Greek government employees have threatened civil war if their privileges are cut back as a result of the IMF (read U.S. taxpayer) bailout. Privileges such as:

On Planet Greece, some civil servants get a bonus for turning up to work on time. Foresters get a bonus for working outdoors. At least they show up.There are civil servants called ghost workers because they never go into the office, head to a second job and still claim a state salary. They can’t get sacked, because a civil service post is for life. Unless the incumbent decides to retire in his or her forties, with a pension.

And the government can continue paying for the afterlife. Unmarried and divorced daughters of civil servants are entitled to collect their dead parents pensions. Another lucrative sinecure is to belong to a state committee. The government has no idea how many there are.

It has been estimated that they have 10,000 employees and cost nearly £200m a year, and that includes the committee to manage a lake that dried up 80 years ago.

It doesn’t matter. There is no choice. The opening shots are being fired around the world in the war between public employees and the taxpayers. For years, public employee unions have used their monopoly positions, which give them great leverage because they can cause much greater damage to the taxpayer than to themselves, to extract excessive compensation and lax work rules. This worked as long as the taxpayer was fat and happy, willing to allow the unions to be paid off for the sake of convenience. But now the ability to borrow is curtailed so that the union privileges must come out of the taxpayers’ pockets.

Attempting to offload this burden on foreign taxpayers is so far not working well. But the bill coming due is so large that the attempt is doomed to failure from the beginning. But even a partial bailout which forces cuts in government spending will fail, simply because the reduction in economic activity will curtail tax receipts and the deficit will be no better off. We’ve seen this movie before and it always ends to same way – with a default or “restructuring” as the euphemism goes. Get used to it. The PIIGS are going down and will take the rest of Europe down with them. Where do you think that money ends up anyway? That’s right – Germany, France. It is not fair to blame the Greeks, the disease is widespread and they just happened to be the weakest link. So to speak.

The U.S. will not be exempt. We can’t grow the economy by substituting borrowing and spending for saving and investing. The Greek tragedy is going on the road and will end up here.

Of course since Spain was downgraded by S&P this morning, blogs and news feeds are all agog with speculation about the likely outcome. The thing that really gets me going is the assertion that the problem for the Club Med countries is the inability to print money and therefore devalue their currency. If they were able to simply print their way out of the problems, like the U.S. and the U.K., then all would be well. Just like it is going to be for the U.S. and U.K. (and the other money-printers, whose names are Legion – Luke 8:30). Not.

There is no difference between debt repayment in a depreciated currency and default (sorry – “restructuring.”). Whether you are a creditor or a debtor, the effect is the same. The real idea is that depreciating the currency is a sneaky way to reduce incomes. People get paid in money that is worth less than before, but being stupid (according to the politicians and economists) don’t realize that they are getting less because the numbers printed on their paycheck haven’t changed – or have gone up. It is a lot easier, the argument goes, to increase the general level of prices than decrease wages and salaries although the effect is the same – real consumption must decline. Then, the argument goes, real wages decline and the country becomes a more attractive and competitive place for business to invest and prosper, because labor costs are cheaper in real terms.

Not an unreasonable argument, but it doesn’t work in practice, for a number of reasons. The biggest reason is that it doesn’t fix the root cause of the problem, which is inevitably out-of-control government spending. When government clients – employees, pensioners, rent-seekers, etc. – realize that they are losing to inflation, then they are quick to exercise their power to restore their real incomes. As a result, government’s share of the economy goes up, not down, and deficits continue to increase. This sucks investment away from the private sector. Of course, lenders are not fooled either. The cost of borrowing is adjusted to compensate for monetary inflation as well as default risk. Cheaper labor doesn’t mean much – not when there are vast pools of unemployed around the world – unless accompanied by capital investment, which requires savings. Well that doesn’t happen as the private sector gets more squeezed and the government blithely absorbs any meager savings. And so it goes, then it is time to “do more.” The death spiral.

The alternative is deflation and reduction in government. It will work, given time, but it is, of course, political anathema (nice Greek word, BTW).

I’ve seen and heard lots of fussing about a recent update written by United States Government Accountability Office (GAO), which noted the US’s budget deficit, equivalent to 9.9% of GDP in 2009 – the largest since 1945 – and stated that without significant policy changes the US government would soon face an “unsustainable growth in debt”.  It went on to say that, using reasonable assumptions, roughly 93 cents of every dollar of federal revenue will be spent on the major entitlement programs and net interest costs by 2020.

