Beyond metaphor … comes total nonsense, German style

Under an accompanying heading – “Beyond Greece” – the German Handelsblatt (a daily financial/business newspaper) published the article (July 14, 2015) – The Uncomfortable Truth About Debt. It was meant to be some sort of justification for the touch German stance against Greece. The authors claimed that “Germany has been hounded internationally for taking a hard line on Greece. But there is a bigger problem on the horizon: the debt mountain in Europe, and the world, is too high”. My BS sensors were on high alert as I read the opening paragraphs. There was good reason for my alert – the article, which would have been read by tens of thousands of German corporate sector managers etc, demonstrates a palpable failure to comprehend what the real issues confronting the Eurozone are and how Eurozone Member States (19 of them) are fundamentally different in terms of fiscal capacity relative to nations that issue their own currency. No wonder the political classes in Germany can get away with behaving so abominably.

To start things off, consider this tweet from the Slovak Finance Minister the day after the Troika (via the EU) destroyed the modern basis of the European Union and the European Project. He should learn to spell but then we are all in that camp from time to time!

In other words, there was a ‘bolshie’ Greek uprising that the Syrian (sorry Slovakian) government and its other right-wing thug mates like Germany and Finland had to crush quick smart.


The Handelsbatt article starts of with their motivation:

The mere fact that Germany’s finance minister Wolfgang Schäuble raised the possibility of Greece’s exit from the euro zone during the talks, and that German policymakers have led skeptical euro zone countries in demanding tough structural reforms from cash-strapped Greece in exchange for aid, has been a source of consternation around the world.

But perhaps Germany’s reason for sticking to its principles in the case of Greece – demanding that the European Union’s rules be upheld and that each country in the euro zone be made to keep government spending in line – is that policymakers here see a much bigger problem on the horizon.

So the claim is that Schäuble and his thugs from Finland and Slovakia etc are acting out of greater insight when they pulled Greece back into line after there little moment of rebellion and OXI.

Apparently, the Eurozone “rules” and “principles” are sound arbiters that need to be obeyed or else bigger problems will emerge.

That is the basic bias of the article and the application is the so-called “mountain” of debt – the “bitter truth” – that Greece currently has.

According to the authors it is this:

… €340-billion mountain that has stymied the country’s economy over the past five years …

Which is about as far-fetched as one can get when analysing macroeconomic dynamics. What has “stymied” the Greek economy over the past five years, as they euphemistically call the destruction of the productive capacity of the Greek economy, is not the public debt that the Greek government is currently liable for, that is a symptom of the cause, a response to the cause.

It is also a guaranteed response as a result of Greece surrendering its currency-issuing capacity when it entered the Eurozone and began to use a foreign currency. I come back to that point later.

The reason the Greek economy is in Depression is not the stock of outstanding public debt (which is mostly now at very low interest rates and at rather long maturities), but the catastrophic collapse of spending (aggregate demand) since 2008, much of which has been driven by the ridiculous austerity that the Troika (aided and abetted by Germany dominance in European economic policy making circles) has imposed on the nation.

I provided some data on that collapse yesterday in response to a comment on Friday’s blog – Friday lay day – Surrendering to the Recession Cult.

The facts are obvious:

1. The scale of the austerity imposed on Greece was unprecedented for an advanced nation. Between 2009 and 2014, the discretionary component of the Greek government fiscal balance fell by 20.1 per cent compared to the Euro area average of around 4 per cent.

Fiscal swings of that magnitude in that short a space of time are virtually unimaginable. But they have happened and so the Greek economy was … shall we say “stymied”. More accurately it was choked to near death.

Please read my blog – Greece should not accept any further austerity – full stop! – for more discussion on this point.

2. Real GDP fell by 26.5 per cent between the peak June-2007 quarter and the March-quarter 2015. That is a Depression-type fall.

3. Unemployment remains above 26 per cent (March-quarter 2015) after rising from 7.3 per cent in the September-quarter 2008. That is a Depression-type rise.

