So where has all the money gone?

[Bugsy2]

I just don't get it & I need someone within an economics sort of mind to explain - please!
We live on planet earth, there are currencies circulating all around the world, people buy & sell things. How can it be that 10 years ago the economic outlook was good & certainly in the West most people were buying houses, getting more wealthy & everything was fine & dandy. Now, it is all doom & gloom, countries are going bust, people are losing their homes & its all going tits up. So where has the money gone? Who has it, where was it, where did it go to?

IMF members (most countries which are not banana republics) pay into it's fund. This money is normally invested in developing countries to assist with economic programs. This cash will now be diverted to the likes of Ireland, Greece etc. To receive it they normally have to demonstrate a suitable degree of contrition through austerity measures. These are only loans though and will have to be repaid.

Excellent thread. While we are at it...

Can anyone explain to me why it would be a bad thing for Greece to leave the Euro?

But the IMF are great believers in Trickledown and responsible deregulation
silly deluded fools
they are a bank not a regulator
hence why they got it SO wrong on South America in the 1970's

Bugsy
It will happen again
it always does
and once you know and accept that its less scary
and easier to sit on the sidelines

It would not be a bad thing for Greece but it would say 'failure' of the Euro project. The Euro is meant to be a strong, stable currency on a par with the Dollar and Sterling. There were meant to be stiff rules of membership and fiscal prudence. If, at the first serious test, the Eurozone countries start lobbing weaker members overboard, it would not look good at all.

Greece leaving the euro would be the best outcome for all. But it has to be an orderly exit. Leaving right now and returning to the drachma would result in it defaulting on all it's FX debts. A devalued drachma would however allow Greece to become very competitive in terms of exports and services.

TP2, I am envious of your knowledge. Do you work in economics or finance? No details necessary if you don't want to. The lovely Niall also said that in capitalist economies there would be cycles of boom & bust. I suppose it is just a question of trying to be savvy in the boom, so that you have something to fall back on in the bust. I guess I am just a bit cross that the cautious get hit along with the reckless. [indignant emoticon needed]

Posted before Cogito & Polar - but admire your knowledge too. Are you both just interested observers, or in the financial sector? Polar, given Greece has such a bad financial history, do you think it can really turn itself around?

The cautious and the prudent may get hit along with the reckless but they usually start in a better place and end up in a better one as well. This is my third experience of recession, financial armageddon & stockmarket crashes as an adult. I'm the one that threw the offers of easy credit into the bin the last 10 years with a haughty laugh because I've 'been there, done that, got the t-shirt'... You live and learn

I'm an accountant
with two glowing red endowments which I was suckered into buying into in the 1980's
I've been a cynic ever since
That and my Dad works on Wall Street and my stepfather worked in the City.

Greece will not be allowed to leave the Euro - our banks could never afford the 100% default that would follow.
Remember that in the UK HMRC collects over 90% of billed tax
The Greeks collect well under 50%
They have to make structural changes to their whole economy - like removing central wage setting for restaurant staff!

Interested observer, dedicated miser and small-time market investor.

... and what kind of interest rates do the I.M.F. charge?

www.imf.org/external/np/tre/sdr/burden/2011/092611.htm

Depending on risk, around 4% per year

GGGGRRRRR, you see I can feel myself getting irritated now. I though that Eurozone countries had been required to pass some kind of fiscal test to join the Euro. If Greece collects less than 50% of its billed taxes & has such a poor financial history - how did it get in? It seems that individuals learn through bitter experience but organisations / insitutions / whole countries & even huge global consortia don't.

SDR Interest Rate Calculations It'll be in here somewhere.

Greece is a relatively young democracy, and as we've seen on the news, with a fairly intemperate populace in the face austerity measures. Political stability is of equal importance to the EU as economic stability which why they are not being hung out to dry just yet. Going forward however, there will have to be a two tier Eurozone. A unified yet compatible monetary policy, is as evidenced by the crisis, it not feasible. Will they muddle through? Of course, they'll get some help and they have no choice. They will have to reduce the states wage bill and get to work on collecting some taxes.

I used to work at the coal face, but now I am a SAHM.

Ahh Bugsy2.... there's the rub. The UK never joined in the end because we weren't happy with the way the tests were applied. We had a brief flirt at joining the ERM in the early nineties, spent gazillions propping up Sterling and retired hurt with the damp sponge.

I wonder if when more people who don't normally follow current affairs start to understand how bad things could get in full Greek tragedy style, then the situation will worsen further as the last few happy-shoppers-on-credit get cold feet. A lot of our economy is built on the service industries, and who's going to prop up nail bars and coffee shops when the full impact of the cuts feeds through? Those jobs will go and then even more people will need benefits.

Not all countries are bankrupt, for ewxample the BRIC countries (Brazil,Russia,India and China) have very healthy financial situations. The problem is most of the develped economies have been run very irresponsibly and Governments have racked up debts and as a consequence have dire fiscal positions which are now causing their entire economies tremendous problems. I don't see a way out that isn't extremely painful.

UK didn't join because George Soros thought sterling was over valued and put a massive short on it. Protecting it was too expensive, so after a brief attempt of propping it up, they let it go. Sterling was then forced out of ERM.

Am I right to think we'd be in a worse state than we are were we in the Euro?

(And thanks for all the brilliant answers. I feel I can watch the news tonight and have half a clue what they're talking about!)

Yes, was just about aware enough to remember the ERM debacle. Never quite understood the significance though. Polar, I keep wondering why the Greek people seem so angry - I suppose they feel that on an individual level it wasn't there fault. This economics stuff is so multi-layered. I just understand one bit & then I discover it is linked to another bit, which I don't! Is Greece so much worse than Ireland, Portugal & Italy because they seem so reluctant to introduce all the austerity measures?

aerol - what do you think will happen?

Am insatiable now!!!! Have more questions. It seems like Germany is acting as the Bank of Europe - is that ok? Is the German economy strong enough for that? What about other Eurozone economies, like France and Holland (trying to think of those countries with biggish populations) how are they doing? I know Spain is a bit wobbly & what about all those new Eastern European countries in the Euro?

Yes, in a nut shell, Ireland, Spain etc have been much more effective on budgetary cuts. And for the most part, the populations have taken it on the chin. The state in Greece is a huge employer, as it is here, in the UK. So that's where the initial cuts are made. The other issue is that tax receipts in Greece are really low, which is less to do with employment levels and more to do with the fact that evasion is a national past time.

Can anyone explain to me why it would be a bad thing for Greece to leave the Euro? it is not obvious how a country could leave (although there are ways). What would happen to that countries debt? Say everything that Greece owed turned into worthlass Drachma then people would start to worry that loans to all th eother struggling eurozone countries (Italy, Spain etc) could become worthless so we could end up with those countries going down as well.