
Greenspan Says Greece Default ‘Almost Certain,’ May Trigger U.S. Recession - diogenescynic
http://www.bloomberg.com/news/2011-06-16/default-by-greece-almost-certain-greenspan.html
======
Roboprog
The irony of Greenspan worrying about Federal debt when he was pushing to NOT
pay it off a decade ago -- tax cuts solved that.

And setting interest rates below inflation really killed off the idea of
anybody saving money (cash) in the bank only to watch it evaporate. Cursed
Fed. Printing money like mad does help generate inflation, though, which helps
keep labor costs (our pay) down by effectively handing workers a little pay
cut every year.

~~~
Spyro7
"does help generate inflation, though, which helps keep labor costs (our pay)
down by effectively handing workers a little pay cut every year"

You do realize that wages are adjusted for cost of living changes over time?
(This is a gross simplification of the actual process, but the fact remains
that wages are not constant in the face of inflation.)

Take a look at this please (using median wage here to make this more clear):

[http://www.wolframalpha.com/input/?i=all+occupations+median+...](http://www.wolframalpha.com/input/?i=all+occupations+median+wage&lk=1)

However, here is median wage too:
[http://www.wolframalpha.com/input/?i=all+occupations+mean+wa...](http://www.wolframalpha.com/input/?i=all+occupations+mean+wage)

It is also worth noting that the average wage back in the '70s was roughly
$8,000.00.

Edited in Response to Downvoting:

Inflation is caused by rising prices, and wages are one of these prices. Your
wage is simply the price of your labor. In the long-run, wages are flexible
just like all of the other prices. Admittedly wolfram|alpha does not have
extensive historical graphs available, but I am not trying to write a book
here.

If you are down-voting because you have not received a pay increase lately,
then you should be aware of the fact that wages are usually a bit more sticky
than other prices in the short run.

If you are down-voting this, I would appreciate engaging you in honest
discussion about the point that I made above.

The parent post said that inflation gives workers a little pay cut every year.
Painting this wonderful image of a worker sliding into poverty. This is
demonstrably false. Yes, a 1% or a 2% rise in inflation will impact your real
earnings, but wages are not a static process and they do reflect the actual
costs of living changes that take place over time.

As an economist, I am constantly amazed by how poorly the press discusses
inflation and how little most people know about what inflation is and how it
interacts with other variables within an economy. Please read this pdf for
some discussion on wages and price inflation:

<https://www.clevelandfed.org/research/policydis/pd1.PDF>

It is an academic piece, but it is one of my favorites for illustrating the
interaction between wages and the greater macroeconomy.

~~~
blantonl
You know, I've gone back before and clarified a post after it got down-voted,
but your _significant_ edit strikes me as odd.

Why couldn't you let your original post stand as you posted it?

~~~
Spyro7
What struck me as odd was being down-voted without anyone telling me what it
was that rubbed them the wrong way.

The reason that I hang around HN is because I learn a lot by doing so. When
someone down-votes something and then runs off, no one actually benefits in
any way from that (unless the post that was down-voted was complete trash).

My extensive edit was an attempt to lure out the down-voters so that I could
find out exactly where the wheels came off in the original post.

Looking back, I probably should have angled for a less confrontational tone in
my edit, but I have a hard time getting tone across in these things.

You know, you spend less time typing each post than you would spend on a
research paper or an email but more time than a text message. It is a
challenging thing to get the tone just right. I much prefer face to face
conversation any day of the week, but I like this place a lot.

The thing is that this is my first time actually _not lurking_ on a site in
nearly 10 years, and HN has its own unique culture.

Look, you've been on this site for more than an order of magnitude longer than
me. Do you (or anyone else) feel like helping a newbie out:

When anonymous down-votes strike, is it better to reply to yourself, keep your
edits small, or just walk away?

------
c2
Seems a little high on the fear mongering and a little light on the details.

I fail to see how a Greece debt restructuring would negatively impact the US
economy except to cause a little more fear on wall street.

Also - anyone else notice that the only people who seem to give praise to
Greenspan are his ex-colleagues in the central bank?