4. With national income falling and unemployment skyrocketing, the components of private spending, it is little wonder that
real consumption fell by 24.7 per cent between the peak June-2009 quarter and the March-quarter 2015. That is a dramatic real collapse almost unprecedented in history.

5. With sales collapsing, there was no incentive for firms to continue to invest in productive capacity accumulation. And so, between the March-quarter 2008 and the March-quarter 2015, real gross capital formation fell by 59.8 per cent. The investment ratio fell from 24.6 per cent to 13.8 per cent at a time that the denominator (GDP) fell by 26 per cent. That is a dramatic real collapse almost unprecedented in history.

That is why Greece fell into a massive Depression. The growth in its public debt was just a reflection of the rise in public deficit as its tax revenue fell and the welfare payments rose – that is, the automatic stabiliser component of the fiscal balance.

Please read my blog – Structural deficits and automatic stabilisers – for more discussion on this point.

I repeat the basic rule of macroeconomics – spending equals income, which leads to output and employment.

Someone’s spending is another person’s income. There has to be growth in spending for income and output to grow.

If there is unemployment it means that total spending is insufficient to generate enough output and hence jobs to satisfy the preferences for work of the unemployed.

The solution is always for the government to either directly increase spending to lift sales in the private sector and stimulate further income and/or to cut taxes, which might lead to higher private spending.

If Greece’s debt was the problem rather than the response, then Japan would be similarly in a massive Depression. Yet its unemployment rate barely hit 5 per cent (very high for it). The Japanese government did not impose the fiscal austerity on its people, correctly understanding that as the issuer of the Yen it could freely spend in deficit and maintain support for total spending while the private sector recovered.

But our Handelsbatt geniuses then claim that the Greek debt problem:

… pales in comparison to the wider European mountain of debt, and the even bigger global mountain of debt standing.

Those debts have exploded since the global financial crisis started in 2007. The debt mountain has left a series of global economies around the world at the whim of banks, pension funds, and hedge funds that have filled their coffers in the hopes that this will magically bring about new growth and a better life for citizens.

I will come back to their implied comparison between Eurozone nations and the “United States, Britain and elsewhere” later.

But, if we take the US as an example, who bought the US government debt during the crisis? Well the answer is not the ‘whimsical’ banks etc, but t

I haven’t updated my database on these purchases recently but I wrote about it in this blog – The US government can buy as much of its own debt as it chooses.

In 2011, at the intense stages of the crisis, the increases in the US Federal Reserve’s holdings accounted for 61 per cent of the total increase in US federal government debt.

That proportion fell in 2012.

This New York Times article (February 21, 2014) – No Surprise, Fed Was Biggest Buyer of Treasuries in 2013 – reports that:

THE Federal Reserve financed most of the government’s deficit in 2013, in sharp contrast to the year before, when the Fed did not add to its holdings of Treasury securities.

The 61 per cent in 2011 was topped by the 71 per cent in 2013.

In other words, the US government (consolidated Treasury and central bank) can always assume the role as its own largest lender. That is, the Government can always borrowing from itself!

A currency-issuing government is never at “the whim of banks, pension funds, and hedge funds”. The private banks etc are always beggars at the table of corporate welfare provision if the government asserts its full range of capacities.

Please read my blog – Who is in charge? – for more discussion on this point.

Apparently, this “debt mountain” is the result of:

… a sort of stimulus-driven brand of capitalism that has spread itself around the world, driven by economists in the United States, Britain and elsewhere … [which] … could soon blow up in everyone’s face …

The ‘old-Japan-is-going-to-run-out-of-yen’ trick which characters like the authors have been trying on for the last 25 years – always using words like “could” and refusing to make predictions as to when.

But even the “could” is inappropriate when applied to currency-issuing nations such as Japan.

The article reinforces its lie with the usual metaphors that are designed to mislead the reader (or listener).

