Debt and Usury, The Greek Example

[peristaltor.livejournal.com]

A couple of weeks ago, htpcl wrote a fine piece concerning the current Greek political situation and the rise of the extremist parties in the face of economic collapse and chaos. He made some excellent points, noting how the far-left Alexis Tsipras and ultra-nationalist Panos Kammenos have been making political points demonizing the centrist parties New Democracy and PASOK:

Tsipras . . . sensed the pulse and the big pain of the Greeks and, together with the far-right Kammenos, he said the old big parties like New Democracy and PASOK should be punished for all the evils they've brought upon the country. Now, obviously those really did fuck up big time in the recent decades, but meanwhile some of their achievements are being conveniently omitted in the Tsipras and Kammenos speeches. Like the EU entry (1980, New Democracy's achievement), the Euro-zone entry (2001, PASOK), the well organized Olympic games (2004, PASOK and then New Democracy), and the rising living standard overall. Unsustainable living standard though, and that's the main problem.

(I added emphasis)

I emboldened that phrase because, the more I delve into this whole economics thing from what some are calling a "post-Keynesian" perspective, the more I stumble on to the fact that those very achievements "being conveniently omitted" might be a proximal actual cause of Greece's troubles today. Allow to attempt an explanation.

As I've noted time and time again, banks create money through lending. Yes, there is a small amount of money out there created by the lenders of last resort, the Central Banks (called the Federal Reserve here in the States, actually a consortium of banks granted monopoly status by legislation in 1917), but it comprises (IIRC) less than 3% of all money on the books worldwide, and is therefore a somewhat insignificant amount to consider. Suffice to say, the vast majority of spending cash is what currency experts call bank-debt money.

Given that, a country short of currency would need to borrow in order to have currency. This simple fact puts the recent "achievements" of the until-recently dominant political parties in new light. The EU entry, Euro-zone entry, Olympics and rising standard of living all came about thanks to cash lent to the Greek government (or to government-connected entities) at interest, just as it does in other countries. So, what difference between Greece and much of the rest of the world is there that makes all the difference?

I think it might have to do with Greece's unstable political past. Coup upon coup might very well have transformed Greece into a country that follows Dmitri Orlov's dictum of dofenism:

Most Americans have heard of communism, and automatically believe that it is an apt description of the Soviet system, even though there was nothing particularly communal about a welfare state and a vast industrial empire run by an elitist central planning bureaucracy. But very few of them have ever heard of the real operative "ism" that dominated Soviet life: "dofenism," which can be loosely translated as "not giving a rat's ass." A lot of people, more and more during the "stagnation" period of the 1980s, felt nothing but contempt for the system, did what little they had to do to get by (night watchman and furnace stoker were favorite jobs among the highly educated) and got all their pleasure from their friends, from their reading or from nature.

This sort of disposition may seem like a cop-out, but when there is a collapse on the horizon, it works as psychological insurance: instead of going through the agonizing process of losing and rediscovering one's identity in a post-collapse environment, one could simply sit back and watch events unfold.

(Dmitry Orlov, Reinventing Collapse, New Society Publishers, 2008, pp. 129-130)

Substitute the "collapse" of Orlov's Soviet Russia for ongoing political instability in Greece, then it would behoove the Greek citizen not to put too much hope in which General or leader assumes the reins of power, and to instead play along and get as much as one can hoard to provide for one's family as best as one can when the next political shake-up comes down the pike. This version of dofenism, then, would emphasize what the rest of us might well term "corruption." To a Greek eye steeped in Greek recent political history, it might seem more like common sense.

From here we go to how much the Greek power elites might have exercised this self-interested attitude. We hear from bradhicks about this corruption:

Conservatives all over the world bleat about how awful and out of control Greek spending is, but truth be told, their government spending as a ratio of GDP is perfectly in line with the rest of the world's. The Greek economy is finally completely melting down because of corruption. Ever since Greece dropped the drachma and took up the euro, Deutsche Bank (and others, but mostly Deutsche Bank) has been running a sweet scam with elected Greek officials of both of the (previously) top two parties: Greek politicians borrow money from DB on behalf of the country, money that's supposed to pay for things that make the economy more productive like schools and roads and airports and docks and courts—and while they do let some of that borrowed money go to those things, they steal a lot of it.

