken, "class A") down to $150/ton (35% broken). At P48/$, this is equivalent to only P9,120/ton or P9.12/kilo for class A rice, and P7,200/ton or P7.20/kilo for lower class rice (vs. P14-P22/kilo local prices).

There is net gain from trade. The clear winners are the rice consumers, fisher folks and non-rice farmers, users of important agricultural inputs like machinery and fertilizers (the farmers themselves), among others. The losers are some Filipino rice farmers who cannot compete price-wise despite lower imported cost of agricultural inputs.
We need to hasten agricultural trade liberalization. Though the country still has 4 years to further prepare (aside from the last 6 years of preparation) for such liberalization, the perennial production deficit, and consistently high prices, of local grain and sugar, mandate that we should hasten the liberalization. The benefits generally outweigh the costs.

Rice "self-sufficiency" does not mean that we should grow all the rice that we need. Rather, we only need to ensure that rice will be made available at sufficient supply and cheap, stable prices for our consumers. This would imply a good combination of domestic production and importation. If we do our assignment well, meaning the efficient laying of important safety nets, particularly infrastructure and technology support system to our farmers, coupled with trade liberalization plan, we shall help improve our farmers' productivity and output.


-- Nonoy Oplas


Nonoy , et al,


I also strongly go for the liberalization of rice trade for the following reasons: (a) import quotas or quantitative restrictions (QR) only breed corruption, and politicking; and (b) shortages and steep local price (retail) of the stuff is imminent because its trading becomes speculative; this has happened time and time again. The unscrupulous traders and corrupt gov't officials benefit, while both the farmers and consumers suffer.


Instead of "self sufficiency," the policy and strategy should be "self-reliance" i.e. having the purchasing power. Thus the farmer may be assisted with alternative sources of income, and better infrastructure and management services. (Thanks for the facts and figures).


-- Roy P.


Pareng Nonoy and All,


I agree with the merits of rice trade liberalization, and I have to say as well that I am impressed by the neatness of the methodology used in quantifying the demand-supply gap.
Just some thoughts/views alongside the last paras of Pareng Nonoy's paper:


* Trade liberalization in general, as experienced in Latin countries (Chile, Argentina & Mexico?, 1994-1995) created some shocks esp. on the balance of payments. Often, econ analysts would suggest that long term policies like trade liberalization should be coupled with short term reforms to avoid the shocks. I hope that the government is doing some short term fine tuning as we edge towards the 10th year for rice trade lib.

* The rice trade lib should not be an excuse for government not to pursue efforts that would maximize yield of cultivated/irrigated rice lands. Land parcels are /should be classified according to best use. Those which are declared best suited for rice should be protected from conversion, and supported with infrastructure and support services to ensure productive efficiency. The demand-supply gap may be bridged by importation of cheaper rice, and the competitive price of imported rice should force local farms to be more efficient. But a widening gap through the years must not be relied more on bridging it with imports but more on achieving greater farm efficiencies. A slow adjustment to rice trade lib may kill "best-use" rice farms and force conversions. I'll make mention here the ill effects of the "impermanence syndrome". This is one of the primary killers of cultivated lands in Australia, and this syndrome has been the reaso behind major conversions in Laguna and Batangas.

Pilipinas Forum 14: Math, Infinity and Limit

Here is another mind-twisting thread in pilipinasforum yahoogroups made in early December 2001. There was no political discourse here. And that's my point in posting these exchanges in this blog: We need little or no politics (and government) if we wish to expand our individual imagination and knowledge of math, logic and their applications. So, enjoy the 10-pages long exchanges on the subject.

Related articles in this blog are (1) An ever-expanding universe, June 25, 2011. It's about a lecture by an American cosmologist in UP about the "Accelerated History of the Universe". Also, (2) Pilipinas Forum 12: Origin of Zero, Nothingness, Big Bang..., September 25, 2011
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I was able to meet an old friend and a new friend - both Math professors in UP. My old friend, Fidel Nemenzo got his PhD in Sophia U. in Japan, and his specialization is "number theory", reputedly the purest of all math subjects.

