European Debt Crisis

With all the news reports about the debt crisis of Greece, I have yet to see an article about what an amazing example this is of how the patterns of history tend to repeat themselves. So, I will tell you how I see it.

First, let's have a look at Act One. In the 1920s, there were two consecutive Republican presidential terms in the U.S. It was a time of freewheeling, unregulated capitalism. In an era of great confidence after victory in the First World War, the rich got very rich. Factories, making use of the newly perfected assembly line process, turned out all kinds of manufactured goods from cars to radios.

But the owners of most of those factories, trying to minimize expenses and to maximize profits, paid their workers as little as they could get away with. The result is that too few people had the money to buy many of these marvelous new products coming from the factories.

So many manufactured goods began piling up in warehouses. Factories began cutting back on production, meaning that workers had even less money to buy the products from those factories, and it spiralled into the devastating economic crash of 1929.

One country was particularly devastated by the crash. Germany produced a lot of high-quality goods in it's factories, for which demand suddenly collapsed. The 1930s were a terrible time until a new political party came along. The Nazis promised a grand and glorious future to the stricken nation. They soon solved the economic woes by drastically expanding the military forces to absorb unemployment and directing idle industrial capacity to the production of war equipment. The showcase of the proud new era was the 1936 Berlin Olympics.

Now for Act Two. After the end of the Cold War, it seemed that Capitalism was certainly the best economic system. The air of confidence was similar to that at the end of the First World War. The new millennium began with two consecutive Republican presidential terms in the U.S., just like in the 1920s. Once again the rich became very rich, while most of the rest struggled. Although productivity had increased very significantly since 1980, the average person was worse off, in real terms, because the slice of the money taken by the very wealthy had greatly increased.

Once again, there was trouble. This time around, the trouble was centered on mortgages. In the 1920s, not enough people were earning the money to buy the factory-made goods that were being produced at a rapid rate, and in the new millennium too many people became unable to pay their mortgages.

In the mortgage industry, a broker would sign up a home buyer with a mortgage from a lender, which would then usually sell the mortgage to be bundled into securities or to one of the corporations started by the government to increase home ownership. Things went merrily along because if the home buyer was not really able to afford the mortage, especially when it reset to a higher interest rate, by the time he defaulted the mortgage would be somebody else's problem.

An Olympic Games is a part of Act Two, just as it was in Act One. In other news from the first decade of the new millennium, Greece put on a fantastic show for the 2004 Olympic Games. But although Greece was the birthplace of the Olympics, it was by far the smallest country ever to host the games. The cost was certainly a great burden for a nation of 11 million people. Just as a comparison, look at how long it took for Montreal's Olympic Stadium, from the 1976 games, to be completely paid for.

Everything was going along fine for Greece in paying down the debt, which was mainly from the Olympics. But then came the Crash of 2008, centered on America's mortgage industry as well as other institutions. The economy of Greece, with it's sun and world-famous scenery, was heavily dependent on tourism. When people lose their jobs or have a sudden decrease in income, they tend not to travel. This is the root of the current debt crisis.

Notice how two other countries which are often named as having potential trouble similar to that of Greece on the horizon, Spain and Portugal, are also sunny countries which depend on tourism.

Isn't this an amazing example of history repeating itself?