Nobody knows yet how much. Greek reporters over the years kept documenting huge swaths of big graft, giant overseas bank accounts and whole private islands and priceless archaeological treasures spirited away into private collections, all paid for with money corruptly lent by German banks. But a recent anti-corruption audit of what wasn't even thought to be one of the more corrupt agencies has turned up estimates that are making even Greek journalists' eyes pop, 30%, maybe as much as 50%, stolen. And the thing about that is that if you steal half the productive capital in a country, it doesn't reduce economic output by 50%. It reduces it by a lot more than that, because people who see with their own eyes that nobody is getting rich by working, that the only way to get rich is to be a politician or a politician's friend and steal, only a few noble fools actually still do any hard work.

(Me again with the emphasizing.)

This is where I diverge from htpcl and declare what is making Greece's living standard "unsustainable" more than any other factor. When no one values work, no one will actually bother to work, now will they?

Ah, but there might be a glimmer of hope on the horizon.

---

I've been addressing until now the traditional view of modern money, the bank-debt variety. In a country with leaders as sensibly corrupt as Greece's, it would probably be a stretch to imagine that things were much different in the recent past; that is, leaders at the top probably hoovered as much cash as they could before it could flow to the rest of the Greek economy. Given that, one could assume that the money situation to the average or below-average Greek citizen might have been difficult at best.

If one assumes that, it wouldn't be much of a stretch to further consider that this lack of currency would have prompted alternative means of exchange out of simple necessity. Such an assumption is all fine and good, I know; but in this flurry of Greek coverage I've picked up evidence for just such a situation. I stumbled upon a BBC report from the Greek countryside talking about a Greek "bartering" system.

A few months ago, an alternative currency was introduced in the Greek port city of Volos. It was a grass-roots initiative that has since grown into a network of more than 800 members, in a community struggling to afford items in euros during a deepening financial crisis.

The system (called TEM, or Local Alternative Unit in Greek) is a computer-based credit system that allows participants to trade with each other. The TEM is based on the value of the Euro, so no one need convert the units during the transaction negotiations. The system is also credit-based like a bank's bank-debt note, but without interest:

The group’s concept is simple. People sign up online and get access to a database that is kind of like a members-only Craigslist. One unit of TEM is equal in value to one euro, and it can be used to exchange good and services. Members start their accounts with zero, and they accrue credit by offering goods and services. They can borrow up to 300 TEMs, but they are expected to repay the loan within a fixed period of time.

Members also receive books of vouchers of the alternative currency itself, which look like gift certificates and are printed with a special seal that makes it difficult to counterfeit. Those vouchers can be used like checks. Several businesspeople in Volos, including a veterinarian, an optician and a seamstress, accept the alternative currency in exchange for a discount on the price in euros.

(Yes, me getting bold yet again.)

That bold part is somewhat important. Bank-debt money comes with interest; the longer you hold the loan, the more money you pay back at the loan's termination. The TEM system uses a different system, called demurrage. The longer you hold the borrowed money, the less money you will have to spend. Fail to spend your borrowed money "within a fixed period of time" and some of that money simply disappears. Poof. Wait longer, and more goes poof.

One could argue that the bottom line effect of both systems is the same, in that the borrower has less money the longer he or she waits to spend. Ah, but there is an active incentive to spend the TEM money. One borrowing bank-debt money might "spend" that money on a profitable investment without actually circulating the cash through the local economy. If Hyman Minsky is right (and I suspect he is), this type of "Ponzi borrowing" might be the real reason our economy swelled to such great size and burst.

By contrast, circulating money directly into the base of the economy gives the currency more velocity. As Robert Reich so eloquently put it, money does not trickle down; it percolates up. One TEM or Euro or dollar or whatever goes into more hands, stimulating the demand for more and more goods and services like food or guitar lessons or car repair or, again, whatever. There are limitations, of course. TEM money is not easily converted into Euros, so one can spend it reasonably only in one's community or within communities that have also adopted the system . . . which might in the long run be a good thing.

In fact, this alternative currency adoption is what might have happened in Greece's unstable past. Back to the BBC report:

"We can buy bread or meat in exchange for our products, or the girls can go to the hairdresser," says Peri Mantzafleri, who runs the co-operative.

"I grew up in a village - this was how it used to work in the old days, before money became involved. So this could be a chance to start again."

Volos, a small village far from the money centers of Greece, and thus all the farther from the graft opportunities available to Greeks closer to the benefits clout* can bring, would be forced by necessity to extend credit to each other or starve. Only during the recent prosperity—again, brought by massive amounts of bank-debt credit injected into the country's economy—did enough money trickle to Volos that this older form of exchange prove unnecessary. This displacement of traditional credit systems for the more convenient currency system is exactly what David Graeber notes has happened where ever currency has been introduced.

