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Greek Crisis IIWhile the Catholic world has been observing in horror and disgust the recent antics of Francis, the bishop of Rome on his South American excursion, (see here) other events half a world away have been transpiring, events that have an equally significant and quite dangerous impact on the secular aspects of today’s society. I am obviously referring to the situation that is playing itself out on the old continent between the Republic of Greece and its creditors, i.e. countries that have lent money to Greece. I have left this thread off in a recent post titled The Even Bigger Picture (see here), so a return to this post as a reminder of the issues is in order.

Just to refresh our collective memory, the reason that Greece and its particular situation is of interest to us is due to the theme that we began in the post titled Visibilium Omnium, et Invisibilium (see here) where we first laid out the similarities between what is happening in Greece and that which is happening in the Catholic Church under this pontificate. Our observation (hypothesis) is that what we are witnessing in both these cases is the logical progression of “post rational”, or as we termed it TransRational societies that are starting to come apart at the seams.  The way that these two processes of decomposition in Greece and in the Catholic Church tie in and the root cause of their respective problems is that both are governed by and must conform to an “objective natural order”, an “objective natural order” that is DEFINED in the CREDO (Nicene Creed), in the formulation […] omnium, et invisibilium.

And now on to Greece. We are using Greece to demonstrate a process. This process is one of a decomposition of a public order and by extension of a society. This decomposition process is something that we have identified and wrote about extensively in the Catholic Church. This same decomposition process is likewise very visible in the present situation in the Greece Crisis.

With respect to Greece, things have been moving very fast. Actually very, very fast. When we left off this theme in our post The Even Bigger Picture, the Greeks and the creditors (read: Germany) were ready to meet in a weekend summit where the parties were to negotiate a solution to the present predicament. What was known at that time was that the amount of debt that Greece had accumulated, from 100% (2010) to 180% (presently) of Gross Domestic Product was “unsustainable”. In other words, the chances that Greece could pay off this debt was very remote. As to the proof of the unsustainability of this debt, the International Monetary Fund (IMF) produced a document that confirmed this state of affairs. What also turned out to be the case, the European members (Germans) on the IMF Board of Directors tried to suppress this document from coming out before the referendum which was held in Greece a week earlier. Furthermore, this document also indicated that the IMF and the Europeans (Germans) knew in both 2010 and in 2012 that the debt that Greece was taking on in the 2010 and 2012 bailouts was unsustainable then. What this in turn means is that the IMF and Europeans negotiated two bailout packages not only in bad faith (HIDDEN INFORMATION) with the Greek government, but that these bailout packages would in no way allow the country to fix its economy in order to allow it to return to economic growth. The reason that Greece needed to fix its economy is that the unemployment rate of the general population has risen to 27%, with youth unemployment at approximately 60%. Therefore, the IMF and the Europeans were responsible for creating a situation where a country was forced to take on debt, consequently sacrificing Greece to perpetual destitution. The reason that Greece was sacrificed was so that the IMF and Europeans would not have to write off a part of the bad loans that they (their banks) made to Greece in the previous decade. In other words, Greece was sacrificed for political considerations of the creditors.

One side note is needed here. When one is dealing with what is termed “impaired debt”, i.e. debt that can not be paid back, the assumption is that both parties, i.e. borrower and lender are responsible for the situation, albeit to varying degrees. The borrower is responsible since he obviously can not service the debt, but the lender is also responsible since he extended the debt to someone who was not able to repay it. This is usually termed as the lender’s business risk. This business risk aspect of commercial lending (i.e. the interest earned from lending operations are due to taking risk) is something that has been understood since the mid 19th century, when bankruptcy laws were reformed and debtor prisons were eliminated.  Furthermore, in these types of situations, whether it is on a personal and corporate level, a bankruptcy allows for a restructuring that then allows for the individual or business to rehabilitate themselves in order to allow these entities to either better manage household expenditures or continue in their business endeavours. In the case of governments, these debt restructurings are usually resolved in arbitration committees. One of these arbitration committees is what is known as the Paris Club.

So today we pick up with a good explanation of exactly this process describe above with a passage from Michael Lebowitz from the 720 Global blog via the ZeroHedge blog. (see here) Notice that the author employs one our favorite analytical tools. (see here). The relevant passage reads as follows:

Occam’s Razor is a frequently quoted principle which states that when one is faced with a multitude of seemingly complex possibilities, the simplest approach or explanation is best. As the ECB and Greece fight over terms of yet another bailout we employ this principle to help better grasp Greece’s dire situation.