So there is a fancy graphic that compares Greece, the Eurozone, Germany, the US and Spain under the heading “A Mountain of Global Debt” and the mountain has “ballooned” from 2007 to 2015. Mixed metaphors even.

The next graphic compares Italy, France, the UK, China and Japan under the same heading.

Thank god, there were only two of these ridiculous representations.

Anyone with any understanding knows that the comparison between Eurozone nations with use a foreign currency (the euro) and the US, UK, China, and Japan, which are fully sovereign in their own currency (they issue it under monopoly conditions) is invalid when discussing public liabilities and their implications.

None of the Eurozone nations can guarantee their public liabilities with 100 per cent certainty. There are varying degrees of risk attached to any euro-denominated liability issued by a Eurozone Member State.

It might be argued that Germany public liabilities are low risk. That is probably true but they are not risk free. Any public liability issued, say by Japan is risk free.

Further, no Eurozone Member State can control the yields (interest rates) that it has to pay when it issues debt. Only the ECB can do that and it has demonstrated that capacity very obviously when it introduced the Security Markets Program (SMP) in May 2010.

All currency-issuing governments can control the yields that they have to pay on their debt anytime that they desire to do so. The fact that in this neo-liberal era yields are mostly determined by auction processes whereby the last acceptable tender bid from one of the private primary bond buyers sets the rate for that tender doesn’t alter the power of the government as the issuer to set whatever yield it likes including zero!

How do I conclude that? Simply, before the issuance processes moved to pure auction formats, tap systems were popular. So the government would announce it wanted to borrow $x and was prepared to pay a interest rate of say y percent. If the yield was below what the private sector thought was desirable the bids for the bonds would be less than the $x amount desired by the government.

In that case, the central bank would absorb the remaining value – that is, buy the private bond purchase shortfall. The yield didn’t alter, just the proportion of the tender taken up by the private sector.

We also know that the central bank could simply purchase all of the bonds if it was instructed to do so by the government. If there are laws that prohibit that now, the legislature can change them. If there are regulations that prohibit that, the government can alter procedures.

The central bank can always announce it will buy whatever bonds are available for sale in the primary market (as above) or in the secondary markets (after the bond is issues) and use its infinite currency issuing capacity to drive the yields to near zero (in secondary market debt) if it wanted to by pushing up the face value of the bond in the markets.

It is a simple, which has been done over and over again. That essentially is what Quantitative Easing does – drives down yields of a particular maturity segment of the asset portfolios held by the non-government sector.

And, to put it in more stark contrast, a currency issuing government, should it desire, can spend beyond its tax revenue without issuing any debt at all. It could simply instruct its central bank to credit whatever private sector bank accounts it desired to transfer purchasing power into – whether it be to purchase private labour, goods and services, or make income transfers.

All of which makes a discussion about ‘public debt’ rather lame when applied to currency-issuing governments.

No Eurozone government has these capacities which makes any comparison with nations such as Japan and the US irrelevant. Anyone who attempts such a comparison thus discloses their fundamental ignorance of the way monetary systems operate and the opportunities that a currency-issuing government possesses to advance societal well-being.

The article wants to apply their appalling logic to the future of the Eurozone.

They point out that “the German psyche and more conservative economic way of thinking” explains “why the German public has strongly supported Mr. Schäuble’s tough stance in talks with Greece over the past days, months and years.”

The message is clear: Germans are morally superior because they are thrifty. The rest of the world including the Eurozone should follow that approach and avoid the “happy now and pay back later” mentality that pervades governments around the world.

Well, that would be a very dangerous piece of advice in terms of Germany’s mercantilist growth model. Should the rest of the world adopt their particular constraints on domestic demand, suppressing real wages growth for their workers and running fiscal surpluses – the German fiscal surpluses would not exist for very long and they would be climbing, dare I say it, the ‘debt mountain’ except for them it would be a mountain of ‘schuld’ (guilt)!

