Greek Debt Recession and Austerity (part 1)
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- Опубліковано 17 тра 2012
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A primer of why Greece is in a tough situation (more in future videos)
More free lessons at: www.khanacademy.org/video?v=9p...
i cant thank u enough for downloading this video,i have an assignment due tomorrow and i cant say how much ur video helped !
You sir always make everything easier to understand, thank you!!
Someone - Khan, or anyone - could make a pretty good youtube channel by analyzing current affairs THIS way. Charts, facts, citations, grapth AND THE MECHANISMS BEHIND the phenomena . I'm in need for that.
thank you for addressing this issue. While I think I grasp the outline of this situation I expect you will show me much more.
That is about the only advantage that cutting spending before debasing your currency has, you can choose what you cut, keep the things you really need and cut away the inefficiencies and non-priorities.
"cut everything and watch what happens" attitude is indeed borderline insane.
@jay dee we never finish construction of the buildings, in order to avoid paying tax. This is true. When we retire at the age of 32, we get the latest Ferrari (or Lamborghini) FREE as a present from the state. Other benefits include : going to the Alps for skiing, 150,000 free air miles (business class), staying at 5 star hotels etc
The thing about austerity measures is that all the spending cuts do way more damage to the economy if the economy is too heavily dependent upon government spending in the first place. That's the real problem Greece has here - too much government influence on the private sector. If the private sector were more or less independent, then it would only be the increased taxes that would hurt them, and the damage wouldn't be as bad.
If you do that GDP will fall and can cause a chain reaction. It can for example create unemployment where you have to provide unemployment insurance (increasing spending, but no tax income so deficit becomes worse). Just about every country boosted government spending to stimulate the economy (increasing the GPA via fiscal policy) during the recession.
that is a perspective of austerity measures I never never took into account. Basically, the greek are damned if they do and damned if they don't, at least from this point in fixing their economy.
Someone else having problems in full screen mode? The left and right sides are "outside" the screen. E. g. I only see "rity" of "Austerity". Everthing looks normal in normal or expanded view size.
Hi Khan, I just thought it would be a great idea if you could cover some financial history like crash of 87' junk bonds 80's past currency defaults, depression 1930's etc. Awesome videos!!!
Like Greece they did not have any other options. The question is not whether it was easy or good for everyone, the question is whether its possible. It is.
Can you please explain to me how it is possible to come out of a debt deflation with austerity? What are your historical backings?
Can you make this into a playlist, Khan? Thank you.
cant understand the debt increasing interest part...which intrest is it ...i dont understand could someone please help me with it ?
can you do a video on the definition of a recession in the US?
thank you!
Yeah, I have heard that 50% of the Greek debt could be recovered by taxing properly all the money that has been sent to Switzerland, Luxembourg & Co. Doesn't break the cycle, but at least investors would be more inclined to inject money in Greek economy...
Sal, what does this mean for the euro currency??
Estonia still has an unemployment rate of 11.7%. with a poverty rate of 17.5. also they did not only cut spending and cut wages, they raised taxes. (something the GOP does not what to do). also since they have a a big economy they had very low debt going into the crash. While Estonia has returned to GDP growth, they're doing so on the backs of their neighbors. also Their retail sales and non-govt construction are both still down significantly.
Khan, it would be nice for you to explain the monetary dynamic of the EU and how it in essence acts as a gold standard. By this I mean countries within the EU do not have the power to control interest rates(with the exception of Germany) because, they do not control their own currencies.
Greece (now Spain & Italy) is going through exactly what Canada & Sweden went through in the 90s. Govts don't want to learn b/c it's easy for politicians to promise "free" goodies for in turn for votes.
Estonia did not have the option to stimulate. In 2009 there was very strong speculation against the estonian krona. The government could have only lend money on a very high interest rate. Germany is a very strong economy that can lend under 2% interest rate. Sweden is a strong economy, so there was no speculation against them, their central bank devalue their money and the state could borrow on a low interest rate.
Like Greece, Estonia did not have any other options.
this narrator sounds like davenmayeda! this is video was pretty interesting to me
the solution to greece's problems: 1) exit the euro-zone and allow the free market to chose its own currency. 2) eliminate ALL entitlement programs. 3) establish a temporary government program to ensure that all people have access to food and shelter 4) privatize all state assets 5) eliminate all regulation 6) cut taxes to the minimum level necessary to sustain the above mentioned program and basic government functions.
