Guest Post: A Crazy Idea That Might Just Work: Greece's New Currency, The U.S. Dollar

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

A Crazy Idea That Might Just Work: Greece's New Currency, The U.S. Dollar

There is an undeniable internal logic to the crazy idea that Greece should jettison the euro and accept the U.S. dollar as its national currency.

Before you dismiss my crazy idea out of hand, hear me out. It might not be as crazy as it seems on first blush.

I have a straightforward three-point plan to set Greece on a sustainable, positive pathway. But before we can understand how the plan resolves Greece's no-win situation (yet another Kobayashi Maru scenario), we first need to understand very clearly why the euro currency failed.

I have covered this many times before:

Why The European Union Is Doomed (March 28, 2011)
Why the Eurozone and the Euro Are Both Doomed (June 23, 2011)
Three More Reasons the Eurozone Is Doomed (September 22, 2011)
Yet Another Reason Why the Euro Is Doomed (October 17, 2011)

If we had to distill the dynamic down to a single paragraph, it would be this: By accepting the "strong currency" euro that was supported by promises of fiscal prudence, Greece and the other weaker economies of Europe artificially raised market willingness to lend them money and lowered the interest rate they would pay. At the same time, the euro also lowered the cost of goods from Germany by eliminating the market arbitrage of currencies.

I know this may sound complicated, but we can grasp the core dynamics using household analogies.

The willingness of lenders to lend and the rate of interest they charge is based on economic fundamentals: the balance sheet of assets and liabilities, and cash flow: how much income goes to pay liabilities and how much is left over as surplus to spend or invest.

Households and nations with weak balance sheets (i.e. liabilities exceed assets) and weak cash flow balances (i.e. much of the nation's income is already committed to entitlements and liabilities, so relatively little is left to fund future borrowing) will find it difficult to borrow a lot, and the rate of interest they will pay will be high.

Nations have another mechanism to differentiate between strong and weak balance sheets: national currencies. Countries with weak cash flow and risky balance sheets will have weak currencies, as people price the risk into the currency.

In effect, Greece was like the poorer brother who suddenly got the wealthier sibling's credit card. In this sense, the euro was a scam, because it stripped the market of the pricing mechanism that we call currencies. By pricing all money the same regardless of national balance sheets and cash flows, then weaker countries got the credit card of their stronger brethren.

Predictably, these nations over-borrowed. When presented with the opportunity to borrow huge sums at low rates of interest, it is "rational" to accept the opportunity.

Who benefited from this elimination of market pricing via currencies? Germany and the banks. In pre-euro days, it took a lot of Greek drachmas to buy expensive goods from Germany. After the euro was introduced, German goods became cheaper in terms of hours worked and interest rates paid.

German exports to the rest of Europe have been strong, and these exports within Europe are the backbone of the German economy. (Exports are roughly 40% of the German economy, the highest in the world for major economies. Exports make up about 10% to 15% of the economies of Japan and the U.S.)

The pool of apparently creditworthy borrowers expanded greatly, and the banks promptly began lending vast sums to both the public and private sectors of these fundamentally weaker nations.

You can't fool Mother Nature with artificial games for long, and now reality has trumped artifice: the nations with weak balance sheets and cash flows cannot support the monumental debts they acquired during the decade of the euro-scam.

If you eliminate the market's ability to price risk and credit, the market breaks down. That is the eurozone in a nutshell.

The no-win situation is clear: if it wants to continue using the euro, Greece must pay its debt and interest in euros. Its economy simply isn't large enough or productive enough to do this, so that's simply not possible. Wishing it were possible doesn't make it possible.

As a result, the weaker, over-indebted nations are in death-spirals of higher taxes and higher debt servicing costs. Each bleeds vitality and trust from the economy, driving it deeper into fatal contraction.

These nations are also in political death spirals. I spoke at length with a well-informed young Greek friend who has lived in both Germany and the U.S., so he is well-acquainted with the perspectives of Germans and Americans.