The lectures that the German Finance Minister gives to the Eurozone belie that fact. Their export model can only work if other nations overspend (that is, incur debt) whether it be the Greek government being conned into buying second-hand military equipment or otherwise.

Further, having these other Eurozone nations in the monetary union (overspending) keeps the euro exchange rate lower than otherwise, which provides a boost to German exporters and allows the German government to run fiscal surpluses.

Remember this Reuters report (March 23, 2010) – Broke? Buy a few warships, France tells Greece.

We read that:

In a bizarre twist to the Greek debt crisis, France and Germany are pressing Greece to buy their gunboats and warplanes, even as they urge it to cut public spending and curb its deficit.

I have written in the past about how the Germans had been pushing Leopard tanks and other weapons onto Greece at the same time as claiming the Greeks were lazy and were spending too much. Please read my blog – Hyperdeflation, followed by rampant inflation – for more discussion on this point.

The blackmail element in the recent so-called negotiations between Greece and the Troika is not a new development.

The Reuters report said:

“No one is saying ‘Buy our warships or we won’t bail you out’, but the clear implication is that they will be more supportive if we do what they want on the armaments front,” said an adviser to Prime Minister George Papandreou, speaking on condition of anonymity because of the diplomatic sensitivity.

Apparently, when the Greek prime minister was negotiating at the time about fiscal austerity, the French we pressuring them to go ahead with billions of euros of military ships and helicopters. They agreed!

Germany has continued to flog submarines to the Greeks and has put those expenditures outside the austerity net in its demands through the Troika.

But the Handelsbatt authors cannot see any of this and claim that thus “brand of capitalism” (overspending) is “a brand that runs very much counter to the German psyche”.

Okay, see how far Germany gets if all the importers stop buying German products as part of their new German-inspired thrift measures.

Imagine what would happen to the German car industry if the euro rises too far as all nations engage in German-style thrift. I would welcome less Mercs and BMWs on the Australian roads, arrogantly tooting as they barge by as if they own the roads!

They observe that debt has risen during the crisis and nations are struggling to bring it down. But they fail to explain to their readers that the GFC was a particular type of recession – a balance sheet recession.

Please read my blog – Balance sheet recessions and democracy – for more discussion on this point.

These are generated by a crash of unsustainable levels of private debt and require sustained fiscal deficits by the government for extended periods to support growth and the restructuring of the private debt. It was not a typical V-shaped cycle where usually private capital formation declines, the economy recesses, and stimulus is applied as investment recovers relatively quickly.

All that is required in that case is a return to confidence on behalf of private spenders. In a balance sheet recession, longer term balance sheet changes are required in the private sector as well as a return to confidence.

So it is little wonder that the public debt ratios have remained high. Further, the process of private balance sheet restructuring has been interrupted by the manic austerity that governments have sought to impose, which has kept growth at well-below trend levels and provided very weak income growth.

But the Handelsbatt geniuses don’t mention any of that.

They think the prescription is for European nations to start obeying the Eurozone fiscal rules – the Stability and Growth Pact and its abominable additions (Two-, Six-packs, fiscal compact etc).

And, what they fail to say, is that if the European Commission had have maintained rigid discipline over the rules then the Eurozone would still be mired in deep recession rather than teetering on the brink of recession with massive inflated unemployment rates and rising poverty rates.

The authors, sensing they are on a roll, then really jump over the cliff.

They start railing about private debt claiming that:

Credit has become the new opiate of the people …

But, of course, they fail to tell their readers, they probably don’t know it themselves, that a government deficit (surplus) equals a non-government surplus (deficit) dollar-for-dollar, euro-for-euro.

Not all sectors can run down their indebtedness at the same time (under current institutional arrangements relating to public debt issuance).

Anyway, worse is to come – they start quoting the Excel Spreadsheet Champions – you know the ones that couldn’t (or deliberately didn’t) get some basic Excel arithmetic correct and then told the world, on the basis of the fraudulent or incompetent calculations, that governments were about to run out of money – Rogoff and Reinhart I am referring to here.