---

So, if we have alternative currencies able to promote the general welfare of the average Greek (at least in his or her village), what to do with the enormous overhang of the country's foreign interest-bearing debt? Back to bradhicks from an entry he wrote the very next day. He noted that the money lent to Greece seems very much like the money US banks lent to Latin America in the '80s:

They loaned money to those countries in quantities and at interest rates that they knew, knew for a fact from their own in-house economic analysis, those countries could never pay back by anything like normal tax collection on a productive economy. If nothing else, the loans were due long, long before any of the stuff they were borrowing to build would be profitable. But more to the point, they also knew, from what their own loan representatives were telling them, that 50%, 75%, sometimes even 95% of the money lent was just being outright stolen, that only trace amounts of it were being invested in actual capital that would actually make the countries profitable. Which was just fine with the banksters; a fair amount of the stolen money was coming back to the banksters as deposits, after all. . . .

And they knew what they were going to do when the loans came due, too. They knew that by then . . . that no US president would ever, ever let some little third-world country get away with defaulting on a debt to an American corporation. If any country tried, they knew that the US CIA and the US Marine Corps would intervene to install a military dictatorship that would, if need be, send their own army out into the countryside to seize every possible resource, to seize every capital good, and to ship those all back to the US for free to pay off those loans. Because, you know, if they don't? That's communism! And in 1985, under pressure from the US, that is exactly what those countries tried to do.

And over the next two years, voters and peasants revolted - and won.

(I can't get enough emboldening, it seems.)

Cut to today, and Deutche Bank (and Goldman Sachs and many others) seems to have done with to Greece what the Yanks did to Latin America, lend now and assume (thanks to the Eurozone Treaty's lack of any provision for a member country to actually leave the Euro) that the collective power of the major economic powers in Europe would sooner bail out the smaller players than risk the collapse of the now-established currency. That is, they assumed the public Central Bank would allow them to privatize the loan's profit and socialize the risks.

And here, I take issue with htpcl. I do agree that Greece has developed a long and unsustainable tradition of corrupt laziness that needs to change. Like all cultural changes, though, such changes cannot be expected to happen overnight. These austerity programs instill too much change too quickly. What we are seeing with the Greek political chaos mirrors the political chaos of Germany and Austria after WWI, past chaos that created exactly what John Maynard Keynes predicted in his The Economic Consequences of Peace, the rise of extremist leaders. (Ironic that Germany should be most vehemently pursuing this austerity and payback, no?)

Instead, the corrupt politicians who absconded with all that sweet, sweet stolen money should be hounded to the ends of the earth, their ill-gotten gains used to pay the banksters of Deutche Bank (and others) back. That won't retire the entire amount, I know. The rest? It should be forgiven. It's called moral hazard. Make loans to people you know aren't going to pay you back, and you shouldn't expect anything back.

Again, there's precedent for this forgiveness of interest-bearing debt, precedent that goes so far back in history that most historians have all but forgotten it. How far back? This image should give you a little hint:



A bit of a cliff-hanger, I know. Forgive me, but it's Saturday, and for once the June-uary weather doesn't suck around here.

(*"Clout" is a slang term coined in Chicago, another city with a rich history of corruption both large and small. Properly used, clout refers only to illicit connections one can bring to affect his or her life. "I can fix this ticket with my clout in City Hall" would refer to a cousin working there and able to do so, again, illegally. Similarly, using clout to get a building permit approved faster than the usual waiting period or without the legal strictures required by permits means that permit seeker has someone in the permitting process able to do things otherwise explicitly not approved.

(Using the word "clout" to describe the legal influence a politician has over his or her colleagues and the legislative process is completely contrary to the word's origins. Such definitional corruptions should be, like political corruption, mercilessly quashed.)

Comments

[underlankers.livejournal.com]

There is, however, a major difference between the USSR and Greece in terms of disillusionment. By the 1970s and 1980s Soviet citizens were becoming aware of just how deeply flawed and impoverished the USSR really was, and how the Soviet system had always functioned, which progressively became a ticking time bomb. But the USSR was a resource-rich superpower in decline. Greece has never been anything more than a deeply poor, politically unstable country, and it is unlikely to be anything more in the immediate future. Too, the USSR had greater autonomy to decide to do or not to do various things. Greece, by contrast, is subject to the whim of the driving states of the EU, and thus also what Greeks do or do not do has less relevance to Greece's future.