~~~
dpapathanasiou
" _I fail to see how a Greece debt restructuring would negatively impact the
US economy_ "

Is $41 billion at risk insignificant?

[http://www.marketwatch.com/story/greece-poses-41-billion-
ris...](http://www.marketwatch.com/story/greece-poses-41-billion-risk-to-us-
banks-2011-06-15)

~~~
WildUtah
Compared to the size of the USA bond sector, yes $41 billion is insignificant.

Compared to my personal holdings, I'd be willing to consider even half of that
amount significant. Send my bailout as a check or money order, please.

~~~
dpapathanasiou
Except the banks holding the bag have taken TARP funds, and are still
struggling.

Plus the $41 billion number is just an estimate; the real total won't be known
until all the derivative contracts are unwound.

Either way, it would be a mistake to dismiss a Greek default as irrelevant to
us.

~~~
c2
Except most of the banks have paid back TARP. Most major banks are back to 10+
% profit margins (only one lower I found was BAC).

Out of the 700 billion TARP fund, only 51 billion remains outstanding (as of
September last year), which is larger then the 41 billion number you were
floating around:

[http://online.wsj.com/article/SB1000142405274870343160457552...](http://online.wsj.com/article/SB10001424052748703431604575522242672430182.html)

I'm not saying all banks will be fine if Greece "defaults" (remember in this
case "defaulting" implies restructed debt), but causing a US recession? Highly
highly unlikely.

~~~
dpapathanasiou
We agree to disagree.

But even according to the article you posted, bank balance sheets are still
weak.

Losing $41 billion (or more, possibly, given the nature of these derivatives)
is not going to be good news for them.

While technically not in recession, the economy is not thriving, either, and
so one blow like this may indeed push it back into recession.

------
kreek
Almost certain. "Euro rises versus dollar as Greek debt fears ease"...
[http://www.forbes.com/feeds/ap/2011/06/17/general-
dollar_852...](http://www.forbes.com/feeds/ap/2011/06/17/general-
dollar_8522360.html)

~~~
WildUtah
Greenspan says default because he doesn't think the Greek government will pay.

The Euro is in fine shape because investors don't expect to lose money on
their Greek bonds.

What is the difference? Investors (and probably Greenspan) expect the Germans
to bail out the Greeks and pay off their debts. So the Greeks will default and
the investors will still keep their money.

The main problem in the whole situation is hiding the deal from German voters
and taxpayers. Nobody wants to take responsibility for TARP.

~~~
ignifero
... and the french

------
Tycho
In other news today: Italy's credit rating was downgraded by Moody's.

~~~
tatsuke95
Not sure why this is down voted. It's relevant. If Greece goes down, it will
be a signal to the markets that what was previously unthinkable is now
realistic. The PIIGS are deep in shit.

------
mkr-hn
Why does the article mention Greenspan's age?

~~~
ChrisLTD
I was taught in journalism school to mention the subject's age when possible.
It doesn't take a lot of space and can be valuable information in some cases.

~~~
dolvlo
Well your journalism school by definition is ageist.

~~~
gaius
It's important context. It tells you a lot about the events that a person has
lived through that inform their opinions. I'm too young to have any real
memories of stagflation and Reaganomics, for example, but I can tell you all
about the NASDAQ meltdown of '01...

------
thornad
Always blame the victim.

------
bugsy
US problems have nothing to do with Greece. What an absurd scapegoat from
Greenspan, the incompetent loser that got us into this mess.

~~~
anamax
> US problems have nothing to do with Greece.

The argument is that US banks hold a fair amount of european bank paper and
that european banks hold a lot of greek debt. If the greeks default, then
those european banks are in trouble, which puts the US banks in trouble.

We saw a variation on this at the beginning of the "great recession". US banks
held too much Fannie and Freddie stock because the regulators gave it special
status. When fannie and freddie went down, those banks became technically
insolvent.

I don't know what triggered Lehmann Bros' specific problems, but when it went
under, that caused problems for its counterparties.

