–Thank goodness Greece didn’t default or go bankrupt. So, what DID it do and what happens next?

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 trade balance. 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.

In economics, self-deception seems to be the rule. That thing called “debt” really isn’t the same “debt” you and I know — at least not for Monetarily Sovereign countries. And “unsustainable” doesn’t exactly mean something that can’t be sustained. And while taxpayers pay taxes with “taxpayers’ money,” the federal government doesn’t pay its bills with “taxpayers’ money,” as the media claim.

Now comes monetarily non-sovereign Greece, with its own package of self-delusion.

Yahoo Finance
Greece secures biggest debt cut in history
Greece secures high participation in critical bond swap, staving off imminent bankruptcy
By Elena Becatoros, Associated Press | Associated Press

ATHENS, Greece (AP) — Greece has cleared a major hurdle in its race to avoid bankruptcy by persuading the vast majority of its private creditors to sign up to the biggest national debt writedown in history, paving the way for a second massive bailout.

If you and I were to declare bankruptcy, we would write off our debts. Greece avoids bankruptcy by writing down its debts. See the difference?

Following weeks of intense discussions, the Greek government said Friday that 83.5 percent of private investors holding its government bonds were participating in a bond swap. Of the investors holding the euro177 billion ($234 billion) in bonds governed by Greek law, 85.8 percent joined.

“We have achieved an exceptional success … and I believe everyone will soon realize that this is the only way to keep the country on its feet and give it a second historic chance that it needs,” Finance Minister Evangelos Venizelos told Parliament.

“A window of opportunity is opening” with the success of the deal to reduce the country’s euro368 billion debt by euro105 billion, or about 50 percentage points of gross domestic product, he said.

The public sector screws the private sector out of 105 billion euros ($138 billion), and this is considered an “exceptional success” and a “window of opportunity.”

The bond swap is a radical attempt to pull Greece out of its debt spiral and put its shrinking economy back on the path to recovery. The hope is that by slashing debt, the country can gradually return to growth and eventually repay the remaining money it owes.

How will eliminating past debt create future growth? The underlying problem remains. To survive long term, all monetarily non-sovereign nations require money coming in from outside their borders. This is an absolute rule.

But Greece runs trade deficits. Money flows out, not in.

Greece trade deficit

If, in the future, Greece continues to suffer trade deficits, euros will continue to cross its borders in the wrong direction, further impoverishing the Greek people. What will change this longstanding problem? Certainly not future defaults, bankruptcies and loans.

The investors will exchange their bonds with new ones worth 53.5 percent less in face value and easier repayment terms for Greece. A total of euro206 billion ($273 billion) of Greece’s debt is in private hands. The swap will effectively shift the bulk of the remaining debt into public hands — mainly eurozone countries contributing to Greece’s bailouts.

If the exchange had failed, Greece would have risked defaulting on its debts in two weeks, when it faced a large bond redemption.

Got it? Greece didn’t “default.” It exchanged bonds. Remember that, so you can tell your bank you would like to exchange your $100K mortgage for a $50K mortgage — to prevent default on the $100K mortgage.

A successful bond swap is also a key condition for Greece to receive a euro130 billion ($172 billion) package of rescue loans from other eurozone countries and the International Monetary Fund.

Lending to borrowers, who have bad credit, caused the most recent recession — and the banks (rightly) were criticized for it. Now the IMF and EU do it, and everyone dances in self-congratulatory glee.

Service of loans from other euro nations will require sending euros out of Greece. Where will Greece find those euros to send across its borders?

Word picture: You’re in the middle of the desert. You have no water. Someone gives you a sip of water and says, “One hour from now, give me back the water, plus extra as interest.” But you’re still in the middle of the desert. Problem solved??

“After quite a rollercoaster ride, it looks like Greece has finally done it … allowing Europe to avoid what could have been a disorderly default in which the costs do not bear thinking about,” said Simon Furlong, a trader at Spreadex.

Rather than a disorderly default, we had an orderly default. Now, it’s time to start thinking about the costs.

IMF head Christine Lagarde also welcomed the debt writedown agreement. “This is an important step that will dramatically reduce Greece’s medium-term financing needs and contribute to debt sustainability,” she said.

On the streets of Athens, however, many remained skeptical about the deal and pessimistic about the future. Panayiotis Theodoropoulos said the writedown was good “for them.”
“For us? Nothing. Everyone looks out for themselves. In a while the people will be living on the streets,” he said.

Mr. Theodoropoulos is far wiser than Ms. Lagarde. He’s right; she’s wrong. My heart goes out to the people of Greece, who are mere pawns in a chess game between the foolish and the greedy.

The debt crisis, sparked by years of overspending and waste, has left Greece relying on funds from international bailout loans since May 2010. Austerity measures including repeated salary and pension cuts and tax hikes imposed in return have led to record unemployment with more than 1 million people out of work, a fifth of the labor force.

The debt crises was caused by Greece’s unforgivably bad decision to surrender the single most valuable asset any nation has: Monetary Sovereignty. Austerity measures, by simple mathematics, always must cause unemployment and economic misery.

