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Open Letter to Alexis Tsipras
Dear Prime Minister Tsipras,
First, congratulations for mustering the popular support to say “no” to the troika. The euro has long offered Greece a perverse incentive to borrow, and now your country is trapped in debt. By any conventional means, Greece cannot repay (I propose an unconventional way, below). The sooner everyone acknowledges this simple fact the better.
While I don’t claim to know why you agreed to a bailout deal this weekend, I can guess. The troika threatened to maximize the costs of leaving the euro. They can shut off access to further credit; including the Emergency Liquidity Assistance, European Stability Mechanism loans, liability transfers via TARGET2, and bond buying programs. They could do more, such as refuse to clear payments to and from Greece.
That would utterly destroy the Greek banking system. In turn, that will wipe out all Greek savers and employers who haven’t already transferred their bank balances out of the country. Defaults of all euro denominated liabilities will cascade throughout Greece, including insurance, annuities, corporate bonds, business credit lines, personal loans, and mortgages. Every liability is someone else’s asset, and few creditors would survive. The government will collapse when no one can pay taxes. Greece will end, a failed state.
The troika wants you to accept another bailout deal, to service Greek debts a while longer. Since bailouts mean borrowing more, you cannot avoid default in the end. Going deeper into debt is no good for anyone.
Should you choose to default instead, you will not be able to continue using the euro. Even if the troika doesn’t immediately act, the threat is real. No one would lend to the Greek government, or even businesses, with that Sword of Damocles hanging over you. However, you need outside capital to restart production and trade. Otherwise, your industries will be shuttered, even including exports.
Some economists advise you to create a currency board. This is a new monetary authority that maintains a fixed exchange rate, by holding euros and issuing Greek currency. It’s nothing more than using the euro, though indirectly. It has all of the flaws and risks I just described.
Greece has no future, so long as it clings to the euro.
Adopting the dollar might seem less bad. At least, the Federal Reserve isn’t likely to stop you. Greek businesses and banks could even attract some dollar-based credit. Once you leave the euro, Greeks will probably end up using the dollar, with or without legal tender law. What a wasted opportunity.
You could create a new drachma and redenominate all debts in the currency. Lamentably, even Nigel Farage offered you this advice at the European Parliament. It’s tempting to think that Greece can just print its way out of debt, but it’s a trap. Don’t do it.
It’s obvious that the purpose of a new drachma is to fall. No one outside Greece will hold it. Few Greeks will hold it either, so the drachma will not find a bid. It may get you out of debt, but at the cost of the further destruction of businesses and jobs. Greece will become the next Zimbabwe.
You can’t stay with the euro. Switching to the dollar isn’t much of a move forward. Imposing a new drachma will only harm the long-suffering Greek people. By the logic of Aristotle, that leaves one other option. Adopt gold as money.
You have an historic opportunity to create another golden age for Greece.
Begin by allowing the Greek people to use gold, free from legal tender laws and taxes on gold. Your people will begin accumulating savings again, which they desperately need to rebuild businesses. And speaking of building businesses, if you want to attract capital from the rest of the world, gold will do it like nothing else. Dollar denominated bonds will attract tepid investment, at best. With gold bonds, Greece can raise unlimited amounts. At least it can get as much honest credit as it needs. Honest means that the borrower has the means and intent to repay. It means credit is financing productive enterprise that generates income to amortize the debt.
I said that no conventional approach will let Greece get out of debt. Let me briefly outline an approach to use gold to get out of debt without default or hyperinflation (I refer you to my paper, an entry to the 2012 Wolfson Prize, for the full explanation).
Greece should issue gold bonds.
These are not conventional bonds backed or collateralized with gold, but bonds that have the principal and interest denominated and paid in gold. There is one twist. Buyers don’t pay in euros, or any paper currency. Instead, they pay by redeeming outstanding Greek bonds. For example, to buy a 1000oz gold bond, a bidder might be willing to bring you €500,000 worth of existing Greek government bonds.
This is the only mechanism that lets Greece get out of debt cleanly.
Greece will exploit a rising euro to gold exchange rate (i.e. gold price). With each new tranche issued, the price of gold will be higher. It will take less gold to retire more debt. And believe me, the gold price will begin rising once the markets realize that gold is being remonetized. Greece will be the first country, the leader, in using gold bonds to avert financial Armageddon. Many others will follow.
With each new tranche, the paper bond to gold bond exchange rate will also be rising. As buyers realize that the value of gold does not erode, they will prefer a future gold payment to one in a paper currency. Gold bonds will sell for a premium over the gold price, compared to paper bonds. This premium will rise.
