An Orderly Greek Default


Reckoning from Rancho Santana, Nicaragua

Learning from the Prudent Farmer…

First, let us cast our eyes over the world of finance.

The headlines still focus on Greece. It is broke. Here is Lucas Papademos, describing what an orderly default would mean. In the Telegraph:

“The savings of the citizens would be at risk. The state would be unable to pay salaries, pensions, and cover basic functions, such as hospitals and schools, and…the country – public and private sector alike – would lose all access to borrowing and liquidity would shrink.

“The living standards of Greeks would collapse. The country would drift into a long spiral of recession, instability, unemployment and prolonged misery. These developments would lead, sooner or later, to exit from the euro.”

Sounds good to us! The Greeks have been living beyond their means. Living standards must fall. Best to get on with it.

But the efforts of a whole class of over-paid meddlers have been directed at trying to avoid this outcome. They’ve hesitated…prevaricated…vacillated…and generally fornicated up the situation.

They’ve swept so much dirt under the rug that there’s now an Everest in the middle of the room… It can no longer be ignored.

But Greece isn’t the only country to live beyond its means. And the Greeks aren’t the only ones to suffer. In Britain, the economy is holding its own…but only by loading the young with debt in order to continue supporting the old in the style to which they’ve become accustomed.

Here, The New York Times reports:

Perhaps the most debilitating consequence of the euro zone’s economic downturn and its debt-driven austerity crusade has been the soaring rate of youth unemployment. Spain’s jobless rate for people ages 16 to 24 is approaching 50 percent. Greece’s is 48 percent, and Portugal’s and Italy’s, 30 percent. Here in Britain, the rate is 22.3 percent, the highest since such data began being collected in 1992. (The comparable rate for Americans is 18 percent.)

Classified by statisticians as NEETs (not in education, employment or training), they number about 1.3 million, or one of every five 16-to-24-year-olds in the country.

Lower incomes…unemployment…fewer benefits… Get used to it.

There have always been booms and busts. There were years of good harvests…and years of bad ones. The prudent farmer saved some grain…just in case.

But in the 20th century real money – gold – was replaced by paper money and ‘just in case’ became ‘just in time.’

Even John Maynard Keynes, the architect of modern government meddling in the economy, suggested that governments should save money so they would have something to spend when the private sector cut back.

But the feds didn’t save. They spent. And when times got tough, they spent even more money. Trouble is, without savings, they had to borrow the money to spend…which means taking it out of the very economy that is short on money already.

The only other option is to print up extra money – in effect, creating it ‘out of thin air.’ But if you could just print ‘money’ and make yourself better off, everyone would do it. People are not made richer just by printing up pieces of paper with green ink on them. They get richer by having real purchasing power…and real resources at their command…and by being able to produce goods and services that people want.


Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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