So as they predict that “deficit spending won’t be possible for ever” – yes, at this point, they bring the next neo-liberal economics rabbit (myth) out of the hat – the ageing population myth – we read – metaphorically of course – that there is a:

… ticking demographic time bomb.

Which I thought was a beautiful piece of scripting.

This fantasy story then tells us that:

Germany is the success story of exactly such an austerity-driven policy. Europe’s largest economy survived the 2008 financial crisis better than many of its peers, thanks in part to a tough previous decade that was characterized by relatively low government spending, low wage growth and labor market reforms.

Well, not exactly. It ran foul of the EU rules itself in 2002 and if the European Commission had have imposed its rules to the letter, then Germany would have been stuck in a worse recession than it experienced.

And then … as noted above … Germany’s export boom relied on non-austerity elsewhere.

At that point I concluded that the Handelbatt authors are cocooned in a sort of ‘Deutchedelusion’ and I noted my BS sensors had exploded.


I can’t write about this article anymore – but I can assure you there were references to “global debt traps”, “moral hazard” (in relation to debt relief for Greece), and the classic “Sovereignty ends where the interests of creditors begins”, which is the EU mantra.

Democracy is at the whim of the creditors

And if you have a little “Greek Spring” be warned the German “austerity-driven” model is about to crush you. But remember also, that the austerity imposed will exclude all the key items that underpin the German export growth.

These are the rules these days in Europe.

And this sort of nonsense is being read each morning by German industrial leaders. No wonder they support the current government.

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This Post Has 23 Comments

  1. “Germany is the success story of exactly such an austerity-driven policy.”

    “Public finances in Germany indeed are contributing noticeably to macroeconomic stabilisation. The German government has implemented discretionary measures in a magnitude of over 2% of GDP for the years 2009 and 2010. Most of the effects of these measures have still come into effect. With regard to fiscal stabilisation it is also necessary to keep in mind that its effects should not only be evaluated by discretionary measures alone. Built-in adjustments in public budgets – so-called automatic stabilisers – provide stimulus through a rule-based fiscal framework. These automatic stabilisers are more important in countries with larger social security systems and progressive tax systems. For example, in Germany the contribution of automatic stabilisers in 2009 and 2010 will be nearly 3 % of GDP (including developments in profit-related taxes). . . .
    Thus, for a thorough assessment of public finances in its stabilisation role the swing in the overall public deficits is the most adequate measure. According to the latest forecast by the European Commission – which is plausible in our view – the overall public deficit will deteriorate by 6 % of GDP over 2009 and 2010. This is somewhat less than in the UK, but it makes clear that – contrary to some popular misperceptions – Germany’s fiscal policy is markedly contributing to stabilising the economy. ”

  2. Dear Bill

    Most people would agree with the “common sense” of Handelsblatt. They experience debt as a burden and think that it is better to be a creditor than a debtor. Only a minority of people realize that one man’s debt is always another man’s asset and that a saver always needs a borrower, unless it is physical goods that are saved. Also, the vast majority out there see government debt as a problem. The current Canadian Prime Minister, Stephen Harper, takes pride in aiming for a balanced budget, that is, in not adding to the federal debt. MMT’ers seem to spurn common sense. If you and the author of the article in Handelsblatt were to have a public debate, you would almost certainly lose.

    Regards. James

  3. If a borrower defaults on loan agreements this reduces the resources available to lenders.
    The lender kept his side of the bargain. The fault lies with the borrower who breaks his promises.
    In the case of private individuals and companies, there are sanctions (bankruptcy and imprisonment) in order to deter and punish such anti-social behaviour.

    But in the case of a government which defaults, there seems to be confusion regarding to appropriate response by the international community. How can recalcitrant governments be obliged to keep their promises in treaties, commercial deals and loan agreements?
    Imposing austerity and other sanctions on a country is a tragic disaster for all classes, especially those without jobs.
    What is the best way to deter and punish countries which break international loan agreements?
    MMT rightly castigates austerity, but doesn’t seem to have any clear alternative.

