The Money of Greeks

“Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.”

So wrote Norm Franz in Money and Wealth in the New Millennium, written in 2001.

On this definition, the Greek population are now slaves…at least for the time being. Democracy and the demands of the people are taking a back seat to the demands of creditors, who are playing hardball.

The Greek parliament was last night spooked into passing a new round of austerity measures to secure emergency financing of around 12 billion euros. Various eurocrats and other vested interests spent the lead-up to the vote warning of economic ‘catastrophe’, ‘suicide’ and other such hyperbole to strong arm Greek pollies into voting for the bankers, rather than the people.

The additional austerity measures involve tax increases and spending cuts totalling 28 billion euros. Given the paper-thin tax base in Greece, we’re not sure who is going to be shouldering the burden of the tax increases. Whoever it is, they won’t be happy about it.

But when you’re a debt slave you don’t have much choice. According to the Wall Street Journal, Greece’s debt-to-GDP ratio is at 155 per cent and forecast to peak at 170 per cent next year. The plan is to get Greece to grow out of the problem. How that is going to happen with higher taxes and a populace unwilling to make sacrifices (to pay the bankers) is anyone’s guess.

Of course the simple and easy solution would be to combine these measures with a debt restructuring. Greece’s debts are not that big in a relative sense. Even the French banks could handle it.

Sounds good in theory, doesn’t it? But this is where the 40-year build-up of debt comes back to bite. You see the Greeks aren’t the only slaves in Europe. There’s the Irish and the Portuguese…and the Spanish aren’t too far away from indenture either. If Greece gets to lower its debt burden, others will put their hand up too. That’s what frightens the banks and all the others that benefit from a (broken) system of perpetual debt.

As the old saying goes, ‘you reap what you sow’. And after sowing ever-growing fields of debt – made possible once the US severed the tie between paper money and gold in 1971 – the reaping started in 2008. Ever since, the harvests have been poor. Excessive debt has drained the soil of its nutrients. It will take many years to recover.

Instead of facing up to this reality, the world plunges further into debt. We woke up this morning to the sounds of Barrack Obama saying that failure to lift the US debt ceiling would have ‘significant and unpredictable’ effects on markets.

The IMF chimed in saying world markets would be in for a ‘severe shock’ if the debt ceiling were not lifted.

This is straight out of the playbook for the power mongers and financial elite – vote for perpetual debt or you will be responsible for the ensuing catastrophe.

It worked for the Europeans, and it will work in the US too. The problem is that it will slowly impoverish us all…

If things go according to plan in Europe, Greece will receive another 120 billion euros, which will ensure the Greeks can pay back maturing debt and continue to run a semi-functioning economy for a few years at least. The idea is that after this period, they’ll be in better shape and will be able to return to the private debt markets.

In the meantime though, European taxpayers – and the IMF – will keep coughing up bailout funds. Private investors get reimbursed while anonymous taxpayers get coerced into becoming creditors. What a system!

It’s strengthening the periphery to weaken the core. Even Ricky Stuart, coach of the NSW Blues, wouldn’t do such a thing. Juggling a number of injury concerns and yet to name a team, he said he had options but would not weaken one position to strengthen another. But Ricky doesn’t have the luxury of kicking the can down the road…it’s game on next week!

The Europeans and the Yanks, on the other hand, can keep kicking. By failing to address the real issues though – excessive debt in the financial system – such a policy just delays the day of reckoning.

So we’re in the clear for the moment. Now we can go back to worrying about the slowdown in China, the end of QEII (and what it means) and how all this impacts you now that Greece is on the sidelines for a month or two.

More on this tomorrow…

Greg Canavan
Markets and Money Australia

Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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