The New York Times published,“Greece Flashes Warning Signal About Its Debt”:
“As Greece now gropes for a resolution to its current financial problems . . . Athens might still be holding out hope for a restructuring [defaulting on most] of its debt burden of 303 billion euros, or $327 billion.
“. . . the eurozone braced for the prospect of a default. . . . Repercussions of such a default are so difficult to predict that European officials have spent the last five years trying to avoid one.”
I agree that the “repercussions” of a Greek default are “hard to predict”. But that difficulty doesn’t necessarily mean that all of the possible outcomes of a Greek default would be catastrophic.
Most people assume that a Greek default could precipitate a Greek depression, EU depression or even a world depression. All of the possible repercussions seem grim, but could it be that this Greek tragedy is really a black comedy?
What about central banks? Could a Greek default ultimately hurt the central banks more than the Greek, EU and global economies? Have central banks and creditors extended the Greek bankruptcy for five years just to protect little Greece? Or, was it to protect the EU and global economies? Or—have central banks strung Greece along for five years for the primary purpose of protecting the central banks and the world’s confidence in fiat currencies?
Could it be that, from the perspective of central banks (whose only products are fiat currencies), the primary danger in a Greek default might not be that the creditors won’t get paid, but rather that Greece suffers no significant harm? If a Greek default was largely painless for Greece, would the world realize that there’s little real adverse consequence to defaulting on debt denominated in fiat currency?
If the previous question sounds silly, there is precedent. Iceland was overly indebted between A.D. 2008 to 2011. Banker-creditors wanted Icelanders to accept “austerity” to repay the debt. Icelanders refused austerity, told the bankers to “stick it,” and expressly refused to pay their nation’s debts.
The world was shocked. Everyone assumed Iceland would suffer a catastrophe for defaulting—and Iceland did have a difficult 18 to 24 months after the default. But they survived and went on to quickly rebuild their economy into one of the West’s most prosperous.
What if Greece defaulted and, like Iceland, its default turned into a non-event? What if Greece refused to pay its bills and the world didn’t come to an end? What if Greece defaulted and was back on its feet within two years? How many other debtor nations would begin to wonder if they could also default on their debts without being doomed to a prolonged economic collapse?
I’m not arguing that Greece could default without experiencing a sharp, national depression. But I am arguing that, as with Iceland, the duration of that depression might be brief and the subsequent recovery might be remarkable.
I’m reminded of reports over the years of Americans who filed for bankruptcy being subsequently deluged with new credit card applications since they couldn’t file for another bankruptcy for seven years.
Something similar might also be true for Greece. They default, wipe out most of their existing debt, and the world’s creditors—knowing that Greece couldn’t easily default again and is now debt-free and therefore likely to repay new debts—might be inclined to lend Greece enough currency to restart their economy. (As a creditor, would you rather lend to a debt-free Greece, or the overly-indebted United States government?)
All of which makes me wonder whether Greece is involved in “extend and pretend” for the primary purpose of:
1) protecting the Greek people from the adverse consequences of default;
2) protecting Greece’s creditors from losses if Greece defaults; or
3) protecting the world’s central banks and their fiat currencies from the world realizing that a default on a debt denominated in fiat currency might not result in catastrophe.
We live in a world where fiat currency can be “spun out of thin air”. If the Greek default is really as potentially dangerous as some fear, why not have the European Central Bank simply print an extra 300 billion fiat euros, pay the Greek debt and be done with this seemingly endless drama?
I suspect that the answer to that question may be that the illusion of fiat currency value must be maintained by pretending to be uncompromising in the collection of debts denominated in fiat currencies. (The same answer might also explain the primary purpose for the income tax: to maintain the illusion that fiat dollars (monopoly money) have real value worth fighting for.)
Has the Greek default drama been dragged out for five years to support the illusion that fiat debts are “real” and must be paid or economic catastrophe will necessarily follow?
Given that a fiat currencies aren’t real money, are debts denominated in fiat currencies real debts—or could those debts be more accurately described as “fiat debts”?
What would happen if a Greek default showed the world that the adverse consequences of defaulting on a fiat debt were both brief and easily survived? Would other debtors and debtor-nations also want to default?
We’ve already seen little Iceland openly default on its fiat debts and come to little or no harm. What if a second, slightly-larger nation like Greece also defaulted and was back on its feet within two years?
If Greece were seen to have defaulted more-or-less painlessly on a fiat debt, would people around the world begin to realize that fiat currencies not only have no real value as assets but also have no substantive value as debts?
If the currency is fiat and therefore fictional, does it follow that debts denominated in fiat currency might also be fiat and fictional.
If the idea of “fictional debt” seems absurd, please explain “derivatives” which are said to represent somewhere between 1 and 2.5 quadrillion dollars in debt? That works out to about $350,000 for every man, woman and child on the planet. Can such a debt possibly be real? Or must such debt necessarily be fictional?
Do fiat currencies produce fictional debts?
Do fiat currencies produce fiat debtors?
We all know that when the banks “spin” fiat currency into existence to be loaned to borrowers, they don’t also “spin” enough currency into existence to repay the loan. That means the resultant debts can’t be paid in full and must result in larger and larger accumulations of unpaid debt. If it’s impossible to repay a debt, is that debt still real? Or is it fictional?
If fictional debts do exist, what are the substantive repercussions if people fail to repay those fictional debts?
What’s your legal obligation to repay a fiat/fictional debt?
Are we enslaved to central banks by our mere belief that our fictional debts must be repaid?
What would happen if the world–like little Iceland and perhaps Greece–lost its belief that its fictional debts must be repaid.
If the world refused to repay fictional debts, would the world escape fictional debt-bondage and become more free?
Are creditors and central banks preventing a Greek default in order to prevent the world from learning that a default on fiat/fictional debt could be largely insignificant?