Fidel's friend, Ernie, is really fantastic, academically i.e.: Monbusho scholar (like Fidel), finished MS and PhD Math in 5 years with "A" grades equivalent. At Sohia U, he was among the "wonder kids" by solving difficult math problems whle his Japanese classmates could only shake their heads. Undergrad, he finished BS Math in UP - Summa cum laude, in 3 years! High school, he came from Phil. Science HS; elem. he came from an obscure elem. school in an obscure town in Iloilo province. They're so poor that their house has no floor, that PSHS has to pay for his bus to Iloilo, his plane fare to manila. Yet this guy has no self-pity, nor hatred of the rich. He doesn't even see himself joining the corporate world, just a plain academic for the rest of his career. At 27, he's among the youngest professors in UP Math dept.

Fidel is moving to his friend's house, that of Mark Encarnacion, who took a temporary leave from UP for some stints in the US. Mark is another interesting kid. He got a PhD in "Computer Algebra" (!) from an Austrian university. The last time I talked to Mark in UP, about 4 years ago, he said he's the "only person in this country" who has that degree. Mark's father is UPSE's long-time dean, our dean that time, Dr. Jose Encarnacion. The Dean passed away about 3 years ago; his major works are often published in foreign academic journals, enough to be nominated for a possible Nobel prize in Economics.

OK, why am I sharing this? To show that there are such wonderful people in this country but our media and political and business leaders don't seem to notice. Every year we know who are the topnotchers in the bar exams, who are the valedictorians and salutatorians of the PMA, courtesy of the front page stories in our broadsheets and tabloids. But never has it occurred as far as I can remember, that Phil. broadsheets have given front page treatment to returning Filipino scientist or engineer or mathematician with distinguished PhD degree or astonishing research abroad. Which reflects the values and biases of Philippine media: future Filipino politicians and generals are hoorraayy! Future Filipino Einsteins are nobodies.

Of course I hope I'm wrong in this impression.

-- Nonoy Oplas

Inspired by Nonoy's post a few days back on our very own mathematicians in PilipinasForum, I decided to pick up a book, for leisurely reading, entitled, "A Tour of the Calculus" by David Berlinski. I wanted to be reminded as to why I fell in love with Math at one time in my life...

Math & life... the math of life...

From the book, "Some things were Greek to the Greeks. In the fifth century B.C., Zeno the Eleatic argued that a man could never cross a room to bump his nose into the wall...in order to reach the wall he would have first to cross half the room and then half the remaining distance again, and then half the distance that yet remains...this process...can always be continued and can never be ended..."

In the elevator, I always bump into the chief of another investment bank whose offices are in the same building as ours. He once asked me, "Gina, when do you think we can see the light at the end of the tunnel? You know, that one which is not from another train?" I answered, "Tomorrow!". Everytime I see him, we would look and smile at each other and we would, in perfect duet (seemingly practiced), say, "Tomorrow!"

In another instance, an analyst queried me, "Have we reached the bottom yet? How low can the market get?" Armed with calculus, I said, "We can never reach the bottom. The bottom will be forever unknown."

"...The plain fact is that we are capable of compressing those infinite steps..." and actually bump our noses into the wall. The truth is, for some businesses in the country today, tomorrow may not come. And I, a Trekkie, will uncharacteristically pass, on this voyage of discovery to the bottom of the Philippine markets. So much for infinity and continuity and the harsh concept of the limit.*

In case you have not noticed yet :-), this post has nothing to do with serious Math. I am just having fun with the concepts. May I end with this:

"The integral enables you
To do what you need not do. [ :-) ]
The theorem that will make this plain
Is one designed to spare you pain..."

- Mathematicians' Doggerel (quoted from the same book; the smiley, mine)

-- Gina L.