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Why The Greeks Should Repudiate Their Government's Debt
Submitted by Simon Wilson via The Mises Institute,
In apportioning blame for the Greek government debt crisis, it would be difficult not to lay the major share on Greece itself. With government jobs paying three times the private sector average, a national rail service with a wage bill four times its annual revenue, a public pension system that would pay out generous benefits at fifty for anyone classified as working in “arduous” professions like hairdressing, there is no shortage of taxpayer-funded largesse running rampant through Greek society.
At this point however, dissecting the Greek’s failure to live within their means is not only nugatory - beyond proving the time-tested observation that people like something for nothing - but also obfuscates the true moral contours of the crisis. Moreover, it blurs our understanding of a fundamental truth crucial not just to the future of Greeks but all peoples: Government debt is not like private debt. In fact, government debt is fundamentally illegitimate and one might even be justified in claiming that anyone seeking to profit from it is aiding and abetting criminal activity.
Private Debt vs. Government Debt
As Murray Rothbard argued in his seminal essay, “Repudiating the National Debt,” public debt is a wholly different beast than private debt contracted between ordinary individuals. In the latter case, a creditor lends to a debtor a specified amount of their own funds in exchange for a specified payment from the debtor in the future. By making this contractual exchange from which both parties benefit (otherwise they wouldn’t enter into it) the creditor becomes the true owner of the future moneys pledged by the debtor. Consequently, if the debtor fails to make good on the future payment the debtor is really and objectively robbing the creditor of his property. In a just society, the creditor would rightfully be permitted to recover his property unjustly expropriated.
Government debt is different. When a government issues debt on the bond market, it is not pledging to make good on it out of its own resources because, as Rothbard points out, it owns no such resources:
For unlike the rest of us, government sells no productive good or service and therefore earns nothing. It can only get money by looting our resources through taxes, or through the hidden tax of legalized counterfeiting known as “inflation.”
What a government pledges to its creditors is payment of the future wealth of its subjects, the taxpayers. This is wealth obtained through violent coercion and pledged without its owner’s consent. Any moral claim the creditors who buy such debt have to repayment from the victims is thus non-existent. Indeed as Rothbard avers,
[P]ublic creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future. This is the opposite of a free market, or a genuinely voluntary transaction. Both parties are immorally contracting to participate in the violation of the property rights of citizens in the future.
By Rothbard’s lights, the only moral response to the Greek crisis is for Greece to repudiate entirely its public debt and let its creditors suffer the consequences. The Greek government, like all governments, acted in a manner akin to a perspicacious school bully who instead of punching people for lunch money, simply took out a credit card in the name of his victims. The fact that the victims might have enjoyed some of trinkets thrown back at them is morally irrelevant. They cannot be held responsible for the debt incurred.
Rothbard’s rationale for repudiation is notably different from that gaining the most traction amongst those campaigning for writing down Greek debt. Many would argue that the buyers of Greek debt “deserve” to get burned because they bought it as a calculated risk with a coupon or rate of interest reflecting the probability of default. However, this view — where reneging on debt, (i.e., theft) is not seen as an inherent wrong but is rather something that can be traded off against higher interest rates — is devoid of the moral substance and precision of Rothbard’s argument.
Who is to say: how much of the creditor’s loan “deserves” writing down? The part of interest which exceeds the rate charged on a risk free-asset like a T-Bill (whatever that means in this world of distorted asset prices)? Why then shouldn’t everyone simply refuse to pay interest on any loan exceeding some arbitrary risk-free rate, knowing that such behavior should be expected by the creditor who already priced it into the originally demanded rate of interest?
Rothbard’s argument does away with such ambiguities: those who buy Greek debt or indeed the debt of any sovereign nation debt deserve to get burned, not in degree but entirely, because their actions empower the state and enable it in its abuses against its subjects.
It’s Not German vs. Greek: It’s Taxpayers vs. the State
So just who are the unscrupulous “profiteers” of human misery protracting Greece's conundrum? Well, most agree that it is industrious German taxpayers, who now must pick up the tab for years of Greek profligacy. However, this characterization conveniently ignores how German taxpayers were put on the hook in the first place.
At the beginning of the crisis it was the major European banks holding most of Greece’s debt. Now the vast majority is held by the international bailout fund put together by the European Commission, European Central Bank (ECB), and IMF (i.e., the “Troika”). Of this, the major share, some €56 billion, is held by Germany. The Troika’s purchase of Greek debt was presented as an almost humanitarian gesture intended to save Greece from economic implosion. The reality is that they allowed the banks to offload toxic Greek assets from their balance sheets keeping them solvent and able to extend the fraudulent fractional reserve practices that caused the financial crisis in the first place.