I think your scenario would be relevant if the government was running no deficit at all, then a cut in spending (and an equal lowering of taxes) would put the money back in the people's pocket. But since the government is running a deficit cutting spending would only get you back to a balanced budget. No money would be given back to the people unless you're thinking of a situation where the people owned the debt. Even then, they would only get money back if they government is paying off the debt
roosevelt massively increased spending and regulation and contrary to popular belief the new deal transformed a regular depression into a great depression. my proposition was to massively cut spending and regulation
Cutting govt spending is bad, because in times of recession people do not spend. People are fearful for the future, so they hoard their money. Any econ book will validate this principle. Furthermore, big government investment is required to spur the economy on, to revitalize faith in the system and to attract both foreign/local sources of capital. This is basic keynsian principle of bust/boom cycles, where in downturns government spends, and in surpluses government saves, evening things out.
Why would austerity constrict GDP growth? Wouldn't a reduction in taxes and government spending be good for the economy? How about reducing entitlements or raising the eligibility age?
The increased figure that you see is "public expenditures in % of GDP". So if spending decreases and GDP decreases by a bigger amount at the same time, the figure will go up.
Maybe you can find a video that helps you understand how to interpret numbers that are based on two variables.
Sal, how likely is it that Greece will leave the eurozone?
oh ok i see where you are coming from now. i though you were one of those guys saying should just cut everything and watch what happens. i respect your position
Think of Greece as a household. The salaryman made a bad investment (gambled all his money on a toxic investment and lost all his savings). Now with the decrease in income from investments (treat income as output-> GDP) the household can't continue it's lavish lifestyle with 1000 tv channels and that new BMW that's all being used on credit because the salaryman thought the investment would cash in. Cut down on spending or borrow more money and pay more interest because you're risky to loan money
Why is it that slashing govt spending takes money out of the economy? That's strange seeing how the money originally came from the economy before it was taken out in the form of taxes. If you cut that spending, that simply puts the money back into the peoples pockets. They can then use that money to grow the economy in their own way, probably even more efficiently than government can. Austerity only hurts in the short term as the market is re-allocating those resources previously spent by govt.
Its not impossible to come out of a crisis with austerity, it has been done before many times, but Greece has so many other problems besides the massive dept, its just hard to see how they could struggle out of this hole.
Actually I am from the UK. And I know what you mean. Infact both the US and UK are facing hard times too, the US has it worse. But, people in the public services have a duty to themselves to keep themselves informed about what they work for and how their taxes are used, it is their choice as a citizen. Claiming 2 million people were ignorant is not an excuse.
Yes but Italy and Spain are much bigger, they can afford more. Like he said, what matters is dept to gdp. Italy and Spain are near 100%, Greece is 160% and soon more.
Debt has to be reduced. Austerity will not work and is not working. Increase Taxes will deepen the recession. Since debt is the problem then it has to be reduced. There are three ways to deal with it: default, inflate, restructure. The last option is the best.
i am sorry, in the previous post i said "even in the low levels of public services" i mean the employees, the people who work in public services, not only politician, Greece has 2 million of them. And many of them they don't know their work and their position.
If you stay on USA, you are who doesn't know, because i was born there, and i know for a fact that you don't learn even the half of the reality.
that is true. but in saying that can you really say austerity is better then stimulation. Yes some austerity is needed but stimulation has to follow it. for example america could cut its defense budget and stimulate the economy by building roads school etc., which would provide great paying jobs without heavy pay cuts. with more money ,the lower classes will buy more goods which would lead to a better economy.
lol That definitely sounds like a sham on the government's part. What they were probably trying to achieve was lower employment rates by artificially lowering standards for jobs allowing people to join. They can't lower standards of the private sector - so the only option left is the public sector. The gov probably didn't think the results would be this bad.
When did I ever say taxing people at 70% was a good idea? I think that's a horrible idea. But lower taxes doesn't always = economic growth. It depends on whats going on in the world, and the condition of the global economy and markets.
i dont disagree, of course it will harm the economy, but that doesnt change the fact that it is necessary. Another metaphor, imagine you have just been kidnapped by a murdering psychopath, hes speeding down the road with you in the back seat, just because jumping out of a moving car will hurt like hell doesn't necessarily make it a bad decision.
hm I can't find any example for a country getting out of this kind of massive debt crisis with austerity... there is maybe one example where Argentine defaulted, devalued and neccessarily had to cut spending. Greece wouldn't be saved by that even if it could devalue the currency. Actually holding other countries currency hostage serves them really well...
are you a libertarian by chance? if so we need more like you.