  4. “a saver always needs a borrower”

    Not true. A saver always needs a spender.

    “the vast majority out there see government debt as a problem”

    Does that make it true?

    “If you and the author of the article in Handelsblatt were to have a public debate, you would almost certainly lose”

    The debate here is one between the laws of arithmetic and a belief system. Woe is us if the belief system ‘wins’.

  5. “MMT rightly castigates austerity, but doesn’t seem to have any clear alternative”

    Having the sovereign act as the spender of last resort (create and spend state money to put production into the public sphere) isn’t an alternative?

    The fact that Greece and other members of the Eurozone gave up this option is why they are having problems now, and as long as it remains so the problem will never go away.

    Is that a clear alternative?

  6. Dear pualmeli

    A saver is someone who spends less than his income. This implies that a saver needs someone else who will spend more than his income since total spending has to equal total income. A person can only spend more than his income if he borrows or reduces his assets. Selling off assets to finance spending is strictly speaking not borrowing, but it is the equivalent in the sense that both borrowing and selling off assets result in lower net assets. Net financial assets in the world are always zero.

    If a majority sees something as a problem, that doesn’t make it true, but that does makes it politically relevant.

    Winning a public debate only means that you convince more listeners than your opponent. The winner could be totally wrong.

    Regards. James

  7. James, common sense tells us objects are solid while physics tells us they are mostly empty space. It is the latter that is true, so common sense can often be quite misleading.

    Kinglsey, MMT, at least in Bill’s hands, has a very clear alternative. I recommend that you have a look at the following blog of Bill’s:, entitled How to Discuss Modern Monetary Theory (5 Nov 2013). If, after looking at that, you still don’t think MMT has a clear alternative to the mainstream narrative, then I don’t know what to say.

  8. “This implies that a saver needs someone else who will spend more than his income since total spending has to equal total income.”

    You’re leaving out the government (sovereign). Total spending for the non-government includes government spending, and this is almost always greater than private borrowing.

    Borrowing allows one to spend income not yet earned. Basically, the way I see it, the credit circuit relies on the anticipation of future government spending (income).

    If you are referring to the Eurozone, this is a different animal altogether and you have pointed out why it can’t work.

    “Net financial assets in the world are always zero.”

    The net financial assets held by the U.S. non-government is a (large) positive number. Why would that not be true for the world? Are you subtracting a sovereigns ‘liability’ that is from the accounting to arrive at your conclusion?

  9. Great piece as always Bill. I have a question for you about this line-

    “None of the Eurozone nations can guarantee their public liabilities with 100 per cent certainty. There are varying degrees of risk attached to any euro-denominated liability issued by a Eurozone Member State.”

    One of the ways that I like to elucidate the difference between Sovereign currency issuing Govt monetary ops and currency users is the distinction in “what you OWE”. When currency users pay off their debt liabilities, they must deliver their own financial assets, which are normally commercial bank deposits. Whereas the Federal Govt pays off its “debt liabilities” (TSY securities) only with its own financial liabilities (reserves). In other words, Federal Govts pay off their IOUs with their own IOUs and everyone else pays off their IOUs with their own assets. Govt’s cant ever run out of their own “promises” aka IOUs. And you cant buy Govt TSY IOUs with anything but Govt CB IOUs (reserves). So the whole system is self-contained on the Govt’s books. As you said, this is the monopoly condition.

