|Debt squeeze for the PIIGGS!|
Some of us mere mortals struggle with the complexities and subtleties of
international finance and government borrowing, but in a nutshell Dear Reader,
the Greek sovereign debt crisis can be summarized as follows.
A bunch of thugs (the 'Greek Government') borrowed a whole bunch of money from
some loan sharks (banks in France and Greece) and signed a form promising that
the money would be paid back by someone else (the Greek people). They then used
the money to try to retain power (mostly though buying votes from stupid
Greeks), while all the time lying about how much they were spending and how much
they were borrowing.
Eventually they got caught out in the lies, and two things happened. Firstly
the loan sharks wanted their money back, and secondly, no one wanted to lend
them more money. The thugs weren't able to extort enough money from the Greek
people to pay the interest on the loans, so the whole charade was close to
Exactly why having this charade collapse would be a bad thing is beyond us
mere concrete thinkers. If some common street thugs tried this stunt, then the
lenders would lose their money and everyone would say "It serves you right. Why
did you think that anyone else had an obligation to pay you the money you lent
to those thugs?". Apparently though, basically morality and common sense don't
apply to big governments. Everyone panicked and screams of 'market failure'
convinced the proletariat that a regulated government solution had to be found.
So the thugs got some other thugs (in this case the German government) to lend
them some money, so they could pretend that all the debtors would get their
So how did the German thugs get the money to lend to the Greek thugs? Well
they borrowed it from some other loan sharks, and signed a form saying that
someone else would pay it back (in this case the German people).
And everyone said how good it was for the German thugs to do this. Thank
heavens that the 'market failure' was dealt with with unprecedented government
intervention! Even Wayne Swan made obscure references about the Greek crisis
reminding us that the world economy was not out the woods. And then promptly
used this as an excuse for borrowing another 50 billion dollars on behalf of the
Is everyone suffering lead poisoning here? Or just the voting public?
Think for a moment, Dear Reader: what would happen if market forces were
allowed to do their thing here? Well, the Thugs (the Greek government) would be
unable to tax the Greek people highly enough to pay the interest, and then
simply default on the loans. The banks would lose money. Shareholders would be
unhappy. Heads would roll. Investors would look nervously at all the other
governments who have borrowed trillions of dollars promising repayment by
people who haven't even been born yet, and these governments would have to pay
higher interest on their loans. Irresponsible government defaults would
spread around the world like Greek Fire.
And the fiction that loans to governments are risk free would be totally
discredited. The interest on government loans would be so high that it would no
longer be regarded as responsible to governments to borrow money for 'social
justice', 'equality' or 'economic stimulus'. Governments would still steal from
the populations, but at least they would be stealing from the current
generation (who are better position to stop it) and not from future generations.
And none of this would be market failure - it would be simply the market at
work. Investors would think very carefully about where to entrust their money
in the future. And fifty years of moral hazard could be avoided - specifically
the expectation that bad investment decisions can be undone simply by large
enough government interventions.
But alas this will not happen - at least not yet. The governments of the world
fear the facade dropping to reveal wizard behind the curtain, as the faces of
millions of deceived voters decide that the needs of the many really do
outweigh the greeds of the few. And politicians around the world are closing
ranks. Even the Turkish government has rushed to support its Greek
counterpart. Apparently hundreds of years of hostility, border disputes,
invasions, and religious wars count for nothing when politicians' mutual
interests are involved.
Some of us were taught to be wary of Greeks bearing gifts, but maybe now the
Greeks should show some wariness of German favours -
wooden horses of the world of global financing are disguised as piggy banks.