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Thread: Greece, Puerto Rico & effects on US

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    Default Re: Greece, Puerto Rico & effects on US

    I feel so bad for the Greek people. While in Greece I saw firsthand how they are suffering. I don't understand, the EU takes in and takes care of so many immigrants but they cannot help their own? Seriously? The bankers should be all thrown in prison.

    My Puerto Rican neighbor told me the debt in PR is because of their crazy corrupt local government. Like every second person works a useless government job and they pay themselves crazy salaries.

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    Default Re: Greece, Puerto Rico & effects on US

    Greece - Don't blame it all on the banks. Greece LIED big-time about a lot of things to enter the E.C. ; about it's budget ; it's debt , it's GDP and a bunch of other stuff. They were advised that a German dominated undervalued Euro ( to help German exports ) would be bad for the Greek economy but went in anyway. They borrowed billions from the ECB with no real intention of ever paying it back. Instead they looked at it as German reparations for W.W. II ; welfare payments from Northern Europe to Southern Europe etc. Germany and the ECB have lent even more money to Greece in exchange for some serious and painful reforms. The irony is that there is actually a small budget surplus in Greece. What Greece did not do was to increase tax enforcement ( tax evasion in Greece has been raised to an art ) or cut bureaucracy , government salaries and pensions ( you know , the whole Bernie Sanders "wish list" lol ). Germany and France are tired of lending money to Greece without the Greeks paying it back.

    Wait a minute Eric - The Germans knew Greece was lying about its finances . Ummm yeah sorta. Germany, France and the other members of the EU did know that Greece was not being perfectly honest. Through a combination of wishful thinking and a desire for an expanded EU they let them in anyway. They are being punished for doing so by having to eat a lot of worthless Greek paper.

    Just another minute Eric - The banks were like bartenders serving drinks to an obvious drunk. Partly true. The ECB especially went way past the point of a realistic expectation of being paid back when lending to a country with an economy the size of South Carolina's. U.S. banks did similar type lending to various South American countries in the late 1970's and early 1980's along with the IMF and World Bank. Those U.S. banks carried non-performing loans on their books for years as assets in the hope that inflation would do the dirty work. Which it did to a small extent.

    Why is Germany so fearful of Greece leaving the E.U. and going back to the drachma ? A drachma which they will devalue to make existing debt worthless btw . Many analysts agree with me that Germany is not afraid that a Grexit will fail but that it will succeed. That if it does and certain other members of the EU see that it's not impossible to leave an artificial union and revive their native currencies that they will follow suit. Think the other members of the PIGS - Portugal , Italy and Spain.

    One reason I find history so fascinating is because we often insist on repeating it. Greece has done what Mexico did in the 1860's , the D. R. did in the early 20th Century as did Haiti and several other Central American countries. The French invaded Mexico in 1862 and T.R. sent the Marines to the D.R. and Wilson did the same to Haiti. We took over their customs houses to collect the import duties that were used to pay back their bankers. Which were mostly based in the U.S.

    Puerto Rico is a basket case for some similar reasons and also with a couple unique kickers. It's downfall started under Clinton and a Republican Congress ( Yes, the blame is squarely bi-partisan ) when a bill was passed at the behest of a number of U.S. States that did not like trying to compete for business with Puerto Rico and it's corporate tax breaks. Puerto Rico was advised at the time to maintain its tax advantage but did not do so. What happened? A lot of U.S. corporations packed up and left. Their employees went from working and paying taxes to collecting welfare, food stamps and Medicaid. Only about 40% of Puerto Rican adults work because welfare pays much better. While this was happening a series of corrupt governments borrowed way too much money ; the electrical monopoly continued to be mismanaged by overpaid and unqualified party hacks which has brought "La Isla" to it's current Third World State. The solution is for Congress to enable P.R. to go bankrupt so it can restructure its debt and repeal some of the counterproductive taxes it has imposed. A sales tax of almost 12 % ? Not even California is that bad. Or we can just grant them independence and wish them the best of luck.

    Puerto Rico also serves as an object lesson for several U.S. states and cities. Especially the states because unlike cities and counties they cannot go into Bankruptcy.
    Last edited by Eric Stoner; 07-07-2015 at 10:37 AM.

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    Banned Melonie's Avatar
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    Default Re: Greece, Puerto Rico & effects on US

    Putting socio-economics and gov't policies aside, Greece's situation is likely to have the following effects on the USA.

