Wednesday, May 16, 2012



Greece provides a relevant example for America

Greece, similar to all European countries, had a terrible time during World War II.  Immediately following World War II, the Greek people further suffered a civil war.

Today, we are on the verge, at least I hope we are on the verge, of seeing the best news to come out of Greece since the end of the civil war!

And that good news would be that the politicians and ordinary people of Greece have told the EU political and financial bodies to go jump in the lake!

Default on external debt

Withdrawing from the EU would mean that Greece defaults on all external debt.  Good!  It has to happen.  German banks and other banks should have analyzed the Greek economy thoroughly, as any lender should do with any loan application.   If they had done this, they would have found that loans should not be given to Greece.  Probably the German government and other governments virtually ordered their banks to lend to Greece.  These governments were so anxious to increase membership in the EU that they turned a blind eye to negative signals.

So it is not Greece's fault alone that those foreign loans were made.  Greece's situation is similar to the situation of Americans without adequate finances who were tricked and enticed into taking on sub-prime mortgages.

In 1982, an article I wrote was accepted for publication in a magazine covering government policy, current events, etc. The main point in my article is "don't borrow money from foreign organizations or foreign countries".  If everyone had studied my article and followed the principles presented, the western countries would not be in as serious a financial mess as they are in now.

My article applies to governments and to public or private entities such as electric power companies.  A government should borrow within its own country.  In this way, interest payments stay within the country and keep working in the country.

Also, foreign loans are dangerous because of fluctuations in exchange rate.  Iceland, Greece, and other countries have suffered from this phenomenon in recent years.

What happens if a government cannot borrow as much money as it needs from within its own country?  Such an event is a strong signal that the government is heading in the wrong direction.  Government policies including spending priorities must be changed to make it possible to avoid foreign borrowing.

Greece after EU!

What happens to Greece when it withdraws from the EU?

Greece goes back to the drachma and the drachma falls.  Then what happens?  Imported goods, manufactured goods and other goods, are too expensive to import.  Great!  Employment in Greece immediately increases as the Greek people increase manufacturing for their own needs.  Also due to the low drachma Greek exports would increase.

The already active Greek tourist industry would increase.  Even though people in other countries are also facing austerity, they still want holidays.  Low prices in Greece would be very attractive.

What are the lessons for America?

Immediately stop further sales of Treasury securities to foreign companies and foreign countries.  We can't afford the hemorrhage of interest payments going out to foreign holders of these securities.

Similar to Greece, if the American government can't borrow enough money without selling Treasury securities to foreigners, then the government has to undertake a complete overhaul of its operations. 

Money going out of a country to other countries is a huge burden, much greater than any domestic expenditure.

To improve the health of the American economy, to increase jobs, and to reduce government deficits, we also have to cut other foreign expenditures:

+  eliminate our net hemorrhage of over $500 billion per year that pays foreign countries to do our manufacturing for us, while our own workers stand idle

+  cut foreign military expenditures by getting our soldiers out of war zones and back home, and by cutting our military garrisons in over 100 countries

+  prohibit further purchases of American companies by foreign governments or foreign companies, in order to stop further growth of profits going out of our country to foreign countries

Parking lot for money

Despite the fact that America is broke, a foreign country or individual who wants a safe place to park money still finds America attractive, in comparison with other countries. Even if little or no interest is paid, parking money in America still does damage.  It keeps the U.S. dollar at an artificially high level.  We need the U.S. dollar to be at its "natural" level to help cut imports and encourage exports!


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