In Greece it's a choice between people or banks

Tomorrow the Greek people will go to the polls to determine what is more important: the needs of the people or the greed of the banks.

Six weeks ago elections were held but no party was able to cobble together enough support to form a coalition. The two parties expected to slog it out on Sunday are the right wing New Democracy Party and the left wing Syriza. New Democracy is fully on board with the desires of the European banks and investors and is more than willing to sacrifice the future of Greece at the altar of the Euro.

Syriza, on the other hand, has campaigned hard against the austerity measures imposed upon Greece by the European banks.

Those supporting the austerity measures don't understand a basic fundamental fact. You can't pull an economy out of a recession by raising taxes and cutting spending to the poor and working classes. The problem in Europe is too little demand for the goods and services produced. The solution is to increase the aggregate level of demand. 

Taking money out of the hands of the Greek people and handing it to the banks won't help bring about an economic recovery. Taking that money out of circulation in Greece won't do a damn thing to stimulate demand. It will, instead, cause demand to drop, therefore, making matters even worse.

Cutting back on the amount of money spend on education and health care will have a negative long-term impact on the Greek economy, as well as on the everyday lives of the Greek people. This is part and parcel of the same conditions the IMF and World Bank have imposed on developing nations for decades - and it doesn't work.

Such measures destroyed economies in Africa and Latin America. You could even make the argument that the measures imposed on Mexico provided the fuel for the drug war that has engulfed the country. The measures forced our small-scale farmers to make room for larger mechanized farms. The measures created a multitude of low-paying factory jobs near the border which led to chronic underemployment. It was into such a mix that the drug cartels began their brutal turf battle.

Proponents of austerity are selling the Greek people a bill of goods. It is time for the people to tell their leaders that the citizenry must take priority over the European banks and investors

More upheaval in Greece

Well, Ms. Merkel, it would appear that the Greek people just aren't having any part of your forced austerity measures.

Attempts to form a coalition government in Greece have failed miserably over the past week over the issue of the austerity measures imposed on the Greek people in order to funnel money back to European banks. The two establishment parties: New Democracy (center-right) and Pasok (center-left) are doing Ms. Merkel's bidding in trying to lead the Greek people into permanent recession by cutting government spending, wages and employment.

This is the same recipe the IMF has followed for the past three decades and there is not one success story the IMF can point to. Cutting government spending during an economic downturn is the best way to deepen a recession and cause a government to put the nation's assets up in a fire sale. The only beneficiaries of such a policy are the very banks lending the money to the government. The people suffer while the bankers dine on fine caviar, pate and sparkling wines.

With Syriza's refusal to participate in any government that refuses to reject the austerity measures the last government agreed to in order for the European banks to make more money, the country is looking at another general election next month. And that will be a general election in which Syriza looks to be the largest vote-getter.

The risk of default was priced into the bonds the Greek government issued to fund its day-to-day operations and, if the banks didn't stop to think about the risk (however unlikely) of a default, well, shame on them.

Will profits triumph over people?

Today voters in France and Greece go to the polls in the first elections since austerity measures were imposed. The situation in Greece is far more dire than in France. The unemployment rate in Greece is among the highest in Europe and the people are suffering from drastic austerity measures as part of an agreement the Greek government made to pay back international banks and investors. Unemployment rates for young people in France is bad (though not as bad as in Spain) and the economy is just grinding along.

The choice is clear for voters: people or profits. Drastic cuts in government spending and increases in taxes are choking the poor and middle classes. Those affected by the policies are those least able to absorb the sudden shock.

Banks and investors poured money into Europe over the last decade - lured by good interest rate spreads. Now for those of y'all not familiar with how interest rates work, here's a quick primer. Interest is the cost of borrowing money. The theory being that there are many things I can do with the money in my pocket and if I lend it to you instead of using it myself then I have lost the immediate use of that money. To compensate me for the things I can't do since I don't have the money in my pocket, you will make an additional payment, called interest. The amount of interest I charge you depends on how likely I think you are to pay me back on time. The more likely you are to pay me, the less I charge. The more I feel you might not be able to pay me back, the more I charge.

The other factor to consider is inflation. If the money I lend you today is likely to worth less when you pay me back, I will have to charge you more to make up for the lost value. On the other hand, if there is little inflation I will charge you less.

The difference between the interest rate and rate of inflation is called the spread. The higher the spread, the more profitable the loan should be.

Banks and investors bought Greek bonds because they looked at the expected spread and thought they could make a handsome profit - either because they anticipate inflation to be lower than predicted or because they thought the Greek government was promising to pay more in interest than the anticipated risk.

Well guess what. It turned out the Greek government wasn't promising enough of a risk premium and that banks and investors underestimated the chances of Greece not paying them back. That, my friends, is part of capitalism. If all investments were safe then the long term interest rate would equal the long term inflation rate. If that were the case then no one would lend money because there would be no profit to be made.

The imposition of austerity measures across Europe are the mechanism by which large banks and international investors can extort their profits from the European working class. These investors knew the risks of lending money and, instead of licking their wounds and looking for the next opportunity to exploit, they are using politicians in Germany and France to force those who can least afford it to boost their bottom lines.