How did Greece get to this place?
Simple. They borrowed a lot, can’t pay it back. Why did they borrow a lot? Because it was easier than collecting taxes. (Tax evasion is the national pass-time.) They cooked the books to make it look like they had more money than they did. Either the European banks were monumentally stupid (a possibility for all banks, considering 2008) or greed overrode common sense (also a possibility, considering 2008). The banks lent like there was no tomorrow, and the Greek government borrowed and spent on frivolous things like inflated civil service salaries and pensions. Most likely the banks assumed if Greece fell short, politicians from the rest of Europe would jump in and make sure the banks got paid. They were right. Since 2008 when the world economy tanked, most of the Greek debt has been owed to the European national banks rather than private banks. The national banks have effectively bailed out their private banks (much like Wall Street got saved) and now the politicians are left holding the empty moneybags.
What is the significance of the resent “no” vote?
The rest of Europe has been saying “If you want us to save your bacon, time to cut the fat”. In fact, they want to cut to the bone. Why should national bank fat cats miss a payment when Greek pensioners could lose their income instead? Oddly enough, the Greeks don’t understand this logic. Now that they’ve voted 60-40 against cuts, the Greek government can tell the other politicians, “Whatever solution you want us to try cannot involve cutting Greek pensions and salaries or firing civil servants”. Of course their other wiggle room is collect more taxes (not popular) or don’t pay the European bankers (popular).
It’s fairly obvious that beyond a certain point, putting the screws to the taxpayers has a negative effect on revenue. We see that with Greece, with unemployment in the 25% range and no economic growth.
In discussing the US national debt, one argument that I have heard (and personally advanced) is that sovereign debt is different than consumer debt. How does this difference apply in the case with Greece?
In normal people bankruptcy, you forget all debts, shed all assets (all your money) which the debtors take and split, and start over. Obviously, a country can’t do that. Private banks can’t take part of a country, nor can they really “garnishee” future tax revenue or take ownership of the national parks to do as they wish. So basically, a country does not go bankrupt - it just keeps re-negotiating its debt repayment rate. Greece is effectively insolvent because it cannot generate enough revenue (taxes, etc.) to cover obligations (civil service salaries, pensions, etc.) plus repayment of debts.
The USA, despite right wing claims, is nowhere near the steep slope where debt payments overwhelm other expenses.
How does this affect me, a middle-class professional in Texas? I’ve read that people’s 401Ks may be affected. Why? (I’m a public employee, so I don’t have a 401K.)
The Greek situation will drag down Europe. Someone borrowed a fuck-ton of money and won’t pay it back. That will depress Europe, which could depress the world… but probably not much. A politically and socially chaotic Greece could have repercussions for the rest of Europe, especially if some important controls get left behind - quarantines, migrant flow limits, etc. It may drag down 401K’s for a year or two.
Is there an apolitical way to answer these questions?
Probably not. To paraphrase Obi-Wan, “Who’s the more foolish? The fool who lends money, or the fool who borrows from him?” One side blames the government, another blames the banks.
**Next question: profit. How do I do this? **
If it were that simple, there’s be a million people as rich as Warren Buffet.
Greece will eventually either cave in or print their own “money” (IOU’s). During the transition, things will be in chaos. People will be desperate. Someone will buy the new IOU currency for pennies on the Euro. Other profiteers will figure out how to buy for peanuts some very valuable assets from very hungry people. If only Greece had gotten the Elgin marbles back, they’d have something to sell. Setting up fake foreign sales to bypass currency controls would probably be another profit point. Pimping or white slavery is also an option, desperate women might do just about anything.
But seriously, like in any market downturn, quite often the “down” overshoots and worthwhile assets are undervalued for a time.