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The Greek financial crisis, ctd

Another zinger of a piece by Detlev Schlichter. If you are not reading his stuff regularly, you need to deal with that oversight. He’s indispensable:

One frequently gets the impression from reading the mainstream media that Greece has a monetary policy problem and not a fiscal problem. This is incorrect. Yet many commentators seem to argue along the following lines: This crisis is due to the straitjacket of the single currency with its one-size-fits-all monetary policy, or at least aggravated by the constraints of this system. Greece would have more “policy options” in dealing with its troubles if it had control of its own national currency.

Then there is, connected to this, an underlying – and not very flattering – notion that the Greeks are somewhat unfit to live and work in a ‘hard money system’, which presumably the euro is. The Greeks, this seems to be the allegation, like borrowing and spending too much. I am paraphrasing here but this is certainly the underlying tone of the narrative. The Germans and Dutch and French can live without the constant aid of conveniently cheap national money – but the Greeks can’t.

And he signs off with this:

I have no doubt that the most important economic event of the coming decade will be the demise of the global paper money system. We live in the twilight of the fiat money era. A return to apolitical, international, commodity-based media of exchange is inevitable. Why not start with Greece? The transition would be painful but there are no painless options available anyway.

I am convinced this would be a sensible strategy but I also think it is unlikely. The state and the banks benefitted from the paper money franchise, and they are now addicted to cheap credit and unwillingly to check into rehab. The establishment will continue to fight a return to sound money.

With some honourable exceptions, I find it hard to think of many even supposedly “private” banks in the world as proper, capitalist institutions in any sense. Their reliance on the crack cocaine of cheap credit has become too entrenched.

27 comments to The Greek financial crisis, ctd

  • One of my very closest friends in the afternoon of my life is a middle-aged Greek Cypriot chappie, born in Scouseland but temporarily sorting out his olive-trees in Cyprus.

    He has discussed this very matter with me a lot, and is certain that the Greeks are psychologically unable to operate in a Northern-Anglo-Saxon-debt-averse manner, in the presence of these factors:

    (1) Greek climate and the easy availability of wine and olives and all manner of easily-grown food, for relaitively little work (except on the stony highlands),

    (2) Socialism and the FIAT money system is needful for socialism’s existence.

    (3) Successive Greek sdministrations which are functionally-socialist, whether in name or in fact.

  • John B

    But as you deal with in your previous post: The Greek tragedy: not a bug, but a feature?, perhaps the situation is not a bug, it is not meant to be fixed, it is indeed a feature.

    That the crashing of this financial system is intended to bring in a new system, but the intention is not for a new system that will be of benefit to the people but rather one in which control can be consolidated and the people further enslaved.

    On that basis is it not reasonable to expect that there will not be any real solutions put forward by the financial elite but rather greater and more insurmountable problems until the great socialist day dawns?

  • Dyspeptic Curmudgeon

    I read this: “I am convinced this would be a sensible strategy but I also think it is unlikely”

    And I was instantly reminded of this:
    “Because it is rational, and would lead to a long term solution, it will never happen as a result of planned action.

    Which means it is inevitable. ”

    A comment by ‘Petronius’ in Jerry Pournelle’s Mail yesterday (www.Jerrypournelle.com)

    The Greek tragedy (or is it a comedy???) may well result in a change, purely because there is no interest being shown by the ‘powers-that-be’ in acting rationally. Therefore there will be no change until change is inevitable. Then the only question is whether the result of the change will be rational or as irrational as the present scheme. ( I would bet on ‘rational’ as the results of ‘irrational’ are plain to see. The marxists will whine, but the carousel WILL STOP.)

  • Gordon Walker

    The Greek crisis has nothing to do with the euro or the banks. It is the addiction of its government and many others to the maintenance of institutional budgets irrespective of the available income.
    A government that spends each year more than it receives is a spendthrift wastrel.
    We hear every day talk about sustainability, mainly from state or statist organs, whereas the least sustainable expenditures on “the planet” are government budgets.

