Does Chaos Theory Explain Why Markets are Getting Savaged Today?

       This shows again that it's not the Greeks but their critics that don't live in reality as I pointed out in my last post.

       http://diaryofarepublicanhater.blogspot.com/2015/06/christine-lagarde-profiles-in-wishful.html

       The party line these critics seem to want to take now is that this will be a disaster for Greece so they better come back running and promise to do more austerity already. They tell us the EU will be fine either way but for the good of the Greek people they worry. This seems to be what Sumner meant when he said they'd be better off in the EU than with Tsipras.

      http://www.themoneyillusion.com/?p=29811&cpage=1#comment-393265

      I'm not buying this for a second. Do you think markets around the world are down today out of worry about Greece?

      Market analysts are expecting Greece to drive volatility in financial markets this week and European markets plunged on Monday and the yield –interest rate -- on Greek debt surged too. 

Michael Hewson, chief market analyst at CMC Markets, said in a note Monday the "Greek butterfly looks set to cause a tornado in financial markets" this week.

    "(The) belief that an apparently minor event could cause a significant seismic event elsewhere in the world is at the heart of chaos theory, and markets today and this week are likely to get a foretaste of this as Greece plunges head first into a referendum on its future in the euro," he added.

     http://www.cnbc.com/id/102794601

      So chaos theory could explain this-if it's a minor event. By definition then, there is another possible explanation: this is not a minor event. 

     "A vote rejecting the bailout program, largely funded by Greece's European counterparts, is likely to lead to Greece's exit from the euro zone which could set a dangerous precedent for the single currency area as other countries could follow suit."

     There has been lots of false theories of certainty. Now the EU apologists have to hang their hats on chaos theory-Greece leaving is no big deal but for some reason the markets think it is. As Krugman notes the theory really shaken is the theory of euro inevitability. 

    "Barry Eichengreen asks himself why his influential analysis, suggesting that the euro was irreversible now appears wrong. Surely in a direct, mechanical sense what we’re seeing is the process I warned about five years ago:

Think of it this way: the Greek government cannot announce a policy of leaving the euro — and I’m sure it has no intention of doing that. But at this point it’s all too easy to imagine a default on debt, triggering a crisis of confidence, which forces the government to impose a banking holiday — and at that point the logic of hanging on to the common currency come hell or high water becomes a lot less compelling.

     http://krugman.blogs.nytimes.com/?module=BlogMain&action=Click&region=Header&pgtype=Blogs&version=Blog%20Post&contentCollection=Opinion

     Correct. Even now it's not saying it wants to leave the euro. But the spell of irreversibiliy has been broken.  

      OK, this is real: Greek banks closed, capital controls imposed. Grexit isn’t a hard stretch from here — the much feared mother of all bank runs has already happened, which means that the cost-benefit analysis starting from here is much more favorable to euro exit than it ever was before.

Clearly, though, some decisions now have to wait on the referendum.

  http://krugman.blogs.nytimes.com/2015/06/28/grisis/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body

    As I've noted in previous posts this morning the only reason to have an issue with Tripas calling for a referendum is anti-democratic. 

   I'm happy to see that Krugman would vote no-that's my feeling too. 

   "I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone — me included — the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn’t create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different."

    "Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone — they made Tsipras an offer he can’t accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don’t like Syriza, that has to be disturbing for anyone who believes in European ideals."

    I agree a yes vote would be a big mistake. Even in that case though it'd be preferable to doing this without democratic authorization. Even if they vote yes, the Greeks will now own that decision. If they end up realizing that was wrong at least they can't simply blame Tsipras.