He reports that the Greek people are profoundly divided on the question of whether to stay in the eurozone or risk leaving it. He said that even within the various political parties, there are two camps. In his opinion, the odds of either camp surrendering their deeply held beliefs and fears is very very low. Those who want to stay in the euro are terrified that a return to the drachma would wipe out the nation's savings and further reduce the already diminished incomes of households: in effect, the middle class would be wiped out.

Others see a deeply sinister master plan in all this: pushing Greece back to the drachma would immediately render the nation poorer and make its assets very cheap to foreign Elites, who would rush in and snap up Greek assets at fire-sale prices. Greeks would lose their country.

This is indeed part of the dynamic when nations radically devalue their currency: if a villa in Greece was 300,000 euros before the return to the drachma, it might be only 100,000 euros when the drachma is re-instated. Priced in euros, the whole of Greece would "go on sale".

I hope you can see that there are two parallel no-win situations here, a financial one and a political one. This is the Kobayashi Maru scenario on a national scale, and there is no exit if you stay within the rules of the game: euro or drachma, etc.

Here's my "crazy idea that's so crazy it might just work": Greece should switch to the U.S. dollar as its currency while renouncing all debt denominated in euros. I don't mean a "haircut," I mean billiard-ball bald: 100% of all debt denominated in euros would be renounced. Not one euro will be repaid.

The reason is that the banks (lenders) knew darn well that Greece remained a weak economy, and eliminating the currency arbitrage by accepting the euro did not magically strengthen Greece's financial fundamentals. It was all a scam that the banks exploited, including the European Central Bank, and so they will have to accept the losses now that the scam has collapsed.

Nobody put a gun to the head of lenders who fronted Greece stupendous sums of money at low rates of interest. It was their gamble and they lost. End of story.

Whatever else you can say about the U.S. dollar, it retains global trust as a medium of exchange and a transparent store of value. Your $100 bill is good in Laos, Bolivia, Russia, China and everywhere else. Its value fluctuates because the market is free to set the risk of holding dollars.

Ultimately, all fiat currencies are simply physical measures of trust. People know the U.S. has plentiful problems of its own, but they also know the problems are well-known and transparent to all, so the market can price risk in the dollar. They also know the U.S. isn't going away tomorrow, and that there are enough dollars floating around the globe that there will always be someone who will accept the dollars in trade for tangible goods at a transparent price.

The problem with returning to the drachma is the risk of the transfer is unknown, and so the risk will be transferred to the drachma. By making the process into two steps--exit euro for the dollar, then later, exit the dollar for the drachma--much of the risk and distrust is removed from the initial step of exiting the euro.

Here's the beauty of Greece accepting the dollar: since Greece cannot print dollars, then everyone will know the currency cannot be depreciated by the Greek state. If Greece can print drachmas in unlimited quantities, then the drachma will quickly lose whatever value it begins with. In contrast, regardless of the policies of the state or central bank of Greece, the dollar will still have the same value day to day.

All euros in accounts would convert to dollars.

This will immediately restore trust and trade, both domestically and internationally, as everyone will know the U.S. dollar will retain its value everywhere.

Does Greece need U.S. approval to take the dollar as its interim currency? No--the dollar is ubiquitous and in sufficient quantity that there are enough physical dollars floating around the world to serve as the currency for a small nation such as Greece. It would help if the U.S. accepted Greece's choice, but American acceptance would be optional.

The third critical step in my plan is that Greece must reach a political consensus on taxation and governance. Everyone knows that tax avoidance has undermined the Greek state's finances, and the people of a democracy have to reach a consensus themselves: it cannot be imposed by bureaucrats from afar.

Greece desperately needs a visionary politician to emerge who can clearly state Greece's choices in taxation and governance: the State needs enough income to do what the people want it to do, and so everyone is going to have to pay taxes. Those who evade will have to be shunned/coerced by public opinion into compliance, for the national good. The institutions of taxation will have to restore trust in their fairness and transparency.