  • Alsadius

    “The Greeks, this seems to be the allegation, like borrowing and spending too much. I am paraphrasing here but this is certainly the underlying tone of the narrative. The Germans and Dutch and French can live without the constant aid of conveniently cheap national money – but the Greeks can’t.”

    I’m not sure why he’s phrasing this as mockery. It seems to be literally true*. Greece is proving itself completely incapable of paying back its debts honestly. It doesn’t even seem capable of making an honest effort. Hell, even trying to borrow less sets Athens on fire.

    If they can’t pay back their debts honestly, then they’re going to screw their creditors one way or another. Either they default officially, or they redenominate their debt in drachma and screw them with the exchange rate. I prefer the latter, because it at least pretends to follow the rule of law, and thus sets a slightly less bad precedent. Also, because it might just make the Euro a lot less inevitable, and do some damage to the EU project in passing.

    * – Except for the part about the Dutch and the French, of course.

  • Laird

    Another great article. Schlichter has a book coing out on the inevitable collapse of paper money (details on his website) which looks like it will be fascinating.

  • Paul Marks

    Yep Soros and co what a world control of banking and so on – actually a lot of this stuff already exists (world regualtions – and a world financial tax was only stopped by the Candidans).

    However, this is NOT just the greed of corrupt bankers or the power crazed fantasies of Soros and co.

    A lot of these people (including Soros?) sincerely believe they are doing good – and would gladly give up their fortunes to acvhieve their “noble” goals.

    De facto (if not official) world government – and the wise rule of “experts” controlling (by “nudges”) every aspect of human life.

    Is this not what most schools and universities (de facto) teach. And what a lot of culture endorses (in various ways) also?

    Should we really be surprised that a lot highly intelligent people (who have been longest in this educational and cultural environment) actually believe this stuff?

    And sinerely belive it.

    They would react the such ideas as that lending should be from savings (so if you do not have much saving you can not have much lending) and that money should be a commodity (not government credit) with a mixture of contempt and amusement.

    How can people believe such “primitive” things?

    We have “gone beyond” this.

    Not understanding that if you “go beyond” basic logic (in the sense of rejecting it – not in the sense of building upon it) you are rejecting reason itself – and rejecting sanity.

    Will a crises change their minds?

    Sadly I do not believe so.

    Like J.P. I agree that their material interests are totally bound up with the credit bubble system.

    But they have also been educated that it is right and just also.

    Indeed, in a crises, they are likely to be less tolerant of “reactionary and primitive” ideas than they are now.

    After all when “nudge” (Cas Susteen) fails it turns into “shove” (as he, and his allies, admit).

    But what if a “shove” (push) also fails?

    It would with me – and many others.

    Does not “shove” turn into “shoot”?

  • RRS

    Would it be callous to point out that it was NOT that “Greece” borrowed too much.

    NO, not at all, they only borrowed what was made available to borrow.

    Some entities LENT TOO MUCH, lent on the wrong terms, or “Lent” at all, that was (continues to be?) the source of this set of problems.

  • John B

    Perhaps the powers-that-be want a system of exchange that can be controlled far more tightly than can be done with cash.

    They don’t have to smash cash as a system if they can get their victims to do it for them.

    Who can resist free lunch, indeed.

  • RRS

    A major problem with the Federal Reserve Notes (US$)
    is a small line of type in the upper left front face:

    This note is legal tender for all debts public and private

    In some exchanges with Martin Wolf a few years back, he posited that proviso is what gives the US$ “value,” as opposed to my thesis that private productivity (the basis for taxes to defray Gov’t obligations and to repay the discounted obligations of private borrowers – which obligations THEN made up the assets of the Fed’s balance sheet) was the ultimate source of US “monetary value.”

    Given the state of that balance sheet today, Wolf wins, of course.

