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Sovereignty and Debt: Financial War Breaks Out Into the Open

Tuesday, July 14, 2015

We are about to find out how far Europe is willing to go in throwing away democracy (which was, of course, born in Greece) to the keep the sham which is the Eurozone alive.

The purpose of the Eurozone, from its inception in earlier forms to the shared currency, is to prevent nationalist rivalries – mainly between France and Germany – from consuming the Continent in another arms race as a prelude to another war.  The effort has succeeded if we limit our idea of ‘war’ to bombs and bullets.  It has failed miserably if we consider the reality of a financial war.

Many commentators have already noted that we are well into the midst of such a war.  One term which has been used is a ‘currency war’ involving players such as the United States, Russia and China.  But an even wider financial war is being fought over the battlefield of economic self-determination.

This war is really no different than the First and Second Bishops War of the mid-17th century.  Having expended its wealth on the former, the British Crown (King Charles I) confiscated gold deposited in the Royal Mint in order to pay his soldiers to fight the latter. This fight was about religious self-determination – who would appoint bishops over the Church of Scotland. But in order to fight this war, Charles I needed first to win a brief skirmish over the money supply.

The gold held in deposit by the Royal Mint did not belong to the Crown, but rather to English merchants who had earned it in the course of commerce.  By confiscating this gold as a forced loan, Charles I won the initial skirmish – over the money supply – necessary to fight the rest of his war to force his appointment of bishops over Scotland.

Charles I repaid the loan, but the English merchants were tired of being dragged into the Crown’s wars and so began to deposit their gold with trusted goldsmiths.  These goldsmiths issued receipts which guaranteed the redemption of the amount of gold to its owner upon presentation.  These receipts – ‘promissory notes’ – were the forerunner for what we Americans know as ‘Federal Reserve Notes’ – the U.S. Dollar.

But even these goldsmiths were not immune to the temptation to control the money supply.  They noticed that these notes were circulating in the economy without being presented for redemption.  What happened was civil society realized the notes were useful for facilitating everyday commerce.  It was much easier to carry the notes around rather than the gold.  So the goldsmiths began issuing ‘extra’ notes and lending them out at interest.  That they did not have the gold to back the sum total of all of the notes in circulation was their dirty little secret.

There is an extremely important observation to be made at this point – and this forms the entire premise of this post: What we know today as ‘money’ originated as a tool or utility – contrived not by a monarch or by a ruling class – but by ordinary civil society to facilitate everyday commerce.  As the Greek crisis proves, what we know of ‘money’ today has now become first a tool of the State for the pursuit of inherently undemocratic political goals.

It isn’t that peace in Europe is not a worthy goal. It is, rather, that peace in Europe has to begin with civil society and only then can it become a formal relationship between the several states of Europe.  The European Union’s fallacy – the reason why the Euro is destined to fail – is that its perception of Europe is one where the State is the most significant unit of society.  Conservative political commentators in America refer to this way of seeing things as ‘statism’.  And because the European elite are essentially ‘statists’ their view of money follows: Instead of first being a utility contrived by civil society to facilitate commerce, it is first a tool of the State to impose a political order favored by elites.  Whether it be a monarch wishing to confiscate the money supply for religious purposes or an elite ruling class wishing to do so for political purposes – this theft of the money supply is theft just the same.

This is how I have come to what seems to be a decidedly non-conservative conclusion: Greek civil society must insist their parliament refuse the demands of the ‘deal’ struck between Europe and their Prime Minister Alexis Tsipras. This will certainly mean expulsion from the common currency and the reintroduction of a devalued Drachma.  But it will also put Europe in the position of having to negotiate an honest settlement on debt relief – or get nothing at all.

That this will set a precedent for the rest of debt-laden Europe – specifically the much larger economies of Italy and Spain – is really what European elites fear.  But it is important to understand why they fear this: their entire statist project will be revealed for the house of cards it is.  The world will see what happens when the ‘ruling class’ confiscates the money supply.

There have been whispers of late that the ‘cooking of the books’ that got Greece into the Eurozone to begin with was done at the behest of the European financial sector and that it may not be restricted to Greece.  It is not hard to understand why: the more countries which use the Euro, the more ‘customers’ there are for the banks.  Where the ‘extra’ notes were the English goldsmiths’ dirty little secret, one wonders whether the cooking of the books of southern European countries is the dirty little secret of today’s European financial sector.

It is also important to understand how the interests of political society and the financial sector coincide.  The first order of political society is to get elected.  Southern European political society – Greece’s included – has accomplished this by making promises which cannot possibly be kept.  The financial sector has been happy to paper over these falsehoods.  They do so by printing money and lending it out at interest in the form of ‘sovereign debt’.

But as the ‘deal’ has proven, there is nothing sovereign about this debt; indeed this debt has come at the cost of Greek financial sovereignty.  But if ‘sovereignty’ is to have a financial dimension, this must be the case for both the debtor and the creditor.  The fundamental problem with having the financial sector – with their shareholders’ investment at stake – in control of the money supply is how the financial sovereignty of the creditor nations is protected at all costs and the financial sovereignty of the debtor nation is completely exposed; some are more ‘sovereign’ than others.  If this state of affairs is allowed to stand - with no 'haircuts' for the creditors - all risk has been shifted to the debtor and no risk is assumed by the creditor.  The irresponsible lending – and therefore the irresponsible borrowing – will only continue until even the slightest breeze strews this tower of cards throughout the whole house.

To reject the terms of this ‘deal’ will be an immense sacrifice for the Greek people.  But they will have both their sovereignty and their dignity back.  The problem is you cannot feed your children and your aged with either sovereignty or dignity.  If they choose this route – and for the sake of my children and grandchildren I hope they do – they will go down in history once again as those who led the world away from the cliff that is ‘sovereign debt’.  But in order to lead in such an historic way, the people of Greece must first give birth to an energetic civil society and take the social reigns from political society so they can then have a smaller government, with a lower tax burden, and actually begin innovating, improving things in the real economy and creating real wealth again.

Political society – Greece’s included – has failed to lead us to prosperity.  It is now up to civil society to show the way.

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