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Where Governments go to Die

May 22, 2012

Have you noticed that Greek banks keep running out of cash?  That is because the Greek people expect the Greek Government to leave the Euro and inflate the new Greek currency.  You can watch them preparing for the worst. Say we lived in the US and expected the price of a can of soup to go from $2 today to $4 tomorrow.  Here is what we would do.

Today we’d borrow $100 dollars from the bank and buy $100 worth of soup.

Tomorrow we sell half of our soup, that is to say $100 worth, then we give the $100 back to the bank and put the rest of our soup on the shelf.  We earned a can of soup overnight!

In fact you don’t give the money back to the bank.  You never want to have cash in hand.  You really want negative cash in hand, and negative cash is debt.   You go and spend every Euro you have to buy every commodity you think you might need.  Greek citizens are spending their money, the banks money, their credit cards or the money in their kids’ piggy banks.  This empties gas stations and store shelves faster than a Hurricane-warning in Florida.  It also empties cash out of the banks.

The reason the Greeks expect their money to become worthless is that the Greek government is about to print a lot more of it.  Athens will use this nearly worthless paper money to pay Greek debts.  This trick works once.. and not very well at that.  Greek politicians promised more than the Greek economy could deliver, so the politicians will destroy the Greek currency to make good their promises.  Rather than tell some special interest NO, the Greek politicians will destroy the Greek economy.  Many Greeks are leaving to let the wave of economic destruction wash through.  The destruction of Greece will continue until the government’s promises to pay are small enough that their economy can support them.  It is a perverse form of Athenian democracy.

The Germans went down this road in the 1920s.  My grandfather was there, and inflation wiped out their savings, their pensions, and any welfare payments or insurance.  The Germans are not willing to go there again, not for the Greeks.. nor for the Italians, French or Spanish.  In a year, China can walk in and buy Greek properties for a song.. or a few cans of soup.

I should pity the Greeks, but I don’t think we are any smarter here in the US.  I’m saving my pity for tomorrow.  I’d like to be wrong.

Think about it while you’re eating.  I think your soup is ready.


Rob who’d like to be wrong.. and is now hungry.

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