Greece must have a transparent national dialog on taxation and governance, and reach a consensus via the democratic process. Without this step, then it won't matter what currency Greece uses, it will slip further into a death-spiral of dysfunction.

So here is the 3-point plan:

1. Renounce all debts denominated in the euro, i.e. a 100% writedown.

2. Accept the U.S. dollar as the national currency of Greece.

3. Engage in a transparent national dialog and reach a consensus about taxation and the role of the state in the Greek society and economy.

We might add a fourth point: renounce scams and kicking problems down the road rather than addressing them directly, sweeping dysfunction under the rug, etc.

There is a compelling internal logic to my crazy plan: when trust in national currencies and institutions is lost, then the black market becomes the trustworthy place to engage in trade. The world's favorite black market currency is of course the U.S. dollar. In this sense, for Greece to officially accept the U.S. dollar as its currency is simply a recognition of the natural progression from a currency that is no longer viable to one that is.

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GreekGod's picture

Both the dollar and the euro are too strong for Greece.

AbelCatalyst's picture

GreekGod is right - the whole point is to get to a super weak currency so tourists will flock to Greece next summer (after the initial shock). The US dollar will leave them right where they are now. They need to be able to manage their own currency, which is why they are where they are.

This idea simply swaps out Germany and puts the US in the same spot.

The Big Ching-aso's picture




Greece doesn't have enough oil unless we run convert our cars to olive oil.  Let that thought simmer.

idea_hamster's picture

It's not a question of the strength or weakness of the currency.  It's a question of who controls the decision to inflate/print/devalue.  That is the same reason that it makes no sense for Iceland to adopt the Looney.

Greece's problem is that its government needs a method of taxing the public that is subtle/insidious/difficult to avoid, in part because no one actually pays taxes through the normal channels.  Once they adopted the Euro, they gave up this ability -- which worked fine for a while when every was on the no-default-in-the-eurozone honeymoon.  Now, the honeymoon is over, and the debt-ridden chlamydia has to be treated.

Greece needs its own currency -- that will give it the taxing power it needs.  The fact that they blew up their international credibility before they launch this new currency will make the transition more painful.

But as long as they don't have their own currency, they will always/always/always default on their debt.  Adopting the USD is not a solution.  If they wanted to pick another currency, they should pick the Brazialian rial -- that inflation rate will help more.

Marginal Call's picture

Or they could just peg the drachma to the dollar and manipulate ala China.  Devalue at will.


It's not like they don't have their own printers over there, and they'd avoid the trouble of having to actually acquire and distribute actual dollars. 

Oh regional Indian's picture

Unbelievably Dumb idea.

At this point in history especially. Like Greece joining will save the dollar perhaps, eh?

For effect, let me repeat: What A Dumb Cluckin' idea. A Drachma/Dollar peg I can understand, see how that ended up for Argentina though. Or China now.

Did I say this was a dumb-cluckin' idea. It's a dumb-cluckin' idea.



bank guy in Brussels's picture

This self-confessed 'crazy idea' article says above:

« ... U.S. dollar, it retains global trust as a medium of exchange and a transparent store of value ... »

Ha! - What amazing Tim Geithner bullsh*t to appear in a ZeroHedge article.

Crazy idea indeed.

For one thing, many Greeks have a traditional HATRED of the American government for all its CIA operations there, like with the right-wing military junta under which they suffered a few years back.

The frackin' US dollar is the LAST currency they would want.

And nothing to stop the Greeks from accepting and using whatever currency they like ...Heck, right now in Europe, there are several countries that 'borrow' the euro, while not in the eurozone ... And sometimes it's the only main currency (Andorra, Monaco, San Marino ...)

Plus, as other people are pointing out on this thread,  'dollarised' countries can put themselves in a difficult trap, unable to control their own destiny, or even to make their exports and tourism cheap enough.

This is Goofy ZH article of the day.