You will find that the market will happily buy long term bonds, giving you the opportunity to pay off your debt without having to constantly roll short-term liabilities.
If you can buy the time to let this strategy play out, you will get out of debt completely, avoid default, and end with the best credit rating. You will immediately attract capital, and then industry, and jobs to Greece.
At this point, Mr. Tsipras, you have nothing to lose. Why not win the future?
Sincerely,
Keith Weiner, PhD
Chairman, The Gold Standard Institute
This article is from Keith Weiner’s weekly column, called The Gold Standard, at the Swiss National Bank and Swiss Franc Blog SNBCHF.com.
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Debt is NOT the answer.
Not fiat debt and not gold debt.
explain that to those who think that credit is their birthright
debt is so damn easy to talk badly about it
but if you zip back and ask about it's "father", credit: crickets
go and tell the common man on the street that his credit rating ought to be halved, his credit restricted by law. then come back and tell me what you heard
if you moan about debt, you ought to moan about credit, too, then credit begets debt
Yes, of course. I consider them two sides of the same coin.
It's a shame that this wonderful website that gets so many things right, would fall into the trap thinking that gold is the answer. The Drachma is the answer and all the fears that "nobody will take Drachma" etc.. are completely false. It's fear-mongering by the EU.
The gold standard is EXACTLY like the EURO, something completely out of control of a country that uses it.
Also.. people should get it out of their heads thinking that COUNTRIES have to BORROW money! No they don't! The EU requires it with the EURO, but if Greece had the Drachma, it would not have to borrow.
All of these points are mistakes that the general population makes, and it's because of these mistakes, that Greece finds itself in the position it's in.
"The gold standard is EXACTLY like the EURO" -> the EUR is behaving as the gold standard did
"people should get it out of their heads thinking that COUNTRIES have to BORROW money!" -> aka balanced budgets should be the standard
"The EU requires it with the EURO" -> not quite, otherwise there would be 28 countries using the EUR, not 19
"all the fears that "nobody will take Drachma" etc.. are completely false. It's fear-mongering by the EU"
the fears, false or right, have a lot to do with a Greek government populated by radical leftists, a prime minister that often talks about class warfare and finance ministers that say things like: "if we had the Drachma, we would devalue (the shit out of) it"
Tsipras is a filthy bankers' agent, an economic hitman.
He doesn't give a shit about gold or honest money because he's not honest.
I was in Thessaloniki last week.
Cafes, bars and restaurants full of very beatiful, scantily-dressed girls, people doing their thing like nothing was happening...
Dancing on the deck of the Titanic...
Are their Kauri-Shells in the Aegean sea? Oysters would work also ;-)
Once the hellenic government returns to free reign the first things Greeks would realize is to turn back all reforms, rising their pensions and lowering the age for early retirement from election to election.
The problem of tax evasion & forged statistics remain, non-working & non-cooperating authorities would not change, nepotism & clientelism withstand anything anyway, instead a free economy you would find fakelaki & sirtaki.
Thats Greece. Thats the way Greeks coped with distrust against each other (including the political class) and the proven approach of maximizing wealth with a minimum of expense.
I thing Greece has an completely other problem - and this can't be solved in Euro, it can't be solved in Dollar, it can't be solved in Gold either - it only can be solved by a very big printing machine of Drachma !
Citation: "They will prefer a future gold payment to one in a paper currency"
Would you really rely on a future gold payment promise written on Greek paper? You need good sleeping pills - the day before yesterday Mr. Varoufaki told to the press that he did not even find a piece of toilet paper when entering the empty rooms of the Greek ministry of finance for the first time....
It doesn't matter what they (try to) use. Cowry shells would be fine.
The Greeks don't need financial tricks. They need productionality. I just read that 40% of food in Russia is produced in home gardens.
They need tomatoes, potatoes, parsley, chickens. Productionality in general.
There is no money that makes a good salad, no matter how much olive oil is applied.
Default is inevitable when you give money to sovereign states. Some just hide it better than others.
Greece will never be fixed with a Greek in charge.
They almost need a MacArthur type to address the problem(s).
However that isn't to say what Japan morphed into is any better off.
The criminal element is still in charge.
No yellow brick road for Greece. The Ruble and Enosis with the Third Rome awaits. It's been a thousand years coming.
It is unclear to me how going into debt denominated in gold is a good idea when gold is about to start climbing in value. Seems like you're borrowing in dimes and paying back in dollars, so to speak.
I suggest they default on their paper Euro trash debt FIRST, then adopt a free market allowing the people to use whatever they want to trade, but requiring taxes be payed in gold or silver.