[peristaltor.livejournal.com]

But the USSR was a resource-rich superpower in decline.

True, but that fact doesn't really apply to the average Russian. They probably felt themselves in as untenable a position as the average Greek.

[htpcl.livejournal.com]

> Greece has developed a long and unsustainable tradition of corrupt laziness that needs to change. Like all cultural changes, though, such changes cannot be expected to happen overnight.

Damn right. Nothing happens overnight. Well, it *could* happen, but it wouldn't be any sustainable change in the long run, and they'd soon revert to their old ways.

The bad thing is that most changes require something really drastic, a disaster to happen, so that people could "wake up" as it's called, and actually start addressing the problems in a real way. Sadly, I'm still not seeing such indications on the Greeks' part.

This may require another post, hehehe. I like it how we could make a chain of posts on the subject.

[peristaltor.livejournal.com]

Daisy chain! Daisy chain!

[htpcl.livejournal.com]

:-D

[lai-choi-san.livejournal.com]

Greek reporters over the years kept documenting huge swaths of big graft, giant overseas bank accounts and whole private islands and priceless archaeological treasures spirited away into private collections, all paid for with money corruptly lent by German banks. But a recent anti-corruption audit of what wasn't even thought to be one of the more corrupt agencies has turned up estimates that are making even Greek journalists' eyes pop, 30%, maybe as much as 50%, stolen.
...
Instead, the corrupt politicians who absconded with all that sweet, sweet stolen money should be hounded to the ends of the earth, their ill-gotten gains used to pay the banksters of Deutche Bank (and others) back.

One has to wonder why what was possible for Gaddafi's bank accounts isn't for Greek billionaires'.

[the-rukh.livejournal.com]

It might be if people keep bringing it up.

[airiefairie.livejournal.com]

Thank you for this post! Now I know what I will be reading today. =)

[il-mio-gufo.livejournal.com]

oh yeah, this is quite a bit to take in...

[il-mio-gufo.livejournal.com]

so....the use of TEM money, as opposed to Euro monies, is likely the culprit for the non-payments on their debts to the Central Bank? wait, did i word that correctly?

[peristaltor.livejournal.com]

Nah. TEM money is just credit extended to participants in the exchange. It is poofed into existence whenever someone joins, just as bank-debt money is poofed into existence whenever someone takes out a loan. This TEM credit is additional currency, a substitute for Euros (which nobody has).

Had the Euro currency loaned to Greece circulated normally, it probably would have built roads, schools, sewers and stuff that would have helped the economy function more smoothly and thus generated a bit of revenue for the country. Taxes on the use of same would have paid off the debts normally. So much has been absconded through graft and corruption that there isn't enough left in the economy to pay the debt service.

Since so much got stolen, Deutche Bank is demanding payment through austerity. Pensions are being slashed so much that people are committing suicide (http://www.telegraph.co.uk/news/worldnews/europe/greece/9186568/Austerity-suicide-Greek-pensioner-shoots-himself-in-Athens.html) rather than pass their unpayable debts on to their children.

This is backward and will end in tears, if not war. There is no surer way to start a war than to impose humiliation on a sovereign nation. TEM has the ability to leaven the damage by allowing people to trade, but it cannot fix the entire problem.

[terminator44.livejournal.com]

Have you ever read Cauldron by Larry Bond?

[peristaltor.livejournal.com]

I haven't.

[gunslnger.livejournal.com]

As Robert Reich so eloquently put it, money does not trickle down; it percolates up. One TEM or Euro or dollar or whatever goes into more hands, stimulating the demand for more and more goods and services like food or guitar lessons or car repair or, again, whatever.

How does you giving a examples of money trickling down show that it doesn't trickle down?

[peristaltor.livejournal.com]

Could you be less clear? What exactly are you asking?

[gunslnger.livejournal.com]

You said that [this guy said that] money doesn't trickle down, and then you follow it with a description of money trickling down. I assume you were trying to illustrate the previous statement, so I'm asking how you think it does that when it appears to do the opposite.

[peristaltor.livejournal.com]

TEM money is not trickling down. It is created by a non-profit local agency in Volos (in this case) and issued without interest directly to those that will spend it. Since they are creating it, one must assume the recipient hasn't got any yet.

"Trickle down" refers to money given (or taxes reduced to) those who, unlike the TEM recipients, already have spending power in the hopes that they will spend the money (historically, they don't). It's like filling a water tower with a constricted or outright blocked down pipe in the hopes that, if it gets full enough, a bit of water might chaotically spill over the top.