Pure Evil's picture

So, would that make Greece the 58th, 59th, or 60th state.

I always thought we bombed the hell out of a sovereign country before we turned them into new states, ala Iraq and Afghanistan.

Better hurry before we make Libya the next state, we've already bombed the hell out of them and Syria and Iran are on our shit list.

Normalcy Bias's picture

Give it time, man. Al Qaeda is EVERYWHERE.


Real Money Wins's picture

Seems a bit ridiculous for Greece to go to the dollar. The US Government is making plans for the eventual collapse of the dollar, so why trade one bad currency for another. Let the Greeks print Drachma's, but use their brains and limit the supply of ink and paper. A shortage of cash in Greece works far better than any austerity would and forces both civil population and the government to adjust budgets appropriately and eventually(not overnight) strengthen the economy buy letting supply and demand rule the day. And this is because credit would not be available except at high rates which would not be appealing and would mean if you don't have the money you can't buy it unless you save up cash in order to purchase it. Of course in the short term you would have a great deal of bartering going on but this is the type of environment where inventiveness and new business out of necessity spring into existence and eventually leads to a healthy economy. And of course the government would have to get smaller and streamlined out of necessity due to lack of massive tax revenues and begin working within a realistic budget. A hard pill to swallow for sure but far better than never ending poverty.

monkeyboy's picture

I didn't even understand that article, but I knew it was CRAZY TALK straight away!

StychoKiller's picture


Those who evade will have to be shunned/coerced by public opinion into compliance, for the national good.  The institutions of taxation will have to restore trust in their fairness and transparency. [/quote]


The National good??  Bwahahahahaha!

RECISION's picture

... and further to that.

Greece must have a transparent national dialog on taxation and governance, and reach a consensus via the democratic process. 

If they could have - they would have. 

IF... they had a unicorn that shits candy we could all live happily ever after...

Not going to happen.

And since neither exists, then I guess we are left with dealing with the realm of the actually possible, in the current reality.

A 'death spiral of dysfunction' isn't some sort of aberration - it is the direct result of existential interests and dichotomies. It is actually a measure of our civility that people aren't fighting and dying over these issues already.

Don't know how long that will last tho...

sunaJ's picture

Yes, let's assume everything fell into place for that to happen. Since we know setting a precedent of the bailout, which has extended and deepened this crisis to this date, worked so well.  I'm sure Spain or anyone else would never consider they didn't have to really reform because if it gets too bad, there's always the U.S. dollar.


Also, to the author: You know that any solution to intractable worldwide debt sold as assets and hyper-re-hypothecated without a complete reformation of the underlying legal and monetary structure must include at least three unicorns.  I don't see any unicorns.

Piranhanoia's picture

Greece would only set prices, not value of the dollar.  It could work and diminish the down time.

monkeyshine's picture

GreekGd is right and so is the OP though. A massive devaluation of Greek currency would wipe out the middle class. The 300,000 home is now worth 100,000 as the OP tries to point out. Tis gus all savings and equity I'm nt s sure foreign investment at lower prices will be a and thing 1'years hence bt it will be painful for years. Tourism won't save Greece I give the O credit for thinking outside the box but see the plan crumbling at part 3 if it even get past 2. Politics will make 2 possible with Germany and France and UK
pushing n the strongest terms fr the US to stay out. Yes Greece can do it on its own and yes this would be a black market currency - in the 1980s it was very common for American Tourists to exhange currency on the street with black marketeers fering better than bank rates. I know I did it often. But Greece cannot get past the tax issue. They don't collect taxes well. They need a way to inflate as a form of tax. Slowly ease their way out of it is the probable solution - expedient anyway. national dialogue won't accomplish much in this post nationalist Euroean era.

knukles's picture

Who thought up that abortion?
Same fundamental problem as the Euro.
Guy must not read ZH (giggle giggle snort snort)

The Big Ching-aso's picture



This idea could work if they had collateral other than rioting.