He really knows about the Greek e-Khan-omy.
The entire khan academy is, at least right now, keynesian to the bone. We need some austrian teachers there...
Actually, the debt isn't that massive.If you compare it with Spain's or Italy's debt, it is 4 or 5 times lower.
Do one on america
always start with the (fed) gov't sector for cuts. It should make later cuts in later quarters more palatable. But, that never actually happens. look to U.S. federal service pensions.
Sure cutting spending will harm the economy in the short run but it is the ONLY way to address the root cause of the problem. These people who say "they shouldn't cut spending because it will cause recession" are saying something akin to "you shouldn't quit heroin because it will cause withdrawal".
This is scary because I see the exact same scenario developing in America.
i am really interested in this, as i live in germany. the french banks have a lot of money alocated in greece and france is the biggest trading partner of germany. all this could actually lead to making the euro unstable... if it comes to an inflation i'll profit from it because my parents are paying off the debt on our house. but it's most likely going to deflate the euro, WHAT DO YOU THINK?
Lower taxes = economic growth = increased prosperity = larger revenue base = higher tax revenues
Apparently you think taxing at 70% and running companies out of business and driving citizens into poverty would yield more tax revenue than taxing at 30% and allowing companies to prosper and citizens to thrive.
My question is what could've been done to prevent it...
Well, that would sound like a great solution…provided one doesn’t mind hearing at a pay phone, for example, “Please deposit $100,000 for the first three minutes.”
Very nice video! The lenders want their money back, even from a nation. I do not agree that austerity will hinder growth. The people have elected their politicians, and the politicians have given them promises. When the politicians have made good on their promises, they have given the voters have to pay for down the line. The people that live today do not want to pay, by paying their taxes and taking pay cuts. That is what hinders growth. They will elect politicians that will reck world economy.
why not do italy?
Spending needs to increase. How would you feel if you payed twice the amount of taxes while everything cost 3 times expensive? There only needs to be cuts in certain areas. This debt crisis cant be fixed over a couple years, it has to be done over decades, especially when we're talking about a weak economy like Greece.
Hi Sal! Could you tell me how the government obtains the raw data for GDP? How often and from whom do they collect this information? Thanks for all of your videos... they have changed my life!
Agricultural,, industrial and service sector.
How did the EU let Greece in with numbers like that? Was the Government cooking the books?
so what did the govt do to solve this problem now?
I dont get how people can dislike this or any of your videos >_< only ♥ from me. Interesting watch as always
Of course, if these people fired, the problem will grow, and the misfortunes and starvation will grow also. This is why, we need to expand our economy with the exploitation of our natural resources in aegean and not reduce our spending.
To give the time to this people to retire, and naturally reduce the number of civil servants.
And the future greeks will work to other economic areas...
interesting argument i dont disagree, but it certainly isnt a problem that is solved within the existing paradigm, and really why shouldn't people avoid having the products of their labor stolen from them at gun point. in the end of course the only solution to stateism is voluntaryism, i was simply trying to imagine a way to "soften the landing"
Germany gave more money to Greece than anyone else. Europe is not getting poor. Europe has more than enough money, but politicians and banks are making us think that there's a crisis. The question you should ask is...if there's this horrible crisis going on, then why are BANKS getting richer?
Khan for president of the world.
I afraid it will be.
name on time in his when it has been done just one.
Or Spain? Or Portugal? Or Ireland?
yes but do you know that the biggest german companies,obviously with the german goverment in knowledge of this,were paying money to greek politicians(and this is the fault of greek people who were voting for the same people for years) in order to make arrangements under the table that led the country in huge debts?for example siemens..also,do you know that germany owes money to greece for the damages at WW2 which are aproximately equal to greece's debt and none of the politicians has ever
They should take a lesson from Iceland.
If you borrow money, you have to pay it back.
If you lend money you have to make sure they can pay it back.
It's a shared responsibility. European leaders, both north and south, can't accept this for a fact and fail to reach a consensus, then blame the voters for being irresponsible. So embarrassing...
