We Are All Greeks Now. Does Totalitarianism Lie Ahead?
July 2, 2015
The Greek drama has entered its final act, after lingering on far too long. There was never any doubt Greece couldn’t repay its sovereign debts. Debts that, until now, were counted as assets on the books of its lenders. Living by the motto, In Central Planners We Trust, the Greeks forgot to ask, “What could go wrong?” They—and the world—are about to find out.
Calls for debt relief that began in Greece are arising across Europe—a debt jubilee, if you will. (Here in the U.S., similar calls are being made by powerful Democratic politicians, starting with a trillion dollars of student loan debt to finance expensive college educations of dubious value.) Since debtors always outnumber creditors, debt jubilees can become overwhelmingly popular when times get tough.
But debt relief is always and everywhere matched by asset destruction. One can argue the assets were already destroyed, so debt relief merely forces lenders to acknowledge reality. Cry them no tears. In a just world creditors who insist on lending to dubious borrowers deserve to taste the discipline of loss. But when governments use toxic bonds on bank balance sheets to magically manufacture money, the evaporation of those underlying assets has secondary consequences.
When default or debt relief strikes—it makes no difference which—the pyramid of manufactured money must either shrink or the impaired assets must be replaced. (For example, if you write off all Greek debt, the European Central Bank has negative equity.) If panicked fear of deflation causes these impaired assets to be replaced with freshly minted fiat money via an orgy of quantitative easing, a vicious circle arises that eventually causes money to lose its value.
We call this hyperinflation, a process that is well underway even if it’s not yet reflected in consumer inflation indices. But in time it must be, and many who thought they were saving for the future will ultimately learn that their money was funneled to deadbeats. The freshly impoverished will then be forced to join the growing line of said deadbeats seeking handouts. This can only exacerbate the demographic time bomb that would be threatening aging democracies anyway, even if central planners hadn’t embarked on a fit of monetary madness.
This is where totalitarianism enters the picture.
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