    Still, I tend to follow the thesis laid out by Carroll Quigley 50 years ago with respect to the effects of the forms of disposition of surplus from production.

    It is those forms of disposition (such as excess lending – the supply of borrowers & mendicants never lacking), as much as anything, that ends the capacity for trust that is the spine of credit.

  • Laird

    So, RRS, if I’m reading your post correctly, you blame the lenders for Greece’s profligacy? Sort of like all those “predatory” lenders are responsible for US consumers borrowing so much against their home “equity” and winding up bankrupt? The poor, naive borrowers were duped into taking all that money to spend extravagently?

    Give me a break.

  • Midwesterner

    The ‘break’ the banks got is the problem. It is not the borrowers that are driving bankruptcy of central banks, it is the lenders that got the consequences of their folly transferred to other people.

    It doesn’t matter if the borrowers were predators intent on committing fraud, the banks’ job is to assure the security of their loans. Fiduciary trust is the whole purpose for the existence of financial institutions. They failed spectacularly because they were ‘too big to fail’ and took easy if risky profits. If you loan money to a hitchhiker at a truck stop and fail to get it back, it is not society’s problem to make up your loss. So this time I’m with RRS. It doesn’t matter if the borrowers are criminals under an alias, responsible lending is the banks’ job. If the loans are not repaid, it is the lenders’ job to take the losses.

  • Laird

    I’m not arguing that the banks shouldn’t take their losses; of course they should. But I am taking issue with what I presume to be RRS’s position that the Greeks don’t bear any responsibility for taking and spending all that stupid money. No one held a gun to their heads and forced them to take it. Just as much as the bankers, they should bear the cost of their own folly.

    Anyway, surely you aren’t arguing that money center banks’ lending to Greece was unwise, are you? Countries don’t default and sovereign risk is a myth. Everybody knows that; Walter Wriston and David Rockefeller taught it to us back in the 60′s. Oh, wait . . . .

  • Midwesterner

    The only way they will (bear any of the cost of their folly) is if they are cut off while they can still crawl out the door and barf in the ditch. But for that to happen, some foolish investors/institutions who took high risk profits on the understanding that they could transfer that risk but keep the profits have to get their hair cut so short it comes off in one pelt. I’m guessing it will be German taxpayers/depositors who get to make the call as to whether or not that will happen.

    I think I’m still with RRS. As a famous basketball coach (Ray Meyer?) said, you have to play by the rules the officials are calling not the ones you find in the book. The Greeks have been doing a very good job of playing by the rules as they are called, not written. And pending the resolution, the Greeks will probably have made an advantageous economic choice. They understood the game better than the German depositors. Which is pretty sad, actually.

    Walter Wriston. I haven’t heard that name since back when he was at some big bank helping to make revolving consumer debt a life style choice. At least that was my impression at the time.

  • Quentin

    I thought I read a while back that the basic problem is that Greeks don’t pay their taxes?

  • John B

    If you offer free lunch how many will refuse?

    I notice Cameron has bravely said that not a penny more for Greece will come from the UK.

    That’s nice.

    Except the pound continues to plummet and the Euro slowly drags itself upwards.

    There’s more than one way to skin a cat?

    Anything to do with interest rates?

  • a_random_guy

    “the pound continues to plummet and the Euro slowly drags itself upwards”

    That’s an interesting way to view it. Rather like when two skydivers (three, if you count the US dollar) jump out of an airplane with no parachutes. All of them are plummeting to their deaths, but they only see their relative motions.

  • RRS

    @ Laird, et al.:

    An underlying premise for my statement about the “lending” to Greece (and it applies to much other precarious lending) is that the lenders were ignoring the dispositions to be made of the borrowings.

    The sources of credits for “sovereign” obligations did not examine “What are you going to do with the proceeds – how are you going to pay it back.” There was no examination of the adequacy of resources for recoveries from the borrowers.” That is not predation, it is debasement of credit.

