There is an undeniable internal logic to the crazy idea that Greece should jettison the euro and accept the U.S. dollar as its national currency.
Before you dismiss my crazy idea out of hand, hear me out. It might not be as crazy as it seems on first blush.
I have covered this many times before:
Why the Eurozone and the Euro Are Both Doomed (June 23, 2011)
Three More Reasons the Eurozone Is Doomed (September 22, 2011)
Yet Another Reason Why the Euro Is Doomed (October 17, 2011)
If we had to distill the dynamic down to a single paragraph, it would be this: By accepting the "strong currency" euro that was supported by promises of fiscal prudence, Greece and the other weaker economies of Europe artificially raised market willingness to lend them money and lowered the interest rate they would pay. At the same time, the euro also lowered the cost of goods from Germany by eliminating the market arbitrage of currencies.
I know this may sound complicated, but we can grasp the core dynamics using household analogies.
Nations have another mechanism to differentiate between strong and weak balance sheets: national currencies. Countries with weak cash flow and risky balance sheets will have weak currencies, as people price the risk into the currency.
The pool of apparently creditworthy borrowers expanded greatly, and the banks promptly began lending vast sums to both the public and private sectors of these fundamentally weaker nations.
If you eliminate the market's ability to price risk and credit, the market breaks down. That is the eurozone in a nutshell.
As a result, the weaker, over-indebted nations are in death-spirals of higher taxes and higher debt servicing costs. Each bleeds vitality and trust from the economy, driving it deeper into fatal contraction.
He reports that the Greek people are profoundly divided on the question of whether to stay in the eurozone or risk leaving it. He said that even within the various political parties, there are two camps. In his opinion, the odds of either camp surrendering their deeply held beliefs and fears is very very low. Those who want to stay in the euro are terrified that a return to the drachma would wipe out the nation's savings and further reduce the already diminished incomes of households: in effect, the middle class would be wiped out.
This is indeed part of the dynamic when nations radically devalue their currency: if a villa in Greece was 300,000 euros before the return to the drachma, it might be only 100,000 euros when the drachma is re-instated. Priced in euros, the whole of Greece would "go on sale".
Nobody put a gun to the head of lenders who fronted Greece stupendous sums of money at low rates of interest. It was their gamble and they lost. End of story.
The problem with returning to the drachma is the risk of the transfer is unknown, and so the risk will be transferred to the drachma. By making the process into two steps--exit euro for the dollar, then later, exit the dollar for the drachma--much of the risk and distrust is removed from the initial step of exiting the euro.
All euros in accounts would convert to dollars.
This will immediately restore trust and trade, both domestically and internationally, as everyone will know the U.S. dollar will retain its value everywhere.
Does Greece need U.S. approval to take the dollar as its interim currency? No--the dollar is ubiquitous and in sufficient quantity that there are enough physical dollars floating around the world to serve as the currency for a small nation such as Greece. It would help if the U.S. accepted Greece's choice, but American acceptance would be optional.
Greece desperately needs a visionary politician to emerge who can clearly state Greece's choices in taxation and governance: the State needs enough income to do what the people want it to do, and so everyone is going to have to pay taxes. Those who evade will have to be shunned/coerced by public opinion into compliance, for the national good. The institutions of taxation will have to restore trust in their fairness and transparency.
Greece must have a transparent national dialog on taxation and governance, and reach a consensus via the democratic process. Without this step, then it won't matter what currency Greece uses, it will slip further into a death-spiral of dysfunction.
2. Accept the U.S. dollar as the national currency of Greece.
3. Engage in a transparent national dialog and reach a consensus about taxation and the role of the state in the Greek society and economy.
We might add a fourth point: renounce scams and kicking problems down the road rather than addressing them directly, sweeping dysfunction under the rug, etc.
There is a compelling internal logic to my crazy plan: when trust in national currencies and institutions is lost, then the black market becomes the trustworthy place to engage in trade. The world's favorite black market currency is of course the U.S. dollar. In this sense, for Greece to officially accept the U.S. dollar as its currency is simply a recognition of the natural progression from a currency that is no longer viable to one that is.
New Max Keiser: On the Edge with Charles Hugh Smith. I was sharper in the "live in Paris" interview but Max is always worth watching:
Planting a garden is one way of revolutionizing your life and health: largest discount ever from Everlasting Seeds. It's the perfect time to start your veggie/herb garden, and Everlasting Seeds is offering oftwominds.com readers 15% off all products:Buy a Vegi-Max and share with friends!
Contains 30 seeds of each: Corn Broccoli Pea Onion Radish Carrot Cabbage Tomato Cauliflower Spinach Lettuce Pole Bean
Resistance, Revolution, Liberation: A Model for Positive Change (print $25)
(Kindle eBook $9.95)
We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution, and it combines cultural, technological, financial and political elements in a dynamic flux.History is not fixed; it is in our hands. We cannot await a remote future transition to transform our lives. Revolution begins with our internal understanding and reaches fruition in our coherently directed daily actions in the lived-in world.
|Thank you, Albert B. ($20), for your outrageously generous contribution to this site--I am greatly honored by your continuing support and readership.|