Grease (the musical) is set in 1959 and follows ten teenagers as they navigate the complexities of high school, are caught between two rival gangs (the T-Birds versus the Flaming Dukes), deal with hormones run amuck, watch greasy mechanics (hence the name of the show) race souped-up hot rods, and follow Danny Zukow as he woos Sandy Olsson (John Travolta and Olivia Newton-John in the movie). The post-graduation finale appropriately takes place in a carnival and features the title song of which the second verse goes like this:
We take the pressure and we throw away
Conventionality belongs to yesterday
There is a chance that we can make it so far
We start believing now that we can be who we are
Grease is the word
It's got a groove, it's got a meaning
Grease is the time, is the place, is the motion
Now, grease is the way we are feeling
Note the self-absorption. Feelings are in. Convention is out. Just believe in yourself and you can do anything, which is the core of New-Age thinking.
Fast forward a few years. Greece (the country) is equally absorbed in itself. Zorba the Greek has replaced Danny Zuko as the central character, the Syrtaki, the traditional Greek folk dance featured in the Zorba movie has replaced the sock hop at Rydell High, and Sandy is nowhere to be found. Unlike Grease (the movie) which left open the suggestion/possibility that the kids might actually grow up and move on into the Real World, Greece (the country) never did.
I was stationed in Greece for three months with the US Navy in 1971 as part of the forward deployment (home porting) of a squadron of Navy destroyers as the US sought to expand its influence in the eastern Mediterranean. Beautiful country, wonderful people, great food, and saturated with history. At the same time, Greece was infested with sclerotic labor laws, quiet but equally historic corruption, and rampant tax evasion. That was in 1971.
Greece made the news a few years ago when it said it was likely to default on its sovereign debt and was not interested in continuing any sort of austerity program or paying back its debt. World financial markets did not know what to make of this confrontation so there was much turmoil and gnashing of teeth as world markets watched the ‘Strum und Drang’ of Germany and Greece pushing back and forth on each other like the T-Birds and Flaming Dukes.
Now, some years later, world markets have adjusted to the reality that Greece cannot pay back its debt. While the haircut on the debt may come in the form of stretching payments into the next century, the even harder austerity measures now being contemplated by lenders will seek to forcibly change the fundamentals of the country and its culture in order to…make it live within its means.
So whether Greece stays in the Eurozone and continues to use the Euro or leaves the Eurozone and goes back to a heavily discounted drachma, only time will tell. Nonetheless the banks and other market institutions have already written off the Greek debt and will not be harmed by the eventual Greek decision one way or the other.
What is the lesson of Greece? It may be boring and unexciting but governmental entities must live within their means and pay their debts just as you and I do. As Dame Margaret Thatcher so famously noted, “At some point you run out of other people’s money”.
Grease (the musical) is revived periodically and could eventually be playing at a theater near you.
Greece (the country) is now playing in Puerto Rico which has already announced it cannot make part of the next debt service payment.
Greece (the country) will soon be touring in Chicago and/or in the state of Illinois itself where attempts to rein in underfunded public pension plans and the other public indebtedness have run afoul of the state constitution as interpreted by the state supreme court. It is a foreseeable disaster waiting to happen.
California is not far behind. While the governor plays with his trains that run from no place to nowhere, California runs out of water and runs up deficits all the while state liabilities compound.
So what do I advise my clients given these potentially catastrophic events?
First, live within your means and pay down debt. Debt is dangerous to all – large governments as well as individuals and households. Paying down debt allows flexibility to meet any crisis.
Second, diversify, diversify, and diversify. There may be short-term shocks to the markets when the events already anticipated happen but a well-diversified portfolio will withstand the shocks and continue to reward cash-generating investments.
I asked Riley, our golden retriever, what she thought about all this. She was lying at my feet under my desk as I was writing. She raised her head, looked at me, got up, went to the kitchen and checked that there was food in her food dish and water in her water dish. She then came back, sat back down next to me, and gave me that look that says it is time for a walk. I think she was telling me that when things are set right, then enjoy the world as there is nothing more one can do.
All the best,
Scott K Anderson Jr., CPA, CFP®, EA
IRS Circular 230 Disclosure: if this newsletter contains any type of tax advice, please be advised that, based on current IRS rules and standards, the advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to the matter.