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March 12, 2016


Greece is not in its best shape nowadays but I always lean to ‘forgive’ the little economic sins to this particular nation due to their great input into the world civilization. They invented lots of things, including democracy, however today I thought about one fascinating business they had in ancient times: Delphi Oracle, basically the predication business. It was quite simple, human nature always tries to understand future, not because of curiosity, no, because humans are rational creatures and by knowing the future he or she tries to be prepared, to cheat with others, to avoid risks, etc.; imagine you are a stock trader, you are a bright trader, a smart trader, however you still have the risks, especially those you can’t know because of their nature, with the help of oracle predictions you’d be far more secured or ahead of others. Exactly this was the reason the old Greeks were paying tones of money to the oracles - to predict the future. What do you think what was happening with these earnings? Because legally the oracles were ‘non-profit’ (they were under different gods) the money was reinvested and because of its size the oracles became very first bank institutions across the Mediterranean. Such oracles or banks or non-profits, or whatever you prefer to call them were several. Delphi Oracle was the most reputable and thus profitable among them, even the Alexander the Great and other kings and queens were among its clienteles, others were smaller but they had their own constituencies. Once again to explain it better to the modern civilian, imagine the IMF the supreme economic institution which works primarily with the states and other humbler non-profits or for-profits companies working for private customers.


This month the media became overwhelmed with economic dooms day scenarios (by the way early spring was the busy time for Greek oracles too). Already in 2015 it was clear that 2016 won’t be the best year; Chinese slow down, oil, wars, nothing was predicting the easy path. However what caught my eyes is some wave of occult predictions, I call it ‘occult’ because these predictions sounded like mysterious and containing the hidden knowledge.


The one I wanted to bring to you was done by the IMF, the equivalent of Delphi Oracle, or to be precise by Mr. David Lipton, second-in-charge after the MD. Apparently he addressed some gathering in DC, the speech was typical, nothing extraordinary, quite a mix of Keynesian, please-don’t-do-it (to Chinese), we-know-you-are-cheating (to the rich), nothing-we-can-help (to Arabs), politically correct, etc. ‘economic’ postulates. What was really interesting is its conclusion:


‘Global economic recovery continues, but we are clearly at a delicate juncture, where risk of economic derailment has grown.’


In ancient times in oracles (oracles were the institutions) the Pythias were delivering the message from the Gods, usually the message was blurred and then the priests were let’s say translating it to the populus. In current days I guess its media that do the translation and the populus or nowadays markets become tantalized after such predictions. 


For good he also added: ‘Now is the time to decisively support economic activity and put the global economy on a sounder footing. This requires some tough choices, with advanced economies in particular needing to step up to the plate through the three-pronged approach I have described, as well as measures to make the global financial system more efficient and resilient.’


But why now? Wasn’t it time last year or two years ago or a few years ago? Was not it clear the commodity prices cannot be sustainable forever? Was not it clear the capital control is bad at the end of the day? Does it really need to be economist to understand that you cannot serve the debt which requires repaying twice what you earn? Is that really news the tax heavens exist?


Second brilliant note I read was from Lord Rothschild, I saw it in FT, it is called ‘we may be in ‘eye’ of a storm’, another blurred voice.


The interview contained some extraordinary passages; he said the progress of the European economies is “disappointing”, while the situation in Greece remains “fraught” as the debt‐laden country faces a fresh threat from dealing with unprecedented levels of migrants arriving on its shores.


Let me check the reality, at the best of my knowledge the Eastern and South-Eastern European economies are performing relatively well compare to many others in the world, I guess he had in mind the core Europe, but here my question comes, when it was last time their economies were performing well largely apart from German and UK?


Is there any economist who can explain me how the household of 4 where 1 works limited time, 1 is old, another is under aged and the remaining one does not want to work can be productive especially if their annual repayments over debt exist their annual income twice? With or without guests!


Next discovery this gentleman made was: ‘over the last few years we have witnessed an explosion in debt, much of it repayable in revalued dollars by emerging market countries at the time of a collapse in commodity prices. Countries like Brazil, Russia, Nigeria, Ukraine and Kazakhstan are, as a result, deeply troubled.’


First of all I don’t quite understand what makes Ukraine and Russia to sit next after each other in this sentence. Yes, indeed they are in a war with each other but their ability or non-ability to repay the debts is like day and night, but it is not important.


There are great scholar papers, couple of them published under IMF too regarding the debt crisis but again let’s forget about them, there is the modern version of ancient ‘world of mouth’, it is called Wikipedia, look there, Nigeria defaulted fully or partially on its debts 5 times in 20th and 21st centuries, do we need an oracle to predict when will be the next time if any? No we don’t. I’ll be that oracle; it will default, by any modeling now it is a right time. What about Brazil? Well… it has remarkable history of defaulting, not as remarkable as Spain but still. Will it default? Yes. But not soon. Is that something special happening now which makes them more suspicious to default? Author tries to make a point that it’s all because of appreciating dollar and falling commodity prices. It is not a reason; it is just an excuse for some those who are getting ready to default and those who make reckless investment.


But is that really commodities love what unites all those countries? That’s where ‘occultism’ is, it’s not commodities because we know many other economies were exploiting natural resources, Norway for instance but managed to transform. Wrong management, that’s what unite the listed countries (I’d put Kazakhstan apart), these are simply ill-managed economies. Even despite the war Ukraine has the potential to shine economically, it inherited one of the best, developed industrial bases from the Soviets, and country is rich in everything including the brightest people. The reason they are defaulting, as simple as it is, it is ill-managed country.


For the conclusion I’d say the people need to make its own choice in between the love of sweet oracle predictions and common sense. That’s what it is all about.

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