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Wednesday, May 5, 2010

Greek Bailout

It appears that the Greek government is going to get bailed out by the rest of the EU. The bailout will be for 100B-120B euros, the equivalent of $132B-$158B.

It's a no-win situation for politicians in the EU.

If Greece defaults on its debt, then the banksters/insiders who own Greek debt lose money. The banksters took on no real risk when buying Greek debt. They borrowed from the EU central bank and bought Greek debt. They spent money lobbying to ensure a bailout. The banksters had enough connections to know a bailout was inevitable, when they bought Greek debt.

The solution seems to have three parts. First, the rest of the EU will lend Greece money. Second, Greece's government will cut spending and raise taxes. However, there's a limit to how much taxes can be raised and spending can be cut. State bureaucrats in Greece still have to get paid. Third, the EU central bank may directly monetize Greece's debt. They will print new money/euros to purchase Greek debt, driving down the interest rate Greece pays when borrowing and refinancing its debt.

Real interest rates are negative. Lending Greece's politicians money at a negative interest rate is logically equivalent to outright giving them money. The loan can be repaid with devalued money.

The cost of the bailout isn't free. Everyone else holding euros pays the cost via inflation. Why should someone living in Germany experience higher inflation, just so Greek politicians can get a bailout?

"Government debt is sacred and must be repaid!" is an important evil fnord. The benefits of deficit spending go to insiders, and not the average person. Government debt is sacred because most government debt is owned by banksters/insiders.

A long time ago, the banksters learned that loaning money to governments is much more profitable than lending to individuals. State violence and taxes guarantee repayment.

The interest rate on State debt is artificially low. As long as Greece can keep refinancing its debt, they'll be able to pay it off eventually. The loan is devalued via inflation. Perversely, negative real interest rates provided an incentive for Greece to borrow as much as they can. Negative real interest rates, plus the bailout, mean that Greek politicians profiting from borrowing, at the expense of other euro member countries.

The government, via the central bank, repurchases its own debt, keeping interest rates low. If an individual buys government debt, he will get ripped off by inflation. The banksters buy State debt because they borrow cheaply from the central bank and use high leverage.

The Greek bailout indicates a problem with multi-government fiat monetary systems. The USA has all its debts in its own money. For the euro, no single country controls it. If one country has high deficit spending, they are, in effect, stealing from the other member countries via inflation.

If Greece is bailed out, it isn't fair to people living in other euro member countries. One interesting solution is to give each euro member country a proportional check. I.e, if Greece is 5% of the EU, and they got a $100B bailout, then the other countries should get $1.9 trillion, divided proportionally. Of course, that would cause massive inflation. There's no fair way to regulate a fiat debt-based montary system. Every possible action has negative consequences. The people injured are usually non-insiders. Politicians usually adopt a policy of inflation.

The Greek bailout indicates a fundamental problem with multi-country fiat debt-based monetary systems. Deficit spending by one country robs the others. Greece used an accounting trick (via Goldman Sachs) to temporarily hide deficits. If you close one loophole, others are used instead.

As long as there is a fiat debt-based monetary system and legal tender laws, insiders will steal via the State monetary system.

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