    One might share the dismay of Greenspan that the elements of self-interest (preservation of “capital”) did not arise to limit the “exposures;” but, they did not, and do not fully in the current instance.

    At some stage in the extensions of credits in exchange for “sovereign” obligations, the question should be asked: “What were (are) the objectives of the lenders in further extending credits?” “Are they seeking something to serve as ‘Tier One” assets so they can expand other lending?” Yes, that might be predation, created by political postulates.

    Borrowers, however astute, do not create credit. The holders (or custodians) of transferable assets can, and do.

    On the lighter side, perhaps we can say the Greeks did not charge the Germans, English and Swedes high enough rates for visitations in Greece inorder to provide better resources for repayment of debts.

  • Richard Thomas

    The insanity is that national governments borrow money in the first place. If there is deficit spending, they should just print it and be done. Borrowing is just a (expensive) shell game to hide what’s really going on.

    Of course, this under a scheme like the Euro, this isn’t really possible and implies that Greece (and other members) are no longer actually national governments.

  • Paul Marks

    No one forced the Greek government to borrow – to finance its Welfare State.

    And no one kept the rate of interest (on the various borrowings) a secret from the Greek government.

    The Max Kaiser view (so popular these days on the left) that Greece (and so on) is under “bankster occupation” and that the bankers are the cause of the problem and….. is bullshit.

    I am no friend of fractional reserve banking (or of the Euro – or of….), but I still feel the need to point out that to blame the bankers for this is bullshit.

    No the Greek government should NOT bailed out (by the IMF or the E.U. – neither of which should exist anyway).

    If the Greek government defauts on its debts (which are due in Euros and therefore must be paid in Euros) all its overseas assets should be taken.

    That includes Greek gold reserves (presently in a vault in the New York Fed I believe) and, indeed, Greek embassy buildings in other countries.

    “But how can Greece function without offices in other countries….” – I do not know, and I do not care. Call it “breaking off diplomatic relations” if you like.

    And if Greek officials drive to meet people in overseas conferences – the cars they drive in should be taken and sold. As should aircraft belonging to the Greek government – as soon as they touch the soil of other nations.

    All these assets should be sold – and the money given to the lenders.

    Of course this would only get back a small fraction of what Germans (and others) have lent Greece.

    However, it would bring home to the Greeks (and to others) that you can not borrow money (in order to finance your Welfare State) and then default – and get away with it without real consequences (so far there have been no real consequences for countries that default – as, for example, Argentina did), so the borrowing orgy continues.

    There must be real consequences, at least in terms of formal national humilation – which is exactly what a defaulting government deserves.

    And, oh yes, the same treatment should be used on the British and American governments – if and when they default.

    By the way – I believe that Comrade Barack wants a default (because he knows his allies the msm would blame all the chaos on the Republicans).

  • John B

    There are all those Greek shipping millions as well, Paul.

    But as to who’s to blame, the lenders or the borrowers?

    I think the borrowers and lenders were set up by interests working within the camps of the lenders and the borrowers to further an agenda that includes getting rid of untraceable cash and replacing it with a medium of exchange that can be “properly controlled”.

    Is Cameron furthering British interests or European interests? Should he be viewed as a Briton or a European?

    My point being that where do group identities begin and end, and are they valid for an accurate understanding of events?

    Perhaps the only two real groups are the elites and the non-elites.

  • RRS

    The point of this thread and the comments has not been “blame,” but to sort of “parse” the events in considering Herr Schlichter’s thesis.

    What has been left unsaid so far is that most “money” (that is, what serves the classical ‘functions of money’ is not “paper money” at all, it is credit – in many differentiated forms – and that certainly will not disappear, however debauched.

    The “salvation” of “credit” for its future use, is dependent on the characteristics of those who can and do create it

  • chris

    Posted by Paul Marks at June 25, 2011 07:23 AM

    That is the biggest load of bullshit i have read on this post.

    Do you think the people of greece wanted this money?

