By Franklin Sanders
Like some ancient Greek drama the Greek government’s financial failure simply cannot be solved. When the plot backed into an unsolvable corner in ancient Greek tragedy, the crew backstage would crank up the deus ex machina, a “god out of a machine,” and by a crane lower a “god” onstage to solve the unsolvable.
Today the IMF & ECB are playing deus ex machina to solve the unsolvable Greek bankruptcy. Whoops, two problems remain: they are not gods, and they cannot solve the problem.
What is never said: cui bono
It mystifies me that whenever talk falls to “bailouts,” the real beneficiary is never mentioned. We hear that “Greece” must be bailed out, but who exactly benefits? Is it Greek people? No, it’s not their debt, it’s their government’s. Is it the Greek government? Not exactly. They already spent the borrowed money. No, the bailout simply passes through them like alfalfa hay thru cattle, on its way to fertilize the fields of the true beneficiaries: The banks.
And not the Greek banks alone. They number by far the fewest bank beneficiaries. Most of the money flows to the truly big banks, those giants who ultimately control the International Monetary Fund and kindred shills.
The Jubilee: debt forgiveness
Our starchy upbringing makes it hard to talk rationally about debt forgiveness. With our mother’s milk we were taught that come hell, high water, or tornadoes, you pay your debts. Everybody has a family story about a grandfather or uncle who lost everything and spent the next 30 years paying everybody off, or died drunk, mourning his ruined name. Sorry, that’s not a Biblical concept.
Sure, you are morally obligated to pay back money you borrow, but God also provides for situations where the debtor cannot pay: the Sabbath year cycle and the jubilee.
In biblical Israel, every seventh year all debts were forgiven, and Hebrew slaves, most of whom had been sold into slavery to pay off their debts, were set free (Deut. 15:9, 12). Moreover, during that Sabbath year the land was to be left fallow – imagine vacationing for a year, with God’s promise of full pay (Leviticus 25, esp. vv. 4, 23-22).
In the jubilee year at the end of the seventh of seven year cycles (the fiftieth year), not only were all debts forgiven, but all land also returned to the original family owners. It was the year to “proclaim liberty throughout all the land unto all the inhabitants.” (See Leviticus 25:10, 23, & 27:1.)
Land rent was valued by the number of years it could be used until the next jubilee. (Lev. 25:14-16) How would these laws operate? Primarily to prevent any person or family from accumulating vast fortunes or landholdings. In other words, they would keep wealth distributed fairly evenly across the economy, the poor would be cared for, and slavery for debt would never become permanent.
Our bankruptcy laws mirror this debt forgiveness model. Don’t think so?
Then why does the law provide that you can only take bankruptcy every seven years?
It is precisely this model the banks want to deny and overthrow. However, history, especially ancient history, is jammed with examples of countrywide debt forgiveness.
Early debt tamp-downs
It began in Babylon, where temples made loans to farmers. From 2,400 BC to 1,600 BC, Mesopotamian royal proclamations cancelled debt, freed debt-slaves, and restored foreclosed land to bankrupt farmers. Debt forgivenesses continue all the way to Solon’s 6th century BC Greece with the “shaking off of burdens,” and throughout history.
Society comes to a crossroads where either most people must become debt slaves or debt must be forgiven to preserve liberty and restore economic order and justice. We have reached Babylon.
In place of the jubilee and reasonable debt forgiveness, the banks’ agents, the IMF & ECB, have substituted “austerity.” Think of it as asset stripping a whole country. Think of it as unforgiveness, but minus the tender mercy of ruthless greed. The government sells off assets at rock bottom prices. Wonder who buys them? Government is also forced to curtail spending, which translates as cutting pensions and government payrolls. The level of suffering caused to old people who find their pensions suddenly cut by a third can only be guessed at by the results: public suicides in protest.
But notice the beneficiary of “austerity”: the flow of payments to the banks never stops. The people must be squeezed till they bleed.
Blame enough to go around
How did governments fall into debt in the first place? Stripped down to its essentials, people believed the Keynesian lie that governments could spend and borrow their way to prosperity. Like socialism, the lie promises that everyone can make a nest in a cushy government job with overblown salary and bloated pension, retire early, and everybody will get rich providing government “services” to each other. The lie promises that governments, which generally cannot deliver mail on time, can somehow rule entire incomprehensibly complicated economies.
Doesn’t matter whether you look at Spain, Italy, Greece, or the United States, since the New Deal of the 1930s this idea has ruled the world.
And of course the banks were quite willing to loan governments the money, which they created out of thin air, to keep the ball up in the air. They only wax unhappy when the debtors can no longer pay.
Yet doubt not that day always arrives when the interest burden (debt service) becomes too great to pay, when paying it would require all the money the economy otherwise needs to grow and function.
So greed made the people believe a lie. They took the bait, now they are caught, but nobody wants to give back the bait.