The ratio of debt to GDP is one of the most basic and popular measures used to determine the ultimate ability of a sovereign nation to service its debt. Consider a country which has a debt to GDP ratio of 100%, and a balanced budget (excluding interest payments). In this country, it can be said that the interest rate on its debt and the growth rate of its GDP must be equal for the ratio to stay unchanged. In this example a 2% interest rate with a 1% GDP growth rate would result in an increase from 100% to 101% in the debt to GDP ratio. As the ratio rises above 100%, the interest rate must be lower than the GDP growth rate or the ratio will continue to rise. At a debt to GDP ratio of 150%, a 2% interest rate would require a 3% growth rate to remain stable at 150%.

Greece has a current debt to GDP ratio of 170%, and based on current bailout terms, it will likely grow to well over 200%. So applying the logic from above, Greece’s GDP growth rate prior to the current bailout needed to be 1.70 times greater than the rate of interest Greece pays on its debt just to keep its ratio constant. Following are some facts which will allow us make judgements on Greece’s ability to improve or at least sustain their debt to GDP ratio:

Since 1970 Greece’s best 5-year annualized GDP growth rate was +1.50% with an average of +.46%. Over the past 10 years growth has averaged -0.50%.

Since 1997 Greece’s lowest 5-year average interest rate on 10 year bonds was 3.41% with an average of 7.50%. Over the past 10 years the average annual 10 year interest rate was 8.16%

Using Greece’s current debt to GDP ratio as summarized above, we present a best case forecast and a likely forecast for debt to GDP over the ensuing 10 years. For the best case we assumed Greece’s highest 1 year GDP growth rate (+2.74%) and lowest interest rate (3.58%). The likely case uses Greece’s average 1 year GDP growth rate (+0.45%) and average interest rate (7.55%).

In both examples we make the very bold assumption that Greece will run a balanced budget excluding interest expense. The results, as plotted below, are not encouraging.

Greece Debt Projection

So given the above, one has to ask oneself why are both Greece and its creditors (read: Germans) entering into an arrangement that not only does not resolve the “impaired debt” issue, but further exacerbates it? Obviously there are ulterior reasons on both sides that are driving this TransRational process. But what important here is to observe and note that this agreement will not reach the stated desired effects, i.e. return to economic growth in order to reduce the chronic unemployment in both the general workforce and especially with respect to the youth unemployment in Greece. Furthermore, both sides are cognizant of this fact. Summing up this agreement, it clearly falls in the TRANSRATIONAL column.

Which brings the thread back Francis and the situation within the Catholic Church. The recent trip South America,Francis the bishop of Rome went full “TRANSRATIONAL”. (see here) We will pick up this theme in the following post, but it needs to be stated that this issue of TRANSRATIONALISM is a major problem in Western post-Christian society and not just limited to the Catholic Church.

Concluding, Greece has a similar problem to that of the Catholic Church. This problem can be understood as an issue of “financial sustainability” resulting from the adoption of an intrinsically TransRational logic as the basis for the country’s economic and fiscal policy. In the case of Greece and its creditors, this TransRational logic created a situation where Greece was allowed to borrow funds at absurdly low-interest rates and in amounts that the country could never repay.

The root cause of the “sustainability” issues with respect to the Catholic Church are very similar. The major issue in the Catholic Church is the rapidly deteriorating membership base, with a corresponding declining revenue. The “ecclesial sustainability” in the Catholic Church also brought about by the adoption of an intrinsically TransRational logic (neo-modernist philosophy) as the basis of the Catholic Church’s theology. (see here)

If Greece can’t resolve its economic issues, the youth will migrate thereby depriving Greece of its tax base, a tax base that is needed to finance the public sector and the retirees. In the case of the Catholic Church, the loss of membership is creating the same effect whereby the Catholic Church is not able to finance its ecclesiastical structure, and will likewise wither away.

The major difference in the two above case however is this: the Greeks will be Greek whether in Greece or in the Greek diaspora. With respect to the situation with the Catholic Church, it is much, much more dire. For when the neo-modernist ecclesiastical structures disintegrate, the Faithful begin to lose access to not only the Catholic Church, but to the only means of salvation available to man.

But somehow, no one in Francis’ immediate circle seems to be all that concerned.