Nothing in the Greek crisis makes sense unless it is understood in terms of the ultimate end of bailing out the European financial system and its major banks.
Now European taxpayers are being forced to bail out the bailout and the German people are bearing the brunt, but this is hardly cause for a simplistic narrative pitting German against Greek. It is eminently clear that both peoples are victims of their own governments.
What right does the German parliament have to hand over more of the wealth of its own people so that the Greek government can use it to pay off the convoluted ECB/EU/IMF bailout funds which are in turn funded by debt instruments bought up by and made liquid by the world’s biggest banks? It has about as much right as the Greek government had to take out loans in the name of its people in the first place.
It would be a welcome gesture for an incoming government to declare the actions of previous governments to be against the interests of the taxpayers and repudiate the national debt.
This would not only relieve the taxpayers of a present burden but would also mean that any future government would find it hard to borrow from international creditors forcing them to bear the negative effects of their fiscal and monetary policies much earlier and with greater severity.
Unfortunately Greece’s “anti-bailout” government’s decision to ignore a plebiscite opposing a new bailout deal and the German parliament’s recent approval of said deal (going against the will of the majority of Germans) proves that any concept of democratic legitimacy - through which government is viewed as acting on behalf of the people in a principle-agent manner - is not only logically flawed but will always be discredited in practice.
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Greeks trade those euros in for silver as fast as you can and go back to the drachma. People will want to trade with you because your families will have actual wealth and assets in the form of sound money.
Silver and gold equals real household wealth.
"It’s Not German vs. Greek: It’s Taxpayers vs. the State"
Keep lying to yourselves...
It's Jew bankers / zio supremacists vs. rest of world
-fixed it
"Failure to live within their means" is a turn of phrase which puts the burden on the debtors.
For every debtor, there is a creditor who over-lent to them, and lent money foolishly.
Whose fault is it? The debtor who over-borrowed, or the creditor who over-lent? Who should eat the loss?
thats the primary political question of the world as it exists today, of whether creditors should be repaid for insanely overlending or whether they should take a loss. Your article has failed to grasp this.
actually pardon moi, I just read the article past the first paragraphs and you tackle the issue nicely.
An even better question is where did that "money" come from? If it was conjured out of thin air, then the magician should eat the "loss".
This artcile also fails to mention 'odious debt' and the entities JPM and GS. It's not simply over-lending, but rather, fraudulent-lending.
Heard from my uncle - they have a Greek PhD student as an intern. Everyone gets an office, no one keeps their doors closed except the Greek intern. She huffs and puffs and looks busy. No one knows what she's doing.
She is finger fucking herself all day :)
If you want to know what she is doing I will tell you. Collecting a pay check.
How about repudiating the massive immigrants crossing the boarder into their Country first.
You lost my interest when you tried to say private debt that is lent out of nothing has property rights.
Your argument is a century too old.
It now boils down to democratic debt or undemocratic debt for which there is no longer a clear delineation between private and public debts.
EDIT: Others have mentioned the lack of underwriting standards, this is a perfect example of what makes a debt undemocratic. An evil financial company could end up enslaving the entire planet if standards are not enforced.
" An evil financial company could end up enslaving the entire planet if standards are not enforced."
I'm confused by your use of hypothetical ("could")?
Representative government is dead. Put a fork in it. We now only await a sufficient portion of the populations of enough countries losing enough of their purchasing power (read: people starving and living on the streets) before chaos ensues. This is the endpoint of current trends. I see no evidence at all of even a hint of trend reversal on this one.
Repudiate VS Repothicate,
that is the question.....
David Graeber puts this in understandable terms when he says (my paraphrase)...
Debt is one way of making extremely unequal power relationships palatable by making them part of an economic morality tale. When one country conquers another and takes all its surplus, the injustice is plain for all to see. When a country or institution lends money and thereafter enjoys claims on the surplus of a country, such as the IMF did in Mexico and South america in the 70s and 80s, then using the language of 'debt' makes it morally acceptable. But one party is effectively saying to another party: "Give us 4% of your annual surplus or face further sanctions/retaliations".
Debt masks what is fundamentally an exploitative power relationship, by putting a seemingly innocent face on it: "We just wanted to lend you this money, how were we supposed to know you couldn't pay it back?"