    Do you think the people of greece wanted to remain in the EU?

    Why hurt the people who are going to pay the debt back. Let greece go back to the Drahma as one post suggest that the Greeks are not the hard working type, that is so true.

  • Paul Marks

    Chris.

    Do I think the Greek people wanted the Welfare State – the health, education and welfare schemes on which the money was spent.

    I do not know.

    But I do know THEY COULD NOT AFFORD IT.

    That is not “bullshit” that is the TRUTH (something you want to hide from).

    Let us say that Greece used gold (or silver) as its currency – not Euros.

    What difference would that have made?

    Or let us say that Greece used its own fiat money (not E.U. fiat money) it would still have “had to” borrow money to fund its Welfare State (unless it decided to follow a policy of hyper inflation).

    So it would have borrowed Deutche Marks rather than Euros (so what?).

    John says that a conspiracy may be at work – perhaps so (I think he may well be correct). However, IT WOULD NOT MATTER IF THERE WAS NO CONSPIRACY AT ALL.

    Why do people like Chris not understand that governments can not afford X,Y,Z.

    “Leave the Euro”.

    “Leave the E.U.”.

    Fine – I am in favour of Greece (and everyone else) doing both of these things.

    BUT THEY STILL WILL NOT BE ABLE TO AFFORD X,Y,Z.

    Change the currency to anything you like.

    AND THEY STILL WILL NOT BE ABLE TO AFFORD X,Y,Z.

    Instead of saying “bullshit” (etc) why do you not try understanding this basic fact.

    Britain used to be one of richest counties in the world.

    And our level of government spending has (over time) dragged us down.

    Start with a country as poor as Greece.

    And then try and build a British sized government.

    What do you think will happen?

  • Paul Marks

    The above explains why I sometimes think the debate abou the E.U. (as well as the Euro) is pointless – even though I am convinced enemy of the E.U.

    Britain was on the slide long before we joined the EEC (as it then was) – it ws no the slide because of bad domestic policy.

    Rather than fundemtally change cause (i.e. admit that the post World War II settlement was not sustainable economically) the British establishment supported EEC/ E.U. membership as a “way out”.

    Of course, E.U. membership (if anything) made things WORSE. But that does not alter the fact (and it is a fact) that the fundemental policy mistakes had already been made – long before Britain joined the thing.

    If we leave the E.U. but still cling to the same basic ideology – then we will still go down the plughole.

    Get out of the E.U.

    Have a different currency (in the case of Greece – i.e. do what Britain did in the interwar period, inflate and devalue).

    It will not solve the basic problem.

    I repeat the basic problem is NOT plots (although there may well be dark plots) or the Euro or even the E.U.

    THE BASIC PROBLEM IS GOVERNMENTS PROMISING PEOPLE STUFF THEY CAN NOT POSSIBLY AFFORD IN THE LONG TERM.

    Why can not people not understand this?

    It is not rocket science – it really very simple.

    Yet people would rather blame “banksters” and so on.

  • Laird

    “Do you think the people of greece wanted this money?”

    Obviously they did, and obviously they still do.

    Oh, it’s quite likely that the average man on the street wasn’t specifically aware that his government was borrowing Euros to pay for all that wonderful spending, but unless he was terminally stupid he would have known that it wasn’t all coming from their moribund economy.

    And even if the Greek populace remained blissfully oblivious when all that debt was being piled up, they certainly are aware of it now. But judging from the riots in the streets their only thought still is that they want the party to continue, at someone else’s expense.

    They deserve what they get.

  • Paul Marks

    Vast numbers of Greeks (and British people) demostrate on the streets denouncing “the cuts” (in the British case largely mythical ones).

    Vast numbers of Americans demonstate on the streets DEMANDING government spending cuts.

    So there is still a difference between the United States and Europe.

    Will the difference be enough? The recent Congressional election in New York State says “no”.

    But America still has a fighting chance – I fear that we do not.