Re-read the letter. It's brilliant.
agreed
" but requiring taxes be payed in gold or silver."
Nice try but ONLY the government's (inexpensive) fiat should be accepted for taxes else the taxation authority and power of government is abused to profit private interests rather than the general welfare.
Come on people! Let's quit try to replace one scam, government subsidies for private credit creation, with another, government subsidies for rare metals.
Isn't life too short to waste it with less than ethical behavior?
I'm not convinced the government should be allowed to create fiat currency. Or currency of any kind. Or money. Money is a creation of the market, not of government.
The island awaits you.
The worst thing Greece could do is have a currency backed by gold. It creates austerity by limiting liquidity. An economy cannot grow then. This is what happened during the Great Depression. Because the dollar was backed by gold, they could not add liquidity to the economy. The answer was to outlaw all gold to the public, buy it on the cheap, re-set it at a higher price which then allowed the FED to print and add liquidity helping the US out of the depression. Remember that the amount of liquidity in the economy is directly related to the amount of gold on hand and price for a currency backed by PMs. If the price of gold goes up, more liquidity can be added. But the reverse is also true - if gold goes down, the central bank must remove liquidity. Most people are under the assumption that if a currency is backed by gold, gold would rise. History tells a different story - price goes down. The reason is that why buy gold if your currency is backed by it. The demand goes down as does price!
Greece must bite the bullet and go back to the drachma. It will be a long and hard road but staying in the EU and using the euro will decimate their economy further and most Greeks will have to leave just to survive!
jj
So what you're suggesting is unlimited debt issuance without any chance of repayment which is the same as we have now. Or for the Greeks remain the course and default in the future with larger debt and others pay for it thru losses in their investments.
<<< Remember that the amount of liquidity in the economy is directly related to the amount of gold on hand and price for a currency backed by PMs. >>>
That is correct, You can never have more liqidity than extraction of PM's from th earth. Thus by divine design or by coincidence, growth is limited by the production of PM's. In that instanse banksters loose and overspending and overpromising politicians get caught.
A problem with gold bonds is that like all paper gold it allows the desire for gold to be filled with paper. It essentially expands the supply of gold and therefore decreases the price.
We see this now with our current gold derivatives. The demand for physical is up but the demand for gold overall is met with mere paper.
they do this and watch the monkey hammer come out full force...but who knows how long that tactic will last, it would be exposed just like all frauds eventually are
practically, if Greece collapses ... people will use the currencies of other countries. and also the bartering system.
any type of fixed currency, especially precious metals, is a disaster for Greece. their economy will collapse. if they could print drachmas, then they could go into hyperinflation. without this option, people will not even be able to afford a silver coin, let alone a gold coin (or gold bonds).
they will wind up using money from other countries. it will be a complete mess.
Let them go.
Although the use of gold could be benefical the advise by Mr. Weiner is flawed. Without any doubt Greece can not repay it's debt. There is no point in even trying. Greece needs to get rid of it's debt. Since the creditors do not agree to a (100%) haircut Greece needs to default on all of it's Euro denominated debt. This will undoubtedly result in a confrontation with the creditors. This confrontation is inevitable. Since it is inevitable there is no point in trying to escape the confrontation by sticking to the EURO. EURO abolishment and the total default on all EURO debt are both ingredients to putting Greece back on the road to prosperity. The use of gold as means of payment might help. But this will not be enough.
So, you admit it will work if Greece defaults on its debt to the criminals. Once that happens who cares if there is "confrontation" with the creditors. The use of gold will work wonders for Greece. It amazes me how the world is in such a retarded mess and, yet, these people still stick to the old ways that got us in this mess in the first place.
The problem is that the 'criminals' lent Greece the savings of German workers. Greece is spending the pensions of other European citizens. Everyone is willing to pitch in...up to a point.
I am sorry to say Greece has convinced me, that for whatever reason, the status quo will never change. If after having a very public worldwide vote basically spit on by TPTB, and the people AROUND THE WORLD did nothing, again for whatever reason (im done coming up with reasons thus shit happens) says to me all I need to know. It actually has me thinking of just selling all my physical, as it seems life is just passing us by and the guys in white hats and riding white horse are not coming to slow it DOWN
I think the article correctly states the Greek options (lack of). It does not offer the correct solution though. Right now Greece is best served by playing the game and waiting for the dollar to die. They have enough gold to bounce back once it is revalued.
If that sounds crazy read Fofoa. If you look deep and demand answers to all questions, a revaluation of gold is the only way out....and it works. When it happens (out of necessity) people will ask why it was not done earlier.
