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The Greeks, the Fed, And Sovereignty

Politics / Global Debt Crisis 2012 Mar 19, 2012 - 07:44 PM GMT

By: Andy_Sutton


Best Financial Markets Analysis ArticleThe financial woes of Greece have been fairly well documented over the past year and a half that is for sure. The deduction many analysts, myself included, that the country would end up defaulting on the majority of its debt was a foregone conclusion. For the technocrats to pull a default, and then call it a bond swap, was an exercise in semantics that even Roget himself would have been proud of. The very idea of calling it a swap presents the idea that the bondholders got something other than an empty bag, when an empty bag is exactly what they got.

But Greece’s problems didn’t start in 2010. They started from the very day the country was admitted into the then fledgling European Union. All sorts of rules had to be bent just to get Greece accepted. And there were other cases too where the good old economic shoehorn was pulled off the shelf to guarantee admittance. Most notably, measurements relating to debt were ignored, and it is a near certainty that the Greek government (and others) was cooking the books on its end as well.

Many have asked why the Greeks simply couldn’t do what we here in America have done and just print the money they needed to pay their bills. There are some subtle and not-so-subtle differences in play here when one seeks to answer this seemingly simple question. It ends up getting pretty complicated rather quickly, so I’m going to break it down into its component parts for easy reading.

The Central Bank and Currency System

Most people who are up to speed on global banking systems would look at Greece and the United States and point out that Greece cannot print money to pay for its largesse because it has ceded that bit of sovereignty over to the EU when it joined over a decade ago.  So in that regard, Greece is dependent on the European Central Bank (ECB) for this particular bailout; throw in the IMF and World Bank too for good measure. In other words, the government of Greece will do whatever the banking establishment wants or else no more money comes in. Sounds like freedom, doesn’t it?

Here is where it gets ugly. Let’s look past Greece for a minute shall we? Because it just so happens that we’ve got our own little debt problem brewing here in America. But we’re different – the news people say so!  We can print the money we need to pay our bills. And there are no consequences….Right?

Well, not exactly. Our Treasury sells billions of dollars of new debt (in the form of Treasury bonds) each week. This debt is bought by a broad mix of players from banks to hedge funds to sovereign nations, and even the federal reserve. Whoever ends up owning those bonds becomes a creditor of the government (the people) of the United States. The US government cannot print the money to pay its bills because it no longer issues money. Sure the US Mint produces all our money, but the money itself is issued by the fed – at interest. So when we talk about trillion dollar deficits for the next decade, that money is going to have to come from somewhere. The fed will issue it – at interest, and then presumably buy an ever-increasing share of the bonds because the rest of the world is tired of swapping goods and services for our paper tickets. In this way our fed will become even more like the ECB where the control of money is concerned.

The Issue of Sovereignty

The very idea of a group of nation states congealing their economic structures in order to form a powerful trading/commerce bloc sounds pretty good on the surface.  It has certainly been tried before, most notably in times of war when the enemy of your enemy becomes your friend. The purpose of this essay is not to flesh out the positives and negatives of multi-nation commercial enterprises, but to point out that these arrangements never come without a price. And that price is often sovereignty or national freedom.

For many years there was a group of Eurozone countries that played instead of worked. They were the grasshoppers in the famous fable. The Germans were the ants. Sadly for the Germans, their leadership hasn’t the courage or resolve to cut loose the rest of the EU and strike out on their own. The Germans arguably put the most effort and resources into the EU and are now watching it go down the tubes thanks to a failure of leadership and the financial misbehavior of their neighbors. An independent Germany certainly would have had an easier time cutting its losses.

In a similar manner, an independent Greece would have had a bit more wiggle room in terms of cutting deals to avoid its eventual default (yes, I’m calling it a default, not a bond swap).

America – Bond or Free?

And while we’re talking about sovereignty and backroom deals, let’s look at the predicament that America finds herself in thanks, in no small part, to many of the same fiscal transgressions committed by Greece and others. Remember that for all intents and purposes, the banking and monetary system here in the US is the same as in Europe. There is no ‘national’ central bank. The term ‘federal reserve’ was a misnomer from the word go, meant to provide the illusion that somehow the whole thing was a government operation – and a legal one at that.

We, as citizens of the United States, are day by day becoming more subjugated to various international banking institutions, both by the actions of our government in that it runs massive (and becoming perpetual) deficits, by our states who have largely done the same thing, and by our own hand as we’ve given up a slice of our own personal freedom at the altar of greed, avarice, and instant gratification. Sure, it might feel good to ‘have it all’ at 20%, but does that make one free? At some point the bills must be paid. The Greeks and others are learning that lesson now and the reactions to this new reality have been violent. We in America are not cloaked in immunity from a good economic beating. 2008 was just a warm-up. The debt is still pilling up and the sovereignty is still going out the window. Trillions have been thrown at this ‘crisis’ thus far, but neither of these very simple truths has even been addressed. This represents an ironclad guarantee that there will be more pain. Those who have made successful attempts to deleverage, to whatever degree – your pain will be much less than it would have been otherwise. To those who haven’t, you will reap what you have sown.

To many analytical types, this might sound like an oversimplification of what has become truthfully a rather complicated mess. However, that doesn’t mean that we can distill out the fancy nomenclature, the formulas, and cut away all the window dressing. The world is under the mistaken impression that it can borrow and spend its way to prosperity. The world put all its eggs into a basket full of holes and now has egg on at least part of its face. This is one man’s opinion, but my guess is that we’re going to be breaking a lot more eggs before this mess is over.

By Andy Sutton

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit

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