In the press the Greeks are portrayed as those who deserve the pain of austerity – their early retirement age, socialized medicine, lax tax collection, corrupt politics, etc. And there is certainly truth in the portrait of Greece as a state that has a long track record of attempts to avoid economic realities.
The way out is bankruptcy. Why won’t Greece simply declare themselves bankrupt, unable to pay its debts? It obviously cannot print more money and inflate the currency because it is now a part of the Eurozone.
The reason it can’t declare bankruptcy is that the powers that be are forcing Greece to accept loans so that Greece can capitalized the banks which then turn around and loan that money back to Greece at higher interest rates. In other words, the way that Greece is right now is good for the banks. It is the individual taxpayer that must fund the loans through government debt, which we know in America through our own experience of indebtedness.
If governments declare bankruptcy, it is the banks that lose. The political clout of the banks keep governments from declaring bankruptcy and starting with a clean slate. Of course, there are pains that come with bankruptcy, but far less painful than the constant back and forth of loans which simply increases the government’s debts.
As you know, when individuals are in debt and can’t pay, they simply keep getting into more debt. They borrow money to pay back money they don’t have. Then they not only add more interest payments to their debt, as well as the principal of the loan, they also start paying penalties and fees. Most people are familiar with being late with a credit card payment, paying a fee for a late payment and then seeing the interest rate jack up from 12% to 21%. The bank actually ends up making more money through this indebtedness than if the borrower paid the full amount on time. The one thing they don’t want you to do is declare bankruptcy and ruin the Ponzi scheme. Banks make it impossible to get out of debt in a reasonable way. Once you are at a disadvantage, they move in for the financial payoff.
It is the person who is lowest on the totem pole who will bear the weight of these loan schemes. And everything is geared to that person not walking away from that debt. Once they do, the whole thing collapses. And having that person in that condition is in the banks interest to begin with, or at least banks as they now are, not as they at one time have been.
So, there is the pain of bankruptcy or the pain of increasing debt. Either way, Greece is going to be in pain. There is no way for this not to happen. But now that they are on the ropes, it is in the economic interest of other entities to keep then there. They make money off this misery. And the more down Greece is, the more money can be made from them.
Greece should declare bankruptcy. When you look at American finances, we are a bigger Greece. The size of our economy and our ability to kick the can down the road is greater. Our debt load is immense and the unfunded liabilities staring us down in the future are beyond our ability to pay. But it is in financial community’s interest for it to be this way. The taxpayer is bankrolling the excessive debt so that the banks don’t take a hit. It’s perfect for the banks. Of course, when it all collapses, they will collapse along with it. But immediate gain is a drug that they can’t turn down. And they will keep taking pops until Armaggedon.
The engine of capitalism is making loans of money for business ventures. This makes things possible that otherwise would not be possible. But it must be done carefully with appropriate restraints. Otherwise the financial markets will actually destroy the ability of business to do business. It is in the interest of the taxpayer to seriously regulate financial markets to put brakes on what becomes unfettered power and the ability to create feudal slavery.