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'Sovereign Debt' is an 'ὀξύσμωρός': Repudiate It!

Monday, July 13, 2015

The people of Greek are bewildered by the 'deal' (which is really a complete capitulation) struck by the Tsipras government with Greece's creditors. From MarketWatch:

“I’m quite upset with this deal, it doesn’t feel like I live in a sovereign country anymore,” said Haris Manolopoulos, who works as a buyer in the aircraft industry. But he added: “There was no other option, really. I negotiate deals for a living and I know this: The moment you start looking for money, you are in a bad negotiating position.”

Hopefully Greece - which has given birth to much of what we take for granted politically and culturally - will learn the lesson the entire Western world needs to learn.  If so, common sense might be born there, too.

'Sovereign debt' is an oxymoron.

The etymology of that term is interesting.  At first I thought it was rooted somehow in the Greek όχι (for 'no' and which was the Tsipras government's theme in the referendum).  But it is actually a compound of ὀξύς (sharp/keen) and μωρός (dull/stupid).  And so something that is in itself a contradiction of terms is an 'oxymoron'.

The degree to which one country is indebted to another is the degree to which the debtor has ceded its sovereignty to the creditor.  This is more than just a 'feeling' in Greece now - it is a reality with talk of privatizing Greek islands - literally selling sovereignty (over territory) to pay a debt.  All Tsipras got was an agreement to administer the fire sale in Greece - under European supervision.  And so "sovereign debt" is clearly an oxymoron.

It is even an oxymoron when looked at from the creditor's point of view.  Let's take Germany as an example: The memory of the Wiemar Republic is alive and well, so Germans are loath to repeat this mistake by monetizing the debt of debtor countries like Greece.  For them it would be a matter of being robbed of their purchasing power to pay the debt of other countries.

Interesting how 'sovereignty' works both ways, isn't it?  The German demand to have their purchasing power protected is 'sovereignty' from the creditor's perspective.  The Greek demand to retain control over their financial affairs is sovereignty from the debtor's perspective.  But sovereign debt is - whether the loss of sovereignty implicates purchasing power or financial prerogatives - an oxymoron just the same.

Do the Greeks Desire to be Part of a Failing Project?

It really is only a matter of time, and the circumstances under which we will learn the needed lessons. Regardless of the time and circumstances, the lessons will be very difficult to learn, but the same road will have to be traveled regardless.

So let's say the Greek parliament does what they recommended to their people, vote όχι (no) on the slate of legislation that will be presented Wednesday.  Such a vote will be a recovery of sovereignty, but will certainly come at the cost of membership in the Eurozone. By doing so, the Greek government would actually be in its strongest position yet if the aim is to get genuine debt relief rather than to just roll over the loans.

As I noted here, most of what is beautiful in European (and American) culture (both in terms of our forms of government and our religious traditions) was born in Greece.  As such, the Greek people naturally see themselves as Europeans.

But if this week's decisions are to be about more than that past (which will not feed their children nor care for their elderly today or into the future), the Greek people might want to ask whether being part of this money printing and lending enterprise of European political society is really what they have in mind when they think of themselves as Europeans.  The Greek problem (debts that simply cannot be repaid in money at its current value) is a small version of the same problem in the other heavily indebted, but much larger economies of southern Europe.

But this problem is really one rooted in the games being played between European political society and the financial sector. European political society (Greece's included) gets elected by making social promises that simply cannot be kept. They get away with this because the European financial sector prints money and lends it out (at interest, of course) so the false promises can be papered over with - you guessed it - sovereign debt.  And there have been whispers that Greece's books are not the only ones that were 'cooked' - and perhaps even at the behest of the European financial sector itself. This actually makes sense: More countries in the Eurozone means more interest-paying 'customers' for the money being printed - and more profits for the banks. This is certainly not merely a European scam - the Federal Reserve here in the U.S. is playing the same games with U.S. political society.

Maybe it is time to call the scam what it is and put a stop to it.  What if Greece's parliament actually refuses to pass Wednesday's legislation?

It would leave the Eurozone and have to reintroduce the Drachma at a severely devalued rate.  This would be immensely painful for Greek society, but will also immediately put Greece in a more competitive place to begin creating wealth again.  But the Greek people will have to demand a smaller government, lower taxes, and develop an energetic civil society to address its social needs. As long as Greece labors under the weight of its huge public sector, political society will suck the money supply dry, leaving nothing to those who can innovate and improve things - those who can actually create new wealth.

But this would also teach the rest of Europe - Germany mainly - an extremely valuable (and needed) lesson about 'sovereign debt': It goes both ways.  The Germans were at risk of losing their sovereignty over the purchasing power of their savings.  That is the risk of irresponsible money printing and lending in the Eurozone.

Politics, Speculation and the Creation of Wealth

The implications of this sort of thing for the other countries of southern Europe is really what scares the cartel of European political society and their financial sector.  Regardless of how it would play out, interest rates would rise and the days of free money would be over.  What would this mean?

There are three basic paths money can take: It can be used to fund political preferences.  This is what happens when the money supply is routed to political society.  It can also be used to speculate.  When you can borrow for free and make up to 20% gambling on commodities, why would you bother building a factory and actually producing things? Lastly, the money supply can be used to actually innovate, produce and improve things.  This is where wealth is created - along with stable jobs.

As long as the financial sector can print money to prop up the false promises of political society, a country's money supply will go more and more to political preferences.  And as interest rates necessarily go down (no one rolls over a debt at a higher rate) the incentive only grows stronger to borrow for speculation.  Less and less money goes into actual wealth creation.

Put a stop to the scam, give birth to an energetic civil society, demand a smaller government with lower taxes, and Greece can become competitive again and begin to create real wealth for its people.  It starts by realizing that there can be no such thing as 'sovereign debt' - that debt has now cost you your sovereignty. In doing so you just might lead Europe away from a project which is destined to fail.

Vote όχι! Repudiate it!

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