Anyone who thinks this is news needs to take a look at where we are today.

During FY 2009, the federal government collected approximately $2.1 trillion in tax revenue. Primary receipt categories included individual income taxes (43%), Social Security/Social Insurance taxes (42%), and corporate taxes (7%). During FY 2009, the federal government spent nearly $3.52 trillion on a budget or cash basis, up 18% versus FY2008 spend of $2.97 trillion. Social Security spend was $678B, Medicare & Medicaid was $676B, and net interest on the public debt was approximately $189 billion. A total of $1.5 trillion was spent on the major entitlements and debt service. A little calculator magic shows that this amounts to 73% of revenue, or looked at another way, leaves about $560 billion for everything else, such as Nancy Pelosi’s jets and booze. However, Defense and Homeland Security spend was $782B, so there wasn’t even enough revenue to cover the Party’s wars, let alone run a government. So the government is borrowing and printing at a great rate. There is no likelihood that it will stop doing so in the near future. At some point, the Greek fate or the Zimbabwe fate will overtake it.

The unsustainable growth in debt has been happening for years. Hellooo? Government Accountability? That’s a joke, right? Gotta be a joke.

Fascinating background on where High Frequency Trading (HFT) originated and how it came to dominate the U.S. stock exchanges, generating massive profits for those willing to shed any scruples they might once have had.

Keiser’s “Virtual Specialist Technology” (VST) was developed for the Hollywood Stock Exchange (HSX), a web-based, multiplayer simulation in which players use virtual money to buy and sell “shares” of actors, directors, upcoming films, and film-related options. The program determines the true market price automatically, by comparing “bids” with “asks” and weighting the proportion of each. Keiser and HSX co-founder Michael Burns applied for a patent for a “computer-implemented securities trading system with a virtual specialist function” in 1996, and U.S. patent no. 5960176 was awarded in 1999.

But things went awry after the dot.com crash, when Keiser’s company HSX Holdings sold the VST patent to investment firm Cantor Fitzgerald, over his objection. Cantor Fitzgerald then put the part of the program that would have eliminated front-running on ice, just as drug companies buy up competing patents in order to take them off the market. Instead of preventing front-running, the program was altered so that it actually enhanced that fraudulent practice. Keiser (who is now based in Europe) notes that this sort of patent abuse is illegal under European Intellectual Property law.

Meanwhile, the design of the VST program remained on display at the patent office, giving other inventors ideas. To get a patent, applicants must list “prior art” and then prove that their patent is an improvement in some way. The listing for Keiser’s patent shows that it has been referenced by 132 others involving automated program trading or HFT.

Since then, HFT has quickly come to dominate the exchanges. High frequency trading firms now account for 73% of all U.S. equity trades, although they represent only 2% of the approximately 20,000 firms in operation.

Way too hard for the SEC to understand and shut down. I mean government lawyers doing math? Not happening. Reading patents with, like, long words, versus looking at sexy pictures? No comparison, I mean, patents are boring.

It is a source of some bemusement that Chinese pig farmers have been speculating in copper, and indeed have amassed huge stockpiles of the metal. No, I am not making this up. David Rosenberg of Gluskin Sheff, in a recent note, observes that we have our own pig farmers:

Looking at the fund flows, there is only one conclusion that can be reached: This market is being driven by pig farmers. Retail inflows may have picked up of late, but only fractionally. The focus on the part of the individual investor remains on the fixed-income market, for better or for worse (better from our standpoint, worse from the standpoint of my friend and fellow debater Jim Grant).

Institutional portfolio manager cash ratios are back to the rock bottom levels of around 3½% — where they were back at the market peak in October 2007. The shorts have all but been covered. Foreign investors have been few and far between, based on the latest TICS data. The lack of volume speaks volumes — there are no sellers. Investors of all types have been content to just sit and watch their equity position expand via the price appreciation, but there is scant evidence of any follow-through this year in terms of volume buying.

So, that leaves me with a suspicion that the entities doing the buying are the pig farmers. Who are they pray tell? They are the prop desks at the five large banks. They buy and sell securities, with leverage … to each other! And, these transactions often occur late in the day or in the futures pit after the market closes. There is no sign of any other buyer out there, including the Fed who has been too busy choking on mortgage backed securities and Maiden Lane assets. To repeat, that is why the volumes have been so low.