    The US dollar will strengthen, as the result of investor 'flight to safety' out of the Euro. A stronger US dollar will result in lower US dollar denominated prices for oil / gasoline / energy, lower US dollar denominated prices for most global commodities ( from steel to silver to soybeans ), and lower US dollar denominated prices for imported goods whose costs of production are primarily denominated in Euros or Yen or Yuan. This will be great for unemployed / low income Americans, for WalMart and Dollar General etc.

    However, most nominally US companies actually depend on offshore income or export income for a significant percentage of their total earnings, and a stronger US dollar will negatively impact both offshore income and export income ... because X Euros worth of prescription drug sales or Y Yuan worth of aircraft sales will translate into fewer US dollars in the corporation's income column. This will be bad for US tech industries, manufacturers, farmers, etc. This will also be bad for US tax revenues. Ultimately, this will also be bad for 'skilled' US workers, whose US dollar denominated paychecks just became Z% more expensive compared to competitor company workers who are paid in ( devalued ) Euros or Yen.

    In regard to Puerto Rican bonds, in point of fact these bonds were extremely popular with the top 10% earning Americans due to their triple tax exempt status. With principal losses on PR bonds already becoming 'serious' ( i.e. well above 15% ), PR bonds are now viewed as 'toxic' even though their ~10% or whatever after-tax interest rate looks attractive to the 'untrained eye'. Being 'on the hook' for PR bonds will be the various major insurance companies who contracted to guarantee PR bond payments ( which are very likely to be defaulted on ), potential payouts = losses which will trickle down to some extent into stock and bond markets in general - and into the insurance and banking sectors in particular.

    In terms of a wider 'canvass', PR bonds have increased investor focus on actual risk versus reward for many other bonds. This is likely to translate into significantly higher interest rates having to be paid by 'distressed' states like California and Illinois, with associated impact on their debt service costs thus state budgets. And as California discovered during the last recession, just like Greece, any entity which cannot print money but which continues to spend more money than it takes in via tax revenues will run out of liquid cash sooner or later. Thus don't be surprised if we see a replay of California businesses being paid in 'script' / IOU's instead of dollars.

    Personally speaking, I doubled down on SDS shares ( 2 * inverse S&P ) immediately upon the Puerto Rico governor's announcement !!!

    Again back to the wider 'canvass', some economists would point out that there is a basic relationship between the 'added value' which can be produced by workers in a particular country / economy, and the costs involved to maintain a given 'minimum' standard of living. Arguably, Greece and Puerto Rico have been spending more to maintain their standard of living than their economies have been capable of producing ... and funding the shortfall by ever growing amounts of gov't debt. Arguably, Greece and Puerto Rico have both reached the point where investors / lenders aren't willing to loan them any more money ... meaning that current spending must match current incomes / tax revenue collections. And, being unable to print more money out of nowhere, this will ultimately force a decline in standard of living.

    It is already being speculated that, when Puerto Rican standards of living are forced even lower, lots of remaining residents will begin emigrating to northeastern US states ... most notably NY ... which already have significant Puerto Rican populations. This in turn will increase state gov't spending, and probably increase state tax rates as well to help pay for that increased spending.
    Last edited by Melonie; 07-07-2015 at 02:13 PM.

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    Default Re: Greece, Puerto Rico & effects on US

    One major factor in Greece's economic problems that is rarely mentioned is the Olympic Games that Greece hosted, which they were not able to afford. See #3 in the following article:

    http://www.cracked.com/article_19733...-olympics.html

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    Banned Eric Stoner's Avatar
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    Default Re: Greece, Puerto Rico & effects on US

    ^^^ That was a part of Greece's problem; a contributing cause but the root causes are things like a small Greek island where 400 people are all collecting government disability checks for being blind ; thousands of Greeks collecting pension checks for dead family members ; smuggling ( look at a map - mountains to the north and an enormous coastline ) ; tax evasion and the biggest being trying to have a Northern European style social democracy without the resources to afford it.

    Btw , the last four Olympics held in the U.S. all turned a tidy profit : Lake Placid 1980 ; L.A.1984 ; Atlanta 1996 and Salt Lake City 2002 thanks in great part to ( God I hate to do this ) Mitt Romney.

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    Default Re: Greece, Puerto Rico & effects on US

    To follow up on a couple of Melonie's points : One key difference between Greek and Puerto Rican debt is who holds what. With Greece , most of their paper is now held by government institutions like the ECB , IMF and World Bank meaning taxpayers are on the hook as opposed to private banks and their shareholders. With Puerto Rico it is hedge funds , mutual funds and to some extent public and private pension funds. Default will hurt but it is diffused and U.S. taxpayers will not be required to foot the bill so long as Obama and the Congress stick to their guns. So far , it looks like they will.

