Debt Rattle January 27 2015
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DPC Delaware, Lackawanna and Western R.R. yards, Scranton, PA 1900 • Greece Debt Repayment In Full Is ‘Unrealistic’, Says Syriza (BBC) • Greece’s Craz
[See the full post at: Debt Rattle January 27 2015]Good call on your friend Varoufakis becoming Finance Minister. Also a bit scary – to find “power” moving closer to your own position. 🙂
I have a very small piece of advice for him; which you can pass on if you like. In the coming weeks, he will be inundated with press and other demands that he explain what he intends to do. Almost certainly – it will take him time to figure out what the real world options are.
In his shoes; I would simply make this repeated statement. “All avenues are being evaluated. Meanwhile; a word for you all to chew on: Iceland.”
🙂 No, hardly identical or even very similar; except all the financial heavyweights kept chanting “You absolutely can’t.” And – they did.
Varoufakis has said he does not think there is a debt crisis or debt problem. I saw him a couple of months ago in a video chat and was struck by his statement that there is not a debt problem because for every debt there is an asset.
This view is in direct opposition to AE’s view as well as the ever growing Doug Noland sort of analysis that posits a Credit Bubble. A linchpin of these views is that many of the assets underlying much debt is bad or nonexistent and much is also wildly inflated.
For someone hoping to have some policy power which he evidently had his position makes some sense. AE’s and Noland’s position, which I share, offers no way out in any short or medium term. A way out of deflationary debt collapse. One does not govern for or with such a circumstance.
So in the end Varoufakis ideas amount to keeping the game going. In the case of Greece having some of it’s debt and thus the assets those loans represent disappear. Thus saying all those other assets are good but let’s forget about ours, OK? Then hoping needing to turn around and borrow more. This is a legit strategy for Greece but in the bigger picture and over a longer term it’s just kicking the can down the road. Or that is my take anyway.
Yanis Varoufakis speaks with CNBC (four minutes). Karl Denninger says: “Here it comes! Paraphrased: You cannot get out of an inability to pay borrowed money by borrowing more. Go about halfway through the interview — and listen closely. Heh heh heh…..”
“When you’re spending more than you take in, the only sane thing to do is to stop that. But nothing says you have to pay what you allegedly owe and recourse is strictly defined by the agreement in question. Virtually all lending to a government is inherently unsecured because there is no property deed given to be held in escrow, as is sometimes the case with private lending arrangements.
In other words, you simply take the debtor government’s word they will pay.
But nothing binds them to pay.
Even if their Constitution allegedly binds them, Constitutions can be changed through entirely lawful process.
What Greece should do is repudiate the debt. All of it. If they need to vote through a change to their Constitution to do that, then do so. This will immediately cut off their access to further credit but that’s good, not bad.
You cannot get out of debt by borrowing more money. The two options to get out of debt are to pay it down and erect the middle finger toward the creditors. In the case of a sovereign nation that cannot pay the correct choice is often to erect the middle finger; after all, the other alternative, to run said “primary surplus”, requires cutting spending at least as much and nearly always more than does repudiation!:
One thing to keep firmly in mind in the next months; what ANY politician/ government minister says – in public, and to the press – is not necessarily anything like what they say in private, to the parties they are negotiating with.
“Time will tell.” is the ancient wisdom in response to this ancient fact of life. It will be fascinating to see what they DO. All of them.
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