    With that said, the Eurozone case is interesting. For instance, because the national CBs are responsible for operating their own domestic payments systems and only use Target2 for international settling, where are the differences between my above description and the EZ? Are Greek CB IOUs (reserves) still the only way to buy Greek Govt TSY securities IOUs? Arent Greek CB IOUs still the only thing that are promised when a Greek Govt bond matures? Because the EU nations still have their own NCBs, wouldnt it be more accurate to think of the Euro as 19 sovereign Euro denominated currencies pegged to each other internationally (like a Bretton woods system but without different names for each countries’ national currency) instead of each nation using a nominally “foreign” currency? So if you’re a German citizen and you want to buy a Greek Govt bond, wouldnt your purchase ultimately have to be cleared and executed on the Greek Govt’s books? In other words, dont the mechanics and accounting of the Greek GOvt IOU system work exactly like the USA system but for the international clearing system (Target2)? And isnt the only power that the ECB has over the national Govts is the ECB’s ability to guarantee that national Govt CB IOUs clear at par internationally? Arent the CB notes and coin even distinct between each country with their serial number series and their language used on the physical currency?

    Once I started working through the actual accounting and flow mechanics things started to look a little different then how my preconceptions painted the picture. Thats why the best economic saying is still…”if you dont get the accounting right, you cant get the economics right.”


  10. “If a borrower defaults on loan agreements this reduces the resources available to lenders.”

    Not in aggregate. It may kill the particular lender and the particular borrower, but the ‘resources’ are not real and have just moved around (the equity of the lender’s funder is now with the recipient of the borrowers spending). Killing the faulty lender actually makes space for a better lender to take their place.

  11. Dear Bill,

    I am as always grateful – as a European/Danish citizen, that you go into the problems of Europe and Greece. Calm highly competent (MMT) economist are a rarity in Europe. I am inclined to trust you more than anybody.

    But what about the practical problem if Greece exited the euro – and had to develop their own currency? Have you thought about this problem – or perhaps even written a bit about it somewhere?

    Naked Capitalism has argued for this as perhaps THE biggest problem of a grexit – from todays blog:
    Please let me know if you have

  12. Correction, I meant total income for the non-government includes government spending.


  13. The “Letter from Berlin” in the latest Private Eye (not on-line) they discuss the German attitude to corruption, particularly in the context of arms sales to Greece.

    “Those being investigated and prosecuted by the Greek reads like corporate Valhalla’s roll of honour: Siemens, Daimler-Benz, MAN, Rheinmetall are just the most prominent to land in the dock. Even the German State Railway, Deutsche Bahn, deployed baksheesh to secure contracts in Athens.”

    “For many years we effectively encouraged corruption in other nations. Until 1999 it was not only legal to bribe foreign government officials, but companies could deduct the payments from their taxes. … Thus German taxpayers were subsidising Greek corruption.”

    “Greek public prosecutors are uncovering a range of cases going back two decades, mostly perpetrated by German companies, especially in arms procurement where rewards were bounteous. Between 2005 and 2009, before Greece came face to face with bankruptcy, it was the fifth largest importer of weapons in the world. In 2009 it spent Euro 8bn, the equivalent of 3.5% of GDO, on defence, the highest rate among NATO members.”

    “Most of these armaments were bought form German firms with generous inducements. How big a scandal this appears depends where you sit.”

  14. “The reason the Greek economy is in Depression is not the stock of outstanding public debt (which is mostly now at very low interest rates and at rather long maturities”

    the yield on greek debt across most of the maturity structure is above 10% and sometimes well above it.

    im not sure what the definition of very “low interest rates” is, but i dont think the greeks would see themselves as paying very low interest rates when you look at what the rest of europe is paying.

    yes , its not necesseraly about the stock of debt , but the debt service is unsustainable under the current monetary framework, when gdp is heading south for the winter.

  15. “What is the best way to deter and punish countries which break international loan agreements?”

    in times past , invading them and confiscating their industrial production was quite popular 😉

    the germans were on the receiving end not so long ago.

    the modern varient is forced privatisations of public goods by unaccountable extra national bodies 😉

  16. Bill,

    I was just wondering what Greeks and other EZ residents could do about the situation they find themselves in. I was thinking of a couple of possibilities.

    1) Organise a boycott of all German and Dutch products until these countries agree to recycle their surpluses.

