Baff wrote:The Euro isn't Greece's core problem. The size of it's debt and stupid things they spent the money on is.
The size of it's debt is directly related to no having a sovereign currency. They're incapable of altering their currency to repay debt.
Greece having the ability to alter it's currency exchange rate would have alleviated it's problems in some way but hardly cured them entirely.
For example, the UK, Japan and America all still have massive debt issues even though they have their own soveriegn currencies.
Greece possessing sovereign currency would, as I pointed out, be able to repay it's debts w/ increasing taxes or borrowing more; it would also be able to simply issue the currency it needs for it's deficit.
Yes, the UK, Japan, and America have problems, but not because of the debt itself- it's because they refuse to operate as a sovereign currency. All three adamantly stick to austerity measures. Every time Japan issues a stimulus, their economy grows; afterwards, they cut their deficits and see their growth stop, forcing them to provide another stimulus later. However, at no point has this caused a problem to their ability to finance their government, and if they would provide the adequate stimulus in the first place they would have ended their "lost generation" twenty years earlier, and would be out of this by now.
As for the US and UK, more of the same. The UK has a pretty strict austerity policy and recently "narrowly avoided" a triple-dip recession when they managed to be a fraction of a percent above where they were six months before after being worse off for most of that period. The US saw decent growth after it's stimulus during "the recession" (as if it's ended), but continually declining growth rates since then. As we continue to tighten our belts, we see worse and worse performance- each year, the deficit is lower, and so is the growth rate.
Contrast this to China, where they managed to avoid slowed growth at all during the recession by using a massive stimulus that focused on infrastructure and development. They continue to increase their currency supply, allowing them to improve infrastructure, make investments, and increase domestic consumption. Or compare this to Ecuador, who followed a neoliberal program until '06 that failed them miserably but, after performing a strategic default, increased their deficit to improve roads, healthcare, and education, and whose living standards today are vastly improved. On one side of the coin, we see shitty growth and recovery from non-sovereign nations and from sovereign nations who stubbornly adopt austerity measures; on the other, we see strong growth from nations who have a decent deficit and invest in programs their country needs. Greece, if not fettered by the Euro, would readily fall into the second category.
The knock on problem for Greece if it devalued to repay it's debt would be much higher borrowing rates as potential lenders are wise to this tactic or indeed... no further willing lenders at all. (Plus higher costs of living due to increased price of imports).
Increasing the supply of currency is not inherently "davalueing" it. Particularly, I mentioned issuing new currency to repay it's debts; this offsets eachother, as repaying loans shrinks the supply of currency. Further, it would have no need of borrowing at all. Really, there's not much of a point in any nation issuing securities instead of currencies.
We consume more than we produce and this will end. Nothing we can do about it.
If it wasn't produced, how were we able to consume it?
Eran wrote:Greece is a perfectly sovereign state. It is constrained by the euro, but then until about 100 years ago, being constrained by money supply wasn't considered a sign of being less than perfectly sovereign. Otherwise, and by that standard, none of the states under gold standard were sovereign.
Further, Greece has chosen to use the euro, and, as a sovereign state, can choose to stop using the euro any day of the week.
In this instance, sovereign refers to the currency. States under the gold standard did generally lack sovereignty, but still managed seignorage in several different methods (increasing liquidity, changing gold/currency exchange rates, etc.)
In other words, Greece could default on its debt by inflating it away. As things stand, it can only default on its debt by defaulting on its debt.
1) Businesses default on their debt all the time. It often strengthens their performance, and rarely hinders them from taking on new assets. If this is true for businesses, it's far more true for governments.
2) Greece wouldn't be defaulting on it's debt; it'd be repaying it. It would be well within it's rights to tell it's creditors to fuck off and simply issuing the currency it needs for it's deficit. However, repaying your debts in a timely manner is not and never will be defaulting, regardless of inflation; by your logic, anybody who pays off their mortgage has defaulted on their debt because the value of that debt was lower than when it was originally issued.
Either way, Greece would find it very difficult to secure additional debt. Finding themselves in a position where they critically depend on ongoing injections of more and more debt is the real trouble Greek politicians find themselves in. Note - not past debt, but the ongoing need for new debt.
Completely false. All nations undergo inflation, limiting the value of debt overtime; it never hurts their capability to take on new debt. If they issue new currency in order to repay debts, which would in reality be a simple electronic transfer, than they'd have a
better standing, as people would be more assured of their ability to repay debts and more willing to purchase securities from them.
Furthermore, they might choose not to issue debt at all, and instead directly issue currency. In this case, not only would their credit rating remain good, but it wouldn't matter in the first place. The reason their debt is hurting them in the first place is because they're constrained in their ability to repay it; as a sovereign currency, they are neither constrained in repaying it nor required to borrow.