[gunslnger.livejournal.com]

People with spending power spend a heck of a lot more than those without, so I don't know what history you're referring to.

[peristaltor.livejournal.com]

"A heck of a lot more" refers to the dollar per capita spending by those with spending power. One person with a thousand times the buying power of another person does not buy a thousand times more dinners, but rather merely spends more per dinner than the others. Therefore the spent wealth of the very wealthy tends to raise the prices for necessities (high-end ones, at least) and concentrate in indulgences that do little for the overall economy.

Take vinyl record playback equipment. Paying hundreds of thousands of dollars (http://most-expensive.net/turntable-in-world) for players of obsolete media is simply an f-you thrown in the face of anyone who visits their home, not the effort to get the best audio fidelity that money can buy when a CD player can deliver better playback. The companies who make this equipment care less about improving fidelity (which at these levels is indistinguishable to human ears from affordable turntables) than catering to the stupid money whims of people with more dollars than sense.

That is why intelligent people (like Nick Hanauer (http://www.youtube.com/watch?v=bBx2Y5HhplI&feature=player_embedded)) correctly note that the way to create wealth is to enable lower and middle class spenders to spend more, not to vault the money away from circulation by shunting it to the top . . . which is what has been happening (http://www.angrybearblog.com/2012/06/recessions-are-natures-way-of-keeping.html) in a very, very large way. Those numbers don't lie.

[gunslnger.livejournal.com]

do little for the overall economy.

That appears to be an unsubstantiated assertion coming from a narrow view of what "the economy" is (or maybe should be).

simply an f-you thrown in the face of anyone who visits their home, not the effort to get the best audio fidelity that money can buy when a CD player can deliver better playback.

So what? Why does someone have to try and get "the best audio fidelity that money can buy"? Who are you to say that that's what they should be buying? I'd say f-you to that attitude. So you're looking at a niche market for one kind of item, but ignoring that the money given to that company goes to its employees who go out and spend it on other things that you would approve of and it does actually impact "the economy" in a positive way.

The way wealth gets created is by having money circulate, in any fashion, by any person, in any amount. Wealth gets created faster when people are allowed to start businesses that fill needs, of any kind. Occupational licensing is much worse of a wealth creation killer (http://ij.org/license-to-work-release-5-8-12).

[peristaltor.livejournal.com]

That appears to be an unsubstantiated assertion coming from a narrow view of what "the economy" is (or maybe should be).

It might appear to be, but it ain't. I've covered this before; for stimulus to be most effective, it should be directed to those portions of the population who are most readily inclined to spend it, and spending is not the same as investing or saving. This is directly supported by your statement, The way wealth gets created is by having money circulate, in any fashion, by any person, in any amount.

Yes! Exactly! Circulate. As in "spend." Not get locked up in savings accounts, or investment accounts, or -- sorry to say -- business creation where there may be no market for same. If there is a market, then yes, great. If there isn't, one is simply locking currency away.

As to my point about the high-end gadgetry, I was simply illustrating that, beyond a certain point, the human ear, eye, nose or throat cannot discern between one level of quality and the next, leaving the actual quality of certain items in dispute. The price people pay for these items is therefore not a marker of quality but a signal to others that they have the money to waste on such purchases.

(Hey, I'm not against these purchases; one of the prettiest stereos I've ever seen was owned by a friend of a friend, employee #2 or 3 (there's friendly dispute between them) of a large online retail operation. He walked into the shop and said "Wow me." They showed him a few options but at the end of the day he asked if any human, let alone himself could tell the difference between the $200K system and the mere $125K. The salespeople had to sadly admit no. He had stupid money, he knew he had stupid money, but even he didn't feel the need to buy more than what a reasonable human could tell was "better" just because he could afford it.)

These items do not reflect the height of technological development, only the concentration of sufficient amounts of wealth at the top of our social strata to support the industries that create the gadgetry. The more I read, the more I see this concentration as a direct result of both our financial system and the laws established to protect it, not to protect the health of the economy as it impacts the citizenry. The Greek example in the OP is a perfect illustration. Germany is protecting its bank (Deutche Bank) even though it knows full well that the Greek economy cannot repay the loans. Germany. The very country who should have learned first hand what tyrants arise when a populace are subjected to the financial predations of other countries.

It's like they focused all their energies on the specific symptom of the Versailles Treaty (hyperinflation), rather than note that simple deflation can look to the average citizen pretty much the same.