What is the Real Reason for Greece’s woes?

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What is the Real Reason for Greece’s woes?

What was that whooshing noise? Of course, Greece just dodged another bullet! In case you didn’t catch the news, the Syriza government made its latest payment of €750 million to the IMF. Can Greece dodge the next bullet when its next repayment comes due?

Well, that depends on who you ask. Jason Stevenson over Resource Speculator says Greece’s days in the Eurozone are numbered. I’m willing to bet they are staying in. I think the issue will be resolved, in the end.

In fact, I think the whole shambles could be solved tomorrow if that outcome was desired. I can only presume someone wants this to keep dragging this on for ulterior reasons.

So what exactly is the problem in Greece? Tight money. The government has been forced to slash spending at the same time Greek banks are stricken with non-performing loans.

Carrying these non-performing loans means bank credit is tight. Combine both factors and it sucks funds out of the economy and leaves it mired in a credit depression.

However, the European Central Bank, if it cared to, could take some of the free money it’s printing up, and use it to buy the non-performing assets of the Greek banks at par.

This would mean they would not need to take losses on these loans and free up their balance sheet to extend credit. That would get the economy moving.

But the ECB won’t do this. It prefers to leave Greece mired in depression.

Lately I have been exploring the work of banking expert Richard Werner. He says there’s a way around this situation for Greece without default or continuing distress.

It’s an interesting idea. See what you think. Werner says there’s a neat trick the Greek government could pull off to generate economic growth. This would break the debt deflation cycle they’re trapped in.

The Greek government needs money. OK. Werner says the trick is for the Greek government to bypass the bond market and go to the Greek banks for a commercial loan.

Here’s why. Banks create the money supply when they extend loans because they create credit out of nothing. Their loans equal brand new purchasing power.

If the Greek government tries to raise revenue in the bond market from the non-bank sector, no new money is created. It’s merely redistributed from one part of the economy to another. No credit creation equals stagnation.

The loan contract idea has other advantages. The money borrowed can be financed at a lower rate than from the bond market. Also, a loan contract is not a tradeable privilege like a bond and therefore is not subject to speculation.

Werner says that under the Basel rules that regulate banks, governments are considered risk-free, which means banks don’t need to hold any capital against these loans, either. That keeps the banks happy.

The rising growth, jobs and tax revenues then take the pressure off the debt burden. Apparently Werner has taken this proposal directly to the ECB.

They’re ignoring him. The ECB chooses who gets its free money and favours according to its own agenda. I think we can safely assume it’s not a democratic one. In fact, of all the central banks, it is the most unaccountable to any democratic oversight.

Perhaps the ECB ignores Werner because he stresses that all the taxpayer bailouts of bankrupt banks all over Europe could have been avoided.

The ECB could have done it all at no cost. That’s because it creates euros out of nothing with a technology called a printing press. It can buy insolvent assets at par and avoid the banking crisis and resulting credit depression.

Werner cites Japan in 1945 and England in 1914 when key banks were bankrupt and they did this. He says they did not use taxpayer money nor create public debt, but created a recovery.

By extension today, European governments didn’t have to take on that extra public debt. There need not be a mounting interest bill. There need not have been the millions unemployed and public services slashed.

But the ECB, and all the other central banks, only like to create money when it suits themselves. They protect the status quo that is enriching their clients and cronies.

Of course, the central banks all over the world are in a difficult position. They have to keep the banking charade going to hide the fact that their usurious monetary system of debt, interest and inflation is a total scam.

It reminds me of a cartoon I saw dating from the year before the US Fed came into being…

Central bankers without their human disguise

This is why I don’t think Greece will leave the Eurozone. Greece is in debt to the banks. That’s right where the ECB wants them.

Of course, all this is entirely relevant to Australia. We operate under the same system. If you want to know how to avoid the clutches of the banking octopus, get educated here.


Callum Newman+,
Associate Editor, Cycles, Trends and Forecasts

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About Callum Newman

Callum is a feature editor for Money Morning. He covers areas of interest arising from world markets and the global economy that could mean new investment opportunities for Aussie investors.

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