24 May 2012

The ultimate solution to the Greek debt crisis

Over the last couple of days, I have been thinking about ways of breaking the stranglehold of debt that is crippling the entire world economy.

I'm now convinced that we don't even have to wait for the Central Banks to step in. While this would definitely be a solution - as I have argued in my Youtube presentation "Solving the Debt Crisis" - I am well aware of the fact that the vested banking interests are very likely to block any attempt to use such a scheme - even though it makes perfect sense. After all, with the ex-European Director of Goldman Sachs as the recently appointed head of the European Central Bank (Mario Draghi), the blood-sucking vampire squids have got the system pretty well rigged. And the bankers will be doing everything they can to keep the gravy train on the rails, including paying Cameron and Osborne to block any attempts to fix the system.

But there is a do-it-yourself way out of the Greek debt crisis that doesn't require the agreement of the ECB, the IMF, or Angela Merkel and the Bundesbank. It uses the Ultimate Debt Killing Weapon that I proposed on my blog a couple of days ago.

Here's how it would work. Greece's national debt currently stands at about €350 billion.  It might be less if the "haircuts" that have been proposed as part of the bailout scheme had actually come into effect, but for the moment it looks like all that is still somewhat hypothetical. Let's use the €350 billion number to be safe.

To create €350 billion out a thin air using the fractional reserve banking trick, a commercial bank would need to have reserves of 8.6957% of that sum (as I argued in yesterdays post), namely about €30.4 billion. This is because the Basle III criteria require that banks have 8% reserves, and €30.4 billion is 8% of 350+30.4 = €380.4 billion.

So, what the Greeks need is a cooperative bank that is not overextended with loans. It could be a pre-existing bank, or it could be a new bank set up specially for the occasion. The bank would open a special account called the "Greek National Debt Cancellation" account. People interested in helping Greece get out of the current debt crisis would pay money into the account. Once the sum of €30.4 billion has been reached, the account would be blocked, and the bank would create €350 billion out of thin air using the same ridiculous scheme that the commercial banks have been using for centuries to get the rest of us into debt. The €350 billion would be handed over to the Greek government who would then pay off the entire national debt to the banking sector. The terms of the loan would be, shall we say, somewhat favorable. Namely, the Greek government would have to pay the loan back after a period of 1000 years with 0.000% interest.

As I said, the people who put up the €30.4 billion would have to say goodbye to their hard-earned cash. That money would be needed to ensure that the 8% deposit level was guaranteed indefinitely. They would not be allowed to withdraw the money.

You may be asking who is going to put up the €30.4 billion. Well, one very interested group would be Greek taxpayers who in 2011 had to pay €15 billion in interest to the banks. At that rate, the €30.4 billion would be paid off in just two years. And from then on, Greek taxpayers would save a minimum of €15 billion every year - money that could be used to pay for public services and end the austerity program.

But note that the €15 billion value for interest payments in 2011 was based on the old numbers. The interest rates that the markets were charging the Greek government reached over 29% in february 2012. At that rate, the payments on the €350 billion debt would be over €100 billion a year - nearly half of Greece's GDP!! All this means that Greek citizens would get a fantastic deal by investing some of their hard earned savings in the debt cancellation scheme.  Obviously, paying money into the scheme would be entirely optional, but even some of the  poorest Greek citizens would probably want to help out. On average, each Greek citizen would need to contribute about €2700 to activate the mechanim. But if there was some Greek shipping magnate who felt like providing the bulk of the €30.4 billion, then I'm sure he would become a national hero.

So, there you have it. A do-it-yourself method that would allow the Greek nation to get itself off the debt hook. No need to get permission from anyone. Goodbye austerity. Goodbye ratings agencies. And the Euro would be saved.

I can't help noting that there is something positively orgasmic about using the banks' own insane money creation scheme to destroy their own system.  And once the Greeks have shown the way, I would invite the citizens of every nation to use the same trick to cancel their national debts too.

Suddenly, life is looking a lot better....

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