The bond swap accomplishes two things:

1. It delays the time of recovery, extending the austerity and suffering of the Greek people
2. It sets a precedent for other monetarily non-sovereign nations to screw the private sector and extend the misery if their citizens.

And this is the EU’s and the IMF’s “exceptional success.”

I said it in 2005; I say it today. “The economies of the European nations are doomed by the euro” (and by the world’s financial leaders).

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


8 thoughts on “–Thank goodness Greece didn’t default or go bankrupt. So, what DID it do and what happens next?

  1. When we do not exercise monetary sovereignty, DEBT becomes a form of POLLUTION. Credit and fiat currency are like fossil fuels. They create big, fast-moving economies, but they also accumulate debt pollution until we have the current global catastrophe.

    Debt is killing us faster than all other forms of pollution combined. Indeed, debt is the cause of most other forms of pollution, since it drives the mad quest to “grow.” This means nuclear power and the consumption of forests, fossil fuels and other resources. Debt is also a force multiplier for human greed and corruption.

    Despite being the deadliest form of pollution, debt is also the easiest and quickest of all forms to cure. We only need to get rid of private ownership of central banks, thereby eliminating debt-based currency, and reclaiming true monetary sovereignty.


  2. Richard,

    Here in the U.S., federal “debt” is the total of outstanding T-securities, which essentially are savings accounts, held by T-security holders, at the Federal Reserve Bank.

    Paying this debt is a simple matter of debiting those savings accounts and crediting checking accounts — no problem at all for a Monetarily Sovereign government, which does not “borrow” the way you and I do.

    I should mention that there is no functional connection between U.S. government debt and deficits. Either can exist without the other. By law, T-securities exist in the same amount as deficits, but this law could (and should) be changed, at which time, there would be no more T-securities, thus no more debt.

    Rodger Malcolm Mitchell


  3. Okay Roger, but how can we do that as long as big privately owned banks run the show? Is not the Fed a cartel of big private banks? Do not big private banks own most or all of the shares in Fed member banks and regional banks? Is this not the core reason why the US government does not truly exercise its monetary sovereignty? Why must we borrow our own currency from private bankers, and pay it back with interest, going further into debt in the process? Why must we have a debt-based currency in the first place?

    I’ll tell you why: private ownership of central banks. Jefferson opposed this. So did Jackson. So do I.

    Please tell me why everyone on all sides continually skirts the fundamental, central, urgent need for genuinely public central banks.

    North Dakota has one at the state level, and thus North Dakota is the only state not ravaged by the current crisis. (Yes, ND has oil, but so do many other states, and they are in trouble.)

    Just sayin’.

    P.S. Thank you for your response above. 🙂


  4. Roger writes: “If you and I were to declare bankruptcy, we would write off our debts. Greece avoids bankruptcy by writing down its debts. See the difference? “

    I’m confused. If that’s true, then why do the bankers continue to crush Greece with more and more austerity (i.e. theft)? Greece is now required to make paying the bankers its top central priority at all time. All else is secondary. National defense, social programs – everything. Is this writing down their debts? Every “bailout” goes to investors, while the debt is dumped onto the masses.

    The way I see it, Greece did not write down any debts. Greece just rescheduled some debts. It’s like paying off one credit by getting a new credit card with a slightly longer time to pay it off. But Greece cannot make payments on any credit card at all, since Greece’s debt is far larger than its GDP. Greece already defaulted when its debt exceeded its GDP.

    No, the bankers are sucking Greece dry. Squeezing every last drop of blood. Greek politicians won’t stop this, since the bankers pay them (and the police and the military) to assist in the devastation.

    The key is as you wrote: “The debt crises was caused by Greece’s unforgivably bad decision to surrender the single most valuable asset any nation has: Monetary Sovereignty.”

    I second that. All opposed?

    Roger: “I said it in 2005; I say it today. ‘The economies of the European nations are doomed by the euro (and by the world’s financial leaders).”

    I second that. All opposed?


  5. You suggest that Greece issue drachmas to pay off its Euro debt, declaring that 1 drachma is equal to 1 Euro. The problem is that no one receiving these drachmas will agree that 1 drachma is worth 1 Euro. The exchange rate will quickly correct to something more realistic like 20 drachmas are worth 1 Euro, and will only get worse if Greece continues to print Euros. This wouldn’t be a problem but for the fact that it doesn’t change the fact that Greece would still be buying more consumer goods and services than selling, while non-Greeks scramble to buy up Greek assets and commodities. If Greece tries to prevent a run on its assets, non-Greeks will simply stop accepting drachmas as payments for purchases.

    You can default on your debt (or do the equivalent by diluting it with money printing or the equivalent) once, but your trading partners are going to demand something more substantial than currency that flows off your printing presses like water when they sell you the consumer goods your population is dependent on. Unless the Greeks adjust their standard of living to conform to what they actually produce, they will either be enslaved by debt or suffer hyperinflation.


    1. Doesn’t matter what the exchange rate is. Many nations have reduced the value of their currency, without inflation. Mexico and the U.K. come to mind. Sellers want to sell, and they will take drachmas just as they take every other currency on earth.


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