A Crazy Idea that Just Won't Work….


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    …or, That Dog Just Won’t Hunt

    With Greece now rapidly going down the Euro Toilet, all sorts of cockamamie ideas are being pitched out for the Greeks to Save Themselves fromthe “Euro Straight Jacket”, as Nigel Farage puts it so often.


    The most often pitched out is for Greece to return to Drachma as currency, with anywhere from a 25% to 50% Devaluation of the Currency projected to make Greeks “competitive” in the marketplace.

    This idea is ludicrous, because really the Greeks have very little upon which to base such a currency now, and if they repudiate all the Odious Debt issued to them thusfar, nobody si going to buy new Greek Bonds issued in Drachma for quite some time to come. With nobody in the Bond Market buying their Toilet Paper, it becomes a Naked Printing Game, which sets them up for a Hyperinflation virtually the moment the first Drachma come hot off the Printing Press.

    Said currency AT BEST would only be good for Internal Trade, but even that is questionable since so much of what they trade about is IMPORTED in. Mainly it is all Oil Products, even the Food is an Oil Product. Even ignoring that and just looking at Gas for their Carz, the Drachmas won’t buy that stuff.

    Perhaps realizing how futile a reissue of Drachma is, Charles Hugh Smith from Of Two Minds has come up with anothe Crazy Idea, which is that the Greeks should take on the wonderful currency of the DOLLAR to stay afloat here. Over on TAE, one of the pundits there tells me, “HeyEcuador did it! The Greeks can also!” No, sorry they cannot, structurally their economy is far different than the Ecuadorian one, and their internal liabilities much greater, even if they DID repudiate 100% of Odious Foreign Debt obligations.

    Ecuador is a tiny country which has hardly industrialized at all, they don’t have a large civil service sector and they sure do not have lots of Pension Obligations. The Greeks have both of these things IN SPADES. Besides all that, Ecuador HAS Oil, Greece does NOT.

    Sure, if they did it TODAY and carefully and clandestinely, Greek citizens could sell off their Euros for Dollars at the current wildly STUPID exchange rate it trades at for no good reason at all.

    However, like J6P here in Amerika, MOST of the Greek Population does not HAVE any Euro TP in the Bank, and in fact they are probably even more skewed there than we are here in terms of the percentage of the population that has some Euros in the Bank. Wealthy Greeks NO DOUBT will exchange Euros for Dollars, but they won’t keep those Dollars in Greece for the Taxman to take, if the Greeks ever do manage to get Tax men that actually COLLECT taxes anyhow.

    From what I read in the Blogosphere and MSM RIGHT NOW, Greece has approximately $1B before they are Tapped out. Assuming they repudiate all Bond Payments TOMORROW, said $1B goes to pay Pension Checks and Civil Service Salaries, and is probably used up inside a few months at BEST.

    All the Greeks lucky enough to get some of these Checks spend them IMMEDIATELY for the necessities of life, like Food and Gas for the Carz or even just Public Transportation which itself uses Gas for the Buses etc. So in the end here, whatever Dollars they do have MOSTLY leave Greece to pay for their Imports.

    The amount the Greek Goobermint wil collect in Taxes on these purchases is just a fraction of the amount spent out here, maybe 10% if they collect taxes efficiently, which has never happenned in Greece before but for argument’s purpose say it does magically happen. Perhaps Magic Man Arch Druid John Michael Greer will cast a Spell which makes Greek Tax collection work.

    Anyhow, after even just one Cycle here, the amount of Dollars left in the Greek Economy will vastly shrink as the Dollars are spent to buy imported items. Unless somebody (Helicopter Ben?) keeps pumping Dollars intot he Greek economy, they will disappear from the economy rapidly, leaving the Greeks right back at Square One, unable to pay out Civil Service Salaries or Pensions. This makes for a LOT of Greeks off the Financial Cliff in no time.

    The only thing switching to Dollars does for the Greeks is for a VERY short period of time allow some Greeks who have some savings to buy Internationally traded goods, most notably in this Food and Oil products. However, it is little more than an “official” Black Market which is going to crop up anyhow even without an official switch to the Dollar. MOST Greeks will have NO access to Dollars, and even Middle to Upper Class Greeks who have some Dollars will spend them out quick enough.

    Greece is not Ecuador, and Greeks are not INSTANTANEOUSLY become competitive enough to bring more Dollars into their economy than they spend out of it. Drachma actualy works better in the respect of local trade, since no Drachma will leave Greece, it won’t be worth anything anywhere else. Problem is, it is ALSO worthless for buying anything imported into Greece.

    Overall, CHS is a pretty good Economic Pundit on the Net, but in this case he is just grasping at straws. Dollarizing the Greek Economy simply will not work. That Dog will not Hunt.


    A Repost from the Diner Forum

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