    2) Move their savings out of the peripheral EZ banks. As recent events show, a Greek euro is not the same thing as German euro. If I lived in one of the less safe regions of the EZ I certainly wouldn’t want to keep any large amount of money in a local bank account. I’d be looking to keep my euros in a German bank account. Not that I’d want to do the Germans any favours but I would want to force them to accept full liability for their favoured currency.

    Any thoughts?

  17. Bill,

    Do you have post that discusses the effect of private debt (eg mortgage) default on net savings?

  18. “What is the best way to deter and punish countries which break international loan agreements?
    MMT rightly castigates austerity, but doesn’t seem to have any clear alternative.”


    i think the issue mmt would have in the first instance , is the need for any nation to undertake international loan agreements denominated in a foreign currency.

    all the governments liabilities should be in its own currency , and the treasury/central bank should be able to issue as much of its own liabilities, it deems fit for purpose

  19. Mahaish:“What is the best way to deter and punish countries which break international loan agreements?”
    in times past , invading them and confiscating their industrial production was quite popular 😉
    the germans were on the receiving end not so long ago.
    the modern variant is forced privatisations of public goods by unaccountable extra national bodies 😉

    Yes, but the “in times past” way has been illegal since 1945- and there have been no arguable instances of it since before WWI, IIRC. WWII and various invasions/confiscations – eventually with Germans on the receiving end – were not about financial debt repayment.
    Michael Tomz’s Reputation and International Cooperation: Sovereign Debt across Three Centuries contends that there is “surprisingly little evidence of punitive enforcement strategies” even back then, when it was not flagrantly illegal. So the answer to the question is – there isn’t any way, let alone a best one. George Soros points this out somewhere recently too.

    The unaccountable extra national bodies – like the IMF everywhere, the Troika vs. Greece don’t have any real force, material or legal behind them. They work by convincing the victim to torture itself. This works amazingly well. But there is always the danger that eventually people wise up: uh oh They might learn some MMT uh oh.
    And then understand that especially for rich enough countries like Greece or Argentina – there just isn’t any need to have a good international reputation in capital markets, there isn’t any sane reason to issue foreign-denominated debt. “Above all, let finance be primarily national.” (Keynes)

  20. all in jest some guy,

    my point was that the germans should have more perspective given whats be fallen them before and after the second world war.

    “the Troika vs. Greece don’t have any real force, material or legal behind them. ”

    the troika have the ecb, and in my view it has been used as a political weapon.

    what do we think would happen to the rba board if they changed their minds about supporting our banking and payments system.

    they would all be deported to some atol in the pacific, or somewhere worse like europe.

  21. Larry: I’m not arguing against MMT. I’m only pointing out that MMT faces an uphill battle in the court of public opinion. Out there, it is assumed that nobody can live beyond its means for very long. This is generally true, but a government with full monetary sovereignty can live beyond its means in perpetuity, that is, it can always spend more than it receives in taxes. Good luck in convincing the majority of your fellow citizens of that.

    paulmeli: I’m simply applying the accounting identity that for every payable there is a receivable. If Paul has a payable of 20,000, then somewhere there has to be a Peter who has, or several Peters who have, a receivable of 20,000. If the payable and receivable apply both to the same entity, then they cancel each other out. So, if a government “borrows” from its own central bank, then there is no real debt.

  22. James, on the uphill battle, you are probably right about that. But something unusual is taking place in the UK’s Labour leadership election. The MP considered the least likely to win, and who is the most left wing, Jeremy Corbyn, after the first round of voting looks set to win. The right wing of the Labour Party have left it, seemingly for Ukip — good riddance to them. It looks like the young voters are those who may put Corbyn in the Labour driver’s seat. And one of his central policies is an attack on austerity. It is up to those who support him, should he win, to develop an alternative economic narrative that will enable him to back up, empirically and conceptually, what he truly believes to be the case. There are two more weeks to go, and a lot can happen in two weeks. The unfortunate thing is that his competitors in this “race” are not much more than party apparatchiks.

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