Social Democracy: Thy name is Chaos

Chaos that has been saved up for generations.  And the US is only a few years behind and desperately trying to catch up.

Here are two shots of doom with your coffee this morning, first from NRO's John Fund:

A Greek member of parliament told me recently that tax reform was "almost impossible" to achieve because "our tax system is run by the Mafia." I laughed and said that many countries had people who thought of their tax collectors that way. "No, no," the parliamentarian insisted. "I mean that organized crime really runs the tax agencies for their benefit, taking a cut of the reduction in taxes they give out to citizens. Every person appointed to reform the system has been pushed out. Respect for authority is nil."

It increasingly looks as if Greece is on the verge of collapse, a sad condition for the nation that gave us democracy and so much of our civilized heritage 2,500 years ago. But the Greeks should have been warned. It was in the famous Greek tragedies that the concept of hubris was explored -- the notion that excessive pride or defiance of the gods leads to disaster. How Greece recovers will depend in part on how much its people take that lesson to heart and start rebuilding.

Then this remarkably grim assessment from Peter Boone and Simon Johnson at Baseline Scenario:

A disorderly break-up of the euro area will be far more damaging to global financial markets than the crisis of 2008. In fall 2008 the decision was whether or how governments should provide a back-stop to big banks and the creditors to those banks.  Now some European governments face insolvency themselves.  The European economy accounts for almost 1/3 of world GDP.  Total euro sovereign debt outstanding comprises about $11 trillion, of which at least $4 trillion must be regarded as a near term risk for restructuring.

Europe's rich capital markets and banking system, including the market for 185 trillion dollars in outstanding euro-denominated derivative contracts, will be in turmoil and there will be large scale capital flight out of Europe into the United States and Asia.  Who can be confident that our global megabanks are truly ready to withstand the likely losses?  It is almost certain that large numbers of pensioners and households will find their savings are wiped out directly or inflation erodes what they saved all their lives.  The potential for political turmoil and human hardship is staggering.

For the last three years Europe's politicians have promised to "do whatever it takes" to save the euro.  It is now clear that this promise is beyond their capacity to keep - because it requires steps that are unacceptable to their electorates.  No one knows for sure how long they can delay the complete collapse of the euro, perhaps months or even several more years, but we are moving steadily to an ugly end.