This is not entirely true, the debt crisis was a long time coming and was primarily due to rising labour costs and an ineffective way to enact monetary policy. Although the ECB exists greece still has a central bank with i-rate targets and what not, so what they did to enact monetary policy was to buy and sell large amounts of debt inherently leading to unsustainable levels,. Greece needs to become competitive and become ruler of it's own currency again.
hello from greece!!! Athens to be more specific, the biggest problem here is the corruption, even in the low levels of public services. Khan describes the problem as a ratio "spending / taxes", the true about it is that most greeks, even now, blame the corrupted polititians ( very corrupted indeed ) but they continue to don't see themselves and don't respect each other. All we want to servive from this without helping our neighbor. We stole from ourselves and none cares about...
ye and how to you go from banks to EU in your head?
Latvia has an unemployment rate of 20. they received a Latvia a euro7.5 billion ($10 billion) bailout program. and with the wage cuts people can not provide for themselves. idk how that is a success. i mean "big business" is doing a little better but idk what you are talking about
A+
why yes, yes it was.
actually this is not true, its not like the govt stops spending on one thing and gives that money back to the people, it goes to the banks.Also, remember the raising taxes bit? as a citizen, you pay more taxes and get less in return.
What a sticky situation
Why did someone dislike this video? Do you think he got something wrong?
(continued..) corruption is a deep issue in Greece, and if a system is poisoned from the root, you cant just change everything by just choosing the "right" political party.
This all is way more complex...
how much did Germany benefit of the greek crisis?why is europe getting poor while germany is getting rich?is it the Greeks fault?why does a country have to go poor after paying its original debt 3 or 4 times in interest?
yeh but there productivity is one of the worst! sleeping on the job!! and the benefits they get are ridiculously amazing meaning they retire early living off the state. Plus they desperately avoid paying tax as the parts of greece iv seen you will find loads of unfinished building so the owner doesnt have to pay tax for it. So kinda lazy, but i am stereotyping
Also, never said 70%. That would be absurd. But at least put the rates back to the Clinton era (39%) where we created millions of jobs and turned deficit into surplus for the first time ever.
Unfortunately you are right.But it will ultimately save the country instead of being a lifetime junkie.
So Estonia should have done what Greece did? Double its dept in 5 years and enjoy sky high interest rates?
Greece - democracy at its best.
Estonia, Latvia.
there are ways to get out from the problem but the USA, and the German goverment thinks that is theirs not best interest... because we have to do some things...
1 to decrare Εxclusive Εconomic Ζone to all greek territories, which preventes by Turkey, Egypt with the support of USA, because the American companies want the resources of aegen for themselves in low price
2 to agree with european oil companies for the surveys and facilities in aegean.
3 to make a contract with Russia about the Syrous
Not quite. The ability to align and control both fiscal and monetary policy is vital. Greece doesn't have this.
5:25 did khan just say dude
Mexico and South America are in the Western Hemisphere too, geographically and culturally ;)
If THAT'S the case then why do people like Grover Norquist want his taxes to go to zero? You get the impression that the man won't be happy until he's paying NO taxes and even then he'll be miserable because that's all some people are: a humongous pile of misery and nothing else.
In fact in relation to the countries size and economy (GDP) its deficit is twice the size of Spain's.
EU payments of 100 billion is the only thing keeping them from having to declare bankrupcy many months ago. Which will soon stop.
In other word's they're fucked.
No. The problem is, the Greeks are blaming each other without focusing on the problem at hand AS A NATION. It is easy to label politicians 'corrupt', but the right word is 'ignorant'. And both the public of Greece and the politicians were ignorant of the problems developing.
Remember, it was the people who elected the politicians after all... and usually people go for politicians that will increase spending and lower taxes, so everyone one will have a jolly good time until shit hits the fan.
I see you are from the states. Here in Europe, liberal means something else. In Germany i would be a FDP voter, in the EU parliament elections i would vote for the ALDE group. These are usually center right pro business socially liberal parties.
It's not an option for Greece. In fact, war is unproductive enterprise that causes destruction of goods and means of production. It's a burden for the economy. It is payed typically though either taxation or inflation. Instead of labor and material allocation in real economy that supposed to improve life war force it to be waisted on weapons and destruction.
only option is for someone else to pay the debts for Greece maybe? who ever does that would probably bargain with Greece's valuable resources that it wouldn't normally sell, maybe land and technology. It's gonna be harsh on Greece either way. Moral of the story, don't live above your means EVER, or else you may find yourself in this hellish scenario.