    The whole EU concept was fatally flawed from the beginning imho. Letting monetary policy be made in Brussels while fiscal policy is made in each member country ? The EU is made up of countries with different nationalities, histories and cultures. Greeks are different from the French and the Germans and to expect them to behave differently is breathtakingly unrealistic. Who turns down a "free lunch" ?

    Likewise Puerto Rico is a commonwealth ? A leftover colonial vestige ? Personally I think it is long past time for Puerto Rico to be independent.

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    Default Re: Greece, Puerto Rico & effects on US

    Quote Originally Posted by Eric Stoner View Post
    The whole EU concept was fatally flawed from the beginning imho. Letting monetary policy be made in Brussels while fiscal policy is made in each member country ? The EU is made up of countries with different nationalities, histories and cultures. Greeks are different from the French and the Germans and to expect them to behave differently is breathtakingly unrealistic. Who turns down a "free lunch" ?.
    This is a good part of the reason my home country kept their own currency even tho they joined the EU.

    I have to disagree abt US taxpayers not being on the hook for the mess in Puerto Rico tho. Taxpayers are already on the hook for Obamacare -- not trying to get political, but where do all those wonderful insurance subsidies come from? They don't come from the loving generosity of the federal gov't. At the very least, the influx of ppl coming to the mainland US is going to affect local/state-lvl spending, & not just by way of 'Woohoo, more ppl coming to work = more tax $$$!'

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    Default Re: Greece, Puerto Rico & effects on US

    True enough which is A reason why I think Puerto Rico should be cut loose and made independent. Whether they want to or not. Whether they like it or not.

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    Default Re: Greece, Puerto Rico & effects on US

    This thread prompted me to check some of my portfolios a little closer. One muni bond fund I have has no Puerto Rico bonds. (But they do have ~14% in NY State, ~9% in Calif. State.) An international fund has just 0.1% invested in Greece (but 8.9% in Germany.) Guess I shouldn't lose too much
    I'm right 96% of the time. I don't sweat the other 5% .......................

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    Default Re: Greece, Puerto Rico & effects on US

    Quote Originally Posted by minnow View Post
    This thread prompted me to check some of my portfolios a little closer. One muni bond fund I have has no Puerto Rico bonds. (But they do have ~14% in NY State, ~9% in Calif. State.) An international fund has just 0.1% invested in Greece (but 8.9% in Germany.) Guess I shouldn't lose too much
    Both Cali and New York offer higher returns thanks to the shitty state of their finances i.e. they pay higher interest rates.

    What is your international fund invested in ? Foreign stocks ? Bonds ? Private or government ? So long as the foreign corporation doesn't go bankrupt then any investment in same is probably safe. One purpose of such funds is to put enough eggs in enough baskets to disperse the risk.

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    Default Re: Greece, Puerto Rico & effects on US

    What is your international fund invested in ? Foreign stocks ? Bonds ? Private or government ? So long as the foreign corporation doesn't go bankrupt then any investment in same is probably safe. One purpose of such funds is to put enough eggs in enough baskets to disperse the risk
    True enough. However, international investments also expose a US based investor to a new risk ... currency risk. The foreign stocks and bonds are denominated in Euros or Yen or Swiss Francs. For an investor living in the Eurozone or Switzerland, a 5% gain on Siemens stock shares or a 5% gain on Novartis shares really is a 5% gain. But for an investor living in the USA, a 5% gain on Siemens or Novartis is only a gain if the US $ : Euro and/or US $ : Swiss Franc exchange rate didn't move more than 5% between the time the foreign shares were bought and sold. With the US dollar strengthening due to 'safe haven' reallocations by Eurozone investors, currency risk is now something which must be worried about.

    Currency risk for US investors isn't really any different than currency risk for US exporting companies. 'Costs' are denominated in US dollars, but 'revenues' are denominated in a foreign currency.

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    Default Re: Greece, Puerto Rico & effects on US

    this is going to get ugly ... from

    (snip)Greeks face six months of cash controls

    CAPITAL controls will stay in place at Greek banks for at least six months, senior officials in Athens warned yesterday, as the government fights to keep lenders afloat.

    Leaders of the four main banks and finance ministry officials will meet tomorrow to discuss how to save the banking system from collapse after a run on deposits.

    Options under consideration include a consolidation of four main banks down to two, creation of a “bad bank” to house toxic loans, and a possible forced “bail-in” of depositors. About €15bn (£11bn) is needed to recapitalise banks, senior sources said.

    Tomorrow’s meeting is expected to approve new capital controls, which not only put a cap on withdrawals — Greeks have been unable to withdraw more than €60 a day for the past fortnight — but also strict limits on international transfers by the public and by businesses (snip)

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