Graeber has made a convincing argument that barter economies have generally never existed. The idea of barter first arose in the minds of economists who were using thought experiments to retrace the origin of exchange to pre-monetary times. In actual pre-money societies, such as the tribes of Madagascar among which Graeber lived for years, there is no barter but rather a time-delayed social credit system, based on relationships. (This is all described in detail in 'Debt: The first 5,000 years').
Credit preceded money. In the world before money, we didn't exchange half a chicken for five handfuls of grain, as Adam Smith imagined we would have done. What we instead did was share surplus and necessities with our friends and relatives, using an 'emotional credit system' by which we kept a vague reckoning of who had lent what to whom over time. These transactions were unique in that they were emotionally-weighted, and were done with people whom we cared about and had blood relationships with. It was therefore nothing to forgive a debt which was owed, and debt forgiveness was a natural part of this system of credit.
Our modern system of credit and lending is fundamentally predatory, and is not emotionally weighted for mutual assistance between neighbors and blood-relatives (in those days, this was the same thing). Instead, lending is fundamentally predatory and exploitative. The bank does not 'wish you well', generally, its a known fact that credit card companies make the most money when payments are late and delayed.
This is why creditors can now demand repayment even in the face of obvious inability to pay, and even when it begs the question of the ruin of an entire nation (Greece). Debt is currently a form of socially acceptable warfare between the haves and have-nots. Breaking up the faux union is clearly the honest thing to do. These people treat each other like enemies -- any talk of union is plainly impossible. They are stalling this moment of reckoning because its consequences are likely to be quite large.
+1
Very interesting.
I can imagine credit relationships developing with varying degrees of formality, but fungible commodity trading, especially in things that needed further labour input to make them useful, would have been far more common.
Great argument.
Why The "US Citizens" Should Repudiate Their Government's Debt (FIFY) ... because it is economic conquest as the war de jure.
Sure they could do it, but do you think there sill be no retaliation from the creditors? Take a look at Ukraine and Syria.
Yeah, keep the money for nothing flowing and screw the creditors.
The Greek philosophy in a nutshell.
“Those who buy Greek debt, or indeed the debt of any sovereign nation debt, deserve to get burned, not in degree but entirely…”
I agree totally; but I’m disappointed with the softball manner in which the conclusion was made.
Governmental debt is evil – not because it is ineffably “bad”, but – because it is a form of cannibalism: that is, a generation of tax consumers financially cannibalizing following generations of tax payers. In the case of America, there is enough such debt on the books to cannibalize following generations well beyond the horizon.
It is evidence of a society that cannot survive – and does not deserve to survive. Really, what less can a civilized man say of a nation that willingly, and knowingly, eats its children?
Bring up this topic with any man… and watch his eyes glaze over, as he stumbles backward out the door.
There is another softball element about the above article, “It would be a welcome gesture for an incoming government to declare the actions of previous government to be against the interests of taxpayers and repudiate the national debt.”
How many billions of times have victims of tyranny wished for such a development… and been disappointed an equal number of times?
You’d think that, after billions of such failures, someone would think to study those very rare instances when men actually made tyrants accountable.
Let's be realistic, until a man acquires this knowledge, his every complaint is merely an exercise of wishful thinking… completely useless.
Yes they should - and after that take back all the stuff that was asset-stripped.
Austerity for the privledged, includng the bankers!
Austerity
Government debt is not like private debt. In fact, government debt is fundamentally illegitimate and one might even be justified in claiming that anyone seeking to profit from it is aiding and abetting criminal activity.
Government debt "is" exactly like private debt. It is "a promise to complete (deliver on) a trade". It is created when the government makes the promise. It is destroyed when the government delivers on that promise. Thus, it is exactly like the debt of private traders.
So where's the disconnect?
It's very simple. Governments "rollover" their undelivered trading promises. And a rollover is DEFAULT.
Any MOE management process observes the relation: INFLATION = DEFAULT - INTEREST.
For a "properly managed" MOE process, INFLATION = zero.
If government rollovers (defaults) were properly dealt with by the MOE management process, their class of borrower (i.e. "all" governments) would immediately bear a like INTEREST load on their new trading promise certifications (i.e. creation of new money). This would recover the promises (money) left circulating by the DEFAULT.
Being deadbeat traders, this would quickly render "all" government trading promises DOA and they would be quickly removed from the marketplace.