Marginal Call's picture

But if they figured out a way to export it, they'd have gold.  "Let the Greeks act out your societal angst"  "Save your cities, burn ours"


And perhaps a riot-cation from the new touriot industry.  "Come tour the ruins, ruin them some more"

knukles's picture

How'd that work out for selected Afrian-Americans some time ago?

The Big Ching-aso's picture



The Greeks deserve a second chance on someone else's dime besides the U.S.'s.   We got R own problems with our dimes turning into pennies.  And btw Chuck, a buck ain't a buck anymore either.

resurger's picture

The USD Black Market business is great, it's priced in USD ONLY!!! lol

Somalia Quotes

Marginal Call's picture

I did a LOL over the "illegal fishing" one.  They are lawless, yet somehow it's illegal for them to fish.

EscapeKey's picture

The strength of the currency matters little, what matters is the government's ability to run a sustainable budget.

Dollarization and currency boards aren't new concepts. Argentina, for instance, introduced a currency board in the wake of their 1989 hyperinflation. Sadly, it didn't take long before they were back to running deficits, and general nervousness in the market - not helped by the LTCM collapse as well as the Russian default - led to the ultimate collapse in 2001.

This is a very good book on the topic:

Drachma's picture

I suggest the DRUNKMA, 100% backed by Ouzo. The future of Greece -   Fixed-rate alcoholism. Opa!

Vegetius's picture

This Summers blockbuster Movie;

Totally Alien     (to anyone with sense)

Scene 102; the team retreat from the Euro bunker in a desperate attempt to excape their DOOM!


Merkel: By the skillful and sustained use of propaganda, one can make a people see even heaven as hell or an extremely wretched life as paradise.

Draghi: We must Print! Print! Print!

Herman van Rompey: No Mario! We must continue to pull paper bags over our heads.

Newt: We'd better get back, 'cause it'll be dark soon, and the Pirates mostly come at night... mostly.

Jose Manuel Barroso: We must protect my paycheck and pension, we must do as Draghi suggests

New Guy rushes up to the team ---

Herman van Rompey: Who the hell are you!

Hollande: I am the new commander of the West Front. I have made a lot of promises and the Great Leader better deliver or we are kaput.

Merkel: How fortunate for governments that the people they administer don't think, especially yours Hollande.

Herman van Rompey: How long after we're declared Greece a non-Euro area can we expect an American rescue? I am running out of paper bags.
Hicks: [pause] Seventeen days.
Hudson: Seventeen *days?* Hey man, I don't wanna rain on your parade, but we're not gonna last seventeen *hours!* Those PIIGS are gonna come in here just like they did before. And they're gonna come in here...

Merkel: Hudson!
Hudson: ...and they're gonna come in here AND THEY'RE GONNA WANT MORE MONEY FROM US!
Hollande: Hudson! Pull yourself together, I have promised all sorts of crazy shit, and I won the Election! Look, this is an emotional moment for all of us, okay? I know that. But, let's not make snap judgments, please.

Hudson: Hey, any of you ever been mistaken for a man?
Jose Manuel Barroso: Us No. Have you?

North Rhein-Westphalia Election Results--------------

Draghi: Stand by to initiate Printing. On my mark. Five. Four.
Hudson: We're on an express elevator to hell; going down!

infiniti's picture

Why don't they just renounce all Euro-based debts and stay on the Euro. Switching to Bernanke bucks seems to be an unnecessary action. EUR and USD are pretty much the same thing.

CrashisOptimistic's picture

Because way too many articles posted here are not sophisticated.

A renounced array of Euro debt means what?  Does the debt go away?  No.  The creditor decides if it goes away, not the debtor.

So renouncing Euro debt means NOTHING.  If the EU wanted to, they could orchestrate a surcharge on every barrel of oil Greece imports.

They will get paid.

Bag Of Meat's picture


LukeWorm's picture

Good plan, but it will take one or two generations for the Greek people to learn that paying taxes is something normal that everyone does.