YOU are the dumbass in the white hat on the white horse. Unless you sell your phyzz. Then you're just a dumbass.
Pretty much what Nigel Farage said to Tsipras directly in the E.U. Parliament before he agreed to the latest "deal".
Go ahead Germany (Brussels), try to keep that Skittle shitting Unicorn flying over the rainbow!
Gold will be money again after the current civilization as we know it ceases to exist and not sooner. /flame-away
In your scenario gold will only work for money until population growth outpaces gold's availability.
After that we will be in the same situation we are now: more population than resources can support.
And believe me, the gold price will begin rising once the markets realize that gold is being remonetized...
Why did Nixon close the window?
Gold never ceased to be money, it has continued to exist and shine light on the fact that central banks have built their houses on sand. It won't be Greece that will fail if this advice were to be heeded; it will be any and all currencies whose basis of value is constantly shifting downward.
Reliable precious metal backed notes and / or its corresponding coinage can never be allowed to find general acceptance in trade as continued and future obfuscation in tracking consistent devaluation of fiat is not a consequence of trade, or even an inherent flaw, it's its primary feature.
Fiat ruling dynasties cannot payout it tangible hard assets, they are more than willing however to accept them in payment, given of course you use their assessed value, so don’t count on me paying my taxes in silver dollars or fifty dollar gold buffalos.
When they had come to Capernaum, those who received the temple tax came to Peter and said, “Does your Teacher not pay the temple tax?” He said, “Yes.”
And when he had come into the house, Jesus anticipated him, saying, “What do you think, Simon? From whom do the kings of the earth take customs or taxes, from their sons or from strangers?”
Peter said to Him, “From strangers.”
Jesus said to him, “Then the sons are free. Nevertheless, lest we offend them, go to the sea, cast in a hook, and take the fish that comes up first. And when you have opened its mouth, you will find a piece of money; take that and give it to them for Me and you.” Matthew 17: 24-27
jmo.
"Why did Nixon close the window?"
that's simple. Nixon wanted the US debt to be payable in fiat money instead of gold
note that the only people allowed to collect on their credit to the US were foreigners, because Americans were not even allowed to hold gold, from 1934 until 1974
here, the author is proposing the opposite for Greece
debt denominated in Drachmas would be more easily paid - or actually managed/serviced, then sovereign debt is usually not paid back - particularly if the Drachma is devalued
debt denominated in EUR is more difficult to pay/manage/service, hence Dr. Krugman's legions advice Greece to leave the EUR
debt denominated in gold is the hardest to pay/manage/service... and I'm still laughing about this article, and it's deluded idea of exchanging fiat debt into gold debt, and thinking this would make it right
<< When they had come to Capernaum, those who received the temple tax came to Peter and said, “Does your Teacher not pay the temple tax?” He said, “Yes.” >>
Taxes are nothing less than bullying whether that is the stronger lazy boy in the school yard or the government mandated by its laws.
the gold window was closed to accommodate/facilitate a welfare/warfare state requested by the BANKSTERS
Mark my words... You cannot go against 61% of the population (referendum) and survive in office. When Germany's pet Troika, who's now already in Greece, begin making those 'haircuts' and start taking away pensions, there will be blood on the streets.
I guarantee they will hang Tsipras and Varoufakis by their tiny Greek olives.
He already did. Says a lot about democracy doesn´t it...Things will have to become much worse before anythng happens.
Use real money! What a novel approach. I like it.
If Spain, Portugal and Italy joined Greece with this "Gold" is money approach,
Gold will rise.....Russia, China and India will become wealthy gold Superpowers and W W 3 will finally begin.
Sounds great, But... Would the PTB allow it?
Don't foget that Banksters start wars to rape countries, start wars to punish countries, starts wars to strip resources from countries and place sanctions to derail you. (They can find lame excuses like transvestite rights violations or strict immigration policy as being inhumane....)
They do that either from within, from the outside or combination (Ukraine, Iraq, Lybia, Egypt, Afganistan, Georgia, Congo etc. (South and Central America has learned its lessons after 75 years of polemics) Mexico has lost a large part of its territory. Africa has been exploited for eons. China have lost generations of people to drug induced apathy.
Solutions, join large blocks of forward thinking countries, regions and gain size and momentum by trading and using adjusted currency rates. Ban currency speculation by limiting trading size and leverage plays. Use PM's and cost of energy ptoduction as a basis of value.
I am sure that there are smart people out there that can bring these to a fair equilibrium.
Vamos
sounds great and too good to be "real"...but hate to say it,
their "real" money doesn't include any PM.