Wednesday, August 5, 2015

Our Big Fat Greek Future

With market leader Apple shedding more "value" in a month or so than the entire worth of Nike the ill winds are picking up.  Eventually we'll be like Greece, where the winds happen to be hitting first. So let's draw some lessons:
After the Greek government imposed capital controls to prevent the country’s banks from collapsing, businessman Athanassios Savvakis feared exports of apricots, peaches and tomatoes would be the country’s next economic casualty.
When I started in import/export, USA had capital controls, and could have capital controls again.  So what to do?
Mr Savvakis must import all of his raw materials, but he was hamstrung by rules severely restricting the funds he could transfer to foreign suppliers. The company ended up adopting what Mr Savvakis called a “triangular” payment system.
“We have plenty of exporters with bank accounts abroad among our customers. Instead of paying us they transfer funds they hold abroad to pay our regular metal suppliers in Spain, the Netherlands or the UK,” he explained.
So this is a bigger company, probably a half billion a year in sales.  What about a small business?
“Good and healthy companies that survived the crisis have been rendered helpless because they can’t import raw materials,” said Constantine Michalos, president of the Athens Chamber of Commerce and Industry.
Figures released this week by the Markit survey of purchasing managers — a commonly used index of manufacturing activity — indicated a sharp drop in factory production with the index for Greece falling from 46.9 to 30.2, its lowest ever reading.
So you don't have to be in int'l trade to get jammed up by capital controls... but what about small int'l traders:
“I had to close my Athens shop when the crisis peaked in 2012 but the islands have been going well this year and last,” she said.
Ms Simou said she used all the cash reserves she kept in an Italian bank in July to make a down payment on fresh stock with a three-week delivery time.
“My boxes are waiting in customs but I can’t send the rest of the money from my Greek account. It’s a business disaster,” she said. “If the controls aren’t lifted soon retailers like me will become like east Europeans in the 1990s . . . We’ll be suitcase traders.”
First understand this is a government policy failure, not a market failure.  All of the bailout money of the last few years went to bankers, never to main street.  The solution is a strict separation between business and state.  That ain't gonna happen, but understanding the economics and the "bankers only, bankers always" imperative of the State, you can do what the Swiss merchants have done and form a WIR on a larger scale, or simply run the triangle trade first example of the article, where some portion of your export revenue is paid to your supplier, who in turn ships to you prepaid.

As an importer who cannot remit outside of Greece find some Greek asset, say a small hotel, and make the payments on it to the benefit of the overseas exporter who builds equity in a Greek asset for after the crisis.

You can also find a Greek exporter with an in-demand item and who directs his overseas customers to direct their payment for the exported goods to your supplier, and you repay the Greek exporter with domestic profits from the sale of your imported items.  Inbound money is subject to controls as much as outbound money, and this solves that problem, and it can be scaled up with say 5 Greek exporters working with 12 Greek importers, and 14 various entities overseas, all in a combine association of some sort.

These kinds of deals get worked out, but you have to think about them (and think in terms of strict separation of business and state) and then begin talking to potential participators.  Of course, you also have to be in business to get going.

The Greeks objecting to austerity are the ones who are on the false economy.  They will lose no matter what, whether the Greek authorities make a bad move, or worse move  (a good move, repudiate the debt and free the economy, is not in the cards.)

Why do some people do well even when the state plan goes bad?  Well, they never believed in the state plan, the were working in the real economy, and they think up lega, peaceful alternatives.

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