Joebloinvestor's picture

Greece is a charity case.

Any form of specimen loaned to them is gonna end up a give away.

They will never get their act together until they correct the tax collecting (fat chance of that).

Will require a complete re-thinking of the public sector jobs.

Not in my lifetime I am afraid.

bugs_'s picture

We'll get to 57 states yet!

Federal Reserve Bank of Athens

GeneMarchbanks's picture

Truly. I don't get this humor though, it seems tasteless.

Having Biden show up in a cow-boy hat and American flag pants throwing FRNs at the masses screaming "Welcome to our union, congratualtions you're our 51st" isn't even absurd enough to somehow incite a chuckle. Maybe it's too close to the truth.

Elwood P Suggins's picture

Well Biden's all for gay marriage so he'd really enjoy himself in Greece.

Money 4 Nothing's picture

Then Spain, Portugal, etc.. Let's adopt all the wayward bound derelect Nations. Why not? It improves the image of the USA.

The Big Ching-aso's picture



Greek dollars.   This is kinda like Greek is to real work is to production is to bullshit.

The Big Ching-aso's picture



Great.  Greek adapts dollar.   Just what the U.S.A. needs.   More people adapting to welfare.

machineh's picture

And more bases in all the new states!

Daddy Warbucks on a roll, bItcHEz!

DosZap's picture

We'll get to 57 states yet!

Federal Reserve Bank of Athens


Whats wrong with you?, our leader already has HIS 57 picked out.

QuickDraw007's picture

Market Trends, Gold, Silver, Currency Swaps and QE3

Although this topic may have the charismatic brilliance of grandmas false teeth, it likely may be the most significant piece of financial news of the past several months to hit news wires. It is important to follow these market trends to understand the market we are trading in. On November 30th 2011, the Federal Reserve, along with the Euro Central Bank, and the central banks of Canada, Switzerland, Japan and the U.K. all slashed U.S. Dollar swap rates by nearly half (1.08 percent down to 0.58 percent) to borrow U.S. Dollars to ease the Euro Debt Crisis.

Read the rest of the article here:

falak pema's picture

ha, ha, ha, Pax americana wants a new client !!! After Afghanistan and Paki, bankrupt Greece. Anything to make the Empire more efficient. Krugmanomics is alive! 

smb12321's picture

Despite the hysteria on ZH, the dollar will most likely be the last fiat currency standing for obvious reasons - its universal use and acceptance.  Yes, the FED is debasing it as fast as possible but it is still the haven of choice.  Greece needs, above all, a rebalancing of its private-public sectors and an acceptable currency.  (I prefer the drachma simply because of its relative cheapness and ensuing tourist trade.) 

falak pema's picture

No question; US runs the world since 1945 and the petrodollar montage has the arabs by the nuts and Chindia by their hungry jowls, as they eye the uber-alles nuke protrudence like a spiking hard-on of an unpredictable GORILLA  in the world's china store. Talk about the coming 'Scream'....million dollar hubristic dream. Before the US loses its crown jewels it still has time; unless the happy few in their unstoppable greed bring down the whole shooting match from inside. A nymphomaniacal banker is a redoubtable animal. Go see Antonioni's masterpiece "LA Notte"...

Money 4 Nothing's picture

Both Countries are equally fucked so that just may work.

Bunga Bunga's picture

Let the U.S. taxpayer clean up the mess.

ZeroPoint's picture

So we can add 10 million more people to the food stamp roles?


Beam Me Up Scotty's picture

Thats exactly what I was thinking.  Lets add some more fat assed malcontents to our welfare system.  Simple fact is, you can't work for 30 years of your life, and live to be 80 years old, and have enough money spread out over all those years to TAKE CARE OF YOURSELF!!  You can't retire at age 58 or whatever stupid age they think they can retire at.  Someone HAS to foot the bill.  Screw the social safety net.   Its nothing but a boat anchor for the productive people and the smart people who don't get in over their heads in debt their whole lives.