At this point begins the sanctimonious moral posturing. Bankers and other observers, especially politicians (bought by the banks), wax self-righteous about people paying their debts, tapping into that well-known “pay your debts at all hazards” training that I mentioned above. Yet the banks are just as guilty, whether the debt bubble is sovereign debt or mortgage debt. They made the loans, they profited from the loans, they knew the risks. Now that the risky loans go bad, they whine about morality and want a bailout.
Fraudulent inducement and banks’ zero risk
What about fraudulent inducement? A contract may be breached when the lender “fraudulently induces” the borrower with claims and promises that he knows cannot be fulfilled. In other words, the banks tricked them into signing. How much blame do banks themselves bear for enabling bubbles by continuing to fund mortgages and buy government debt? Doesn’t any sane person (including, I admit, the borrower) understand that no Ponzi scheme, even a government Ponzi scheme, can continue forever? In Greece’s case, the infamous Goldman Sachs “investment bank” helped the Greek government gain entry to the Eurozone by masking and shoe-shining vast debts and obligations in its budget. Are we to suppose that crooks as sophisticated as Goldman Sachs didn’t foresee the Greek state would have a problem making the payments? Did the banks who lent the government money (bought their bonds) not check the government’s ability to pay?
But then — worst of all — why should a bank care about risk? They risk NOTHING when they make a loan, because they create the money out of thin air by exercising their government-granted monopoly power. The product they sell – “money” – costs them nothing to create, only a small fee to administer. You can start at sunup and argue with me until you are blue in the face, but you will still be wrong at sunset if you fail to grasp this point. A bank does not lend “money,” it lends its credit. That’s all, and a bank’s credit costs it nothing. It doesn’t matter that others in the economy are either forced by absent alternatives or by ignorance
to accept bank credit as money, the banks still create it out of thin air and it costs them nothing. Therefore, when they loan they are risking nothing and gaining everything, a claim on every lender — forever.
Sort of throws all the morality balls up in the air in a confusing cloud, doesn’t it? Remember that “justice” is not found in ruthlessly enforcing an unconscionable contract to the letter, but in giving everyone what he deserves, borrower and lender, prudent and imprudent, parasite and host, predator and prey.
The only path to reform
If you have not by now reached the conclusion, you must grasp it now: a debt crisis inevitably results from debt money. The system by which banks create money by loaning it into existence — the system we live under — must inevitably bring on overindebtedness and a debt crisis. Success begets excess, so as the banks make money by loaning, they will loan always more. Because every dollar of “money” is born into this world carrying an interest rate burden, the lending can never stop. If new money is not borrowed into existence, how will the interest on the old money be paid? No new money means nationwide bankruptcy.
Whatever debt relief the IMF and other bank agents negotiate will only lengthen the tragedy and pain of a dying, unworkable system. The present monetary system and all the prosperity-through-borrowing heresies — fascism, socialism, communism, Marxism, Keynesianism — are all dying. The horse has fallen down in the middle of the road, and cannot get up. Kindest is to shoot him quickly, before he thrashes around and hurts more people.
But wait! Wouldn’t the world’s economies all shut down if the banks aren’t paid?
No, people would go back to work, doing real jobs in the real economy. Making things, not shuffling papers and pretending to provide government “services.” To do that, governments with their desire to micromanage every economic transaction, must be driven back. Regulations and laws must be rolled back, and economic freedom established.
Yes, it will be painful for many, especially the poor and elderly, but it is already painful for them and they will be the first squeezed to death by “austerity.” But the pain will pass quickly. If the unpayable debts were written off, insolvent governments and mortgage holders alike forgiven, then they wouldn’t be able to borrow again soon. Governments would have to live within their means, and citizens would have to stop expecting them to be slot machines stuck on “Jackpot.”
People would have to work or starve. When that’s the only choice, most will work.
With debt forgiveness, abolition of central banking and fractional reserve banking, gold and silver money, and no government intervention in the economy, I estimate prosperity would return – for good – in three years. Without these measures, the current depression, like the Great Depression, will drag on for another six or 10 years, cause untold wretchedness, and perhaps end in another world war.
As I wrote to a friend in Greece a few days ago, “The only true path to reform isto let the Greek government go bankrupt, let everyone give up his pipe dreams ofliving off a government job or pension and go back to work, and let the banks go to hell.”But then, we are all Greeks now.
[This essay was first posted here Aug. 29, 2012.]
Franklin Sanders is publisher of The Moneychanger, a privately circulated monthly newsletter that focus on gold and silver and the application of Christianity to economics, culture and family life. We have subscribed to this newsletter for more than 20 years, and consider it a must read. F$99 a year. Franklin is an active trader in gold and silver (he’ll swap your green Federal Reserve rectangles and give you real money in return). He trades with savers and investors outside Tennessee. Subscribe to his daily price report and market commentary on the website.