Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
To solve Greece’s financial problems, the EU and Greece’s creditors demand that Greece commit financial suicide, with increased taxes and reduced spending. (This, in effect, is what our Congress, especially the right wing, prescribes for America.)
Greek Reforms a Must for Deal
The Fiscal Times, Lefteris Papadimas and George Georgiopoulos, Reuters, January 31, 2012
Greece must make “difficult” decisions in the coming days to clinch a debt swap agreement and a 130 billion euro bailout package needed to avoid an unruly default, the government said on Tuesday. Near-bankrupt Greece is struggling to convince skeptical lenders it can ram through spending cuts and labor reform to help bridge a funding shortfall driven by a worsening economic climate and its previous reform plan having veered off track.
On top of austerity measures already taken that regularly bring droves of angry protesters onto the streets, Greece’s lenders have demanded it make extra spending cuts worth 1 percent of GDP – or just above 2 billion euros ($2.6 billion) – this year, including big cuts in defense and health spending. In a sign of the challenges the government faces in pushing those through, a Greek union official said the country’s major unions were gearing up for more anti-austerity protests next month after an early grace period for Papademos’s government.
Talks (with creditors) have struggled over further cuts in labor costs in the private sector, which Athens has resisted over fears they could deepen a brutal recession and impose additional hardship on the poor, Greek officials say. The prospect of elections as early as April has further complicated the talks, with political leaders in Papademos’s national unity coalition eager to distance themselves from any cuts that herald more pain for ordinary Greeks.
Increasingly exasperated by Athens’ failure to live up to pledges on the reform front, European partners have demanded all Greek parties commit to measures agreed under the bailout irrespective of who wins the next elections. A German minister went so far as to call for Athens to surrender control of its budget policy to outside institutions if it could not implement reforms, though Berlin has toned down the debate after an indignant reaction from Greek officials.
Germany, the rest of the euro nations and Greece’s creditors are angry that Greece won’t take the economic cyanide being offered as a cure for what ails them. Sadly, Greece keeps trying to please the mob, because it doesn’t understand there is no solution but to return to Monetary Sovereignty, an asset they never should have surrendered.
Because Greece now seems balanced on the edge of the precipice, I’m taking the liberty of reprinting much of a post I wrote on November 8, 2011, titled “What would happen if Greece returned to the drachma?”
The key to a smooth transition from euros to a Monetarily Sovereign currency, the drachma, is to create sufficient demand for the drachma to prevent excessive inflation.
Let’s say the Greek government announced that heretofore:
1. The drachma would be the official currency of Greece. The Greek government would exchange one drachma for one euro, in unlimited amounts. Accounts at Greek banks that currently are stated in euros, would be stated in drachmas.
2. Payments by all Greek governments, local and national, would be made in drachmas, not in euros. This would include payments on domestic and foreign debt, payments of government salaries, and payments for goods and services. The payments would be made at the rate of one drachma for one euro.
3. Domestic business must pay salaries and domestic suppliers in drachmas
4. Taxes paid to the Greek government and to any sub-governments must be made in drachmas, not in euros.
5. Greek banks would domestically lend only drachmas, and all domestic creditors, including banks, must accept drachmas in payment for debts.
6. The Greek government would continue to issue bonds, not because it needs to borrow, but to help regulate interest rates, which in turn, help regulate demand for drachmas. The bonds would carry a high enough interest rate to create demand for drachmas.
Greece would become Monetarily Sovereign. Its “debt problem” instantly would disappear, as it would have the unlimited ability to pay any bill of any size, any time. Demand for the drachma would be established, to mitigate against inflation.
There it is. The “crisis” disappears. I expect one or more of the PIIGS will do this, sometime this year, unless the EU forgets about casting everyone into austerity hell, and begins to give (not lend) euros to its members.
There is no reason for the EU not to become the financial version of a United States of Europe. Remember, the original 13 colonies were separate entities, with different customs and leaderships, in trouble and with many similarities to today’s European nations.
It helped then to have a common enemy — financially destructive British taxes. Today the euro nations have a common enemy: Financially destructive monetary non-sovereignty. As Ben Franklin said, “We must, indeed, all hang together, or most assuredly we shall all hang separately.”
Barring individual returns to Monetary Sovereignty, the euro nations should heed Ben’s advice.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports