quinta-feira, março 04, 2010

# 32

«(...) It always makes me laugh when I see news of some European government giving some other country a stern lecture on economics – what do these people know about enterprise? The ones in power are almost all socialists!

Doug: [Chuckles] It's perverse. It's hopeless. It's the blind leading the doubly dismembered. Either they bail the Greeks out – and the Greeks won't change…

L: Wait a minute. The IMF lends money to poor countries and imposes conditions that those countries do make efforts to meet. Not that I'm any fan of the IMF, but why couldn't the EU do the same thing?

Doug: They might, but it won't do any good – they haven't the first clue of how to fix economies. The IMF and the World Bank are disasters themselves. They get capital from rich countries, loan it to poor ones to do things like build steel mills a world away from iron and coal supplies, and then counsel the local government to raise taxes to repay their loans. You know what I'd recommend to them?

L: Besides privatizing every function of the state?

Doug: Yes, besides that – which is so obvious it shouldn't even need to be mentioned. What they should do is default on their debt. And I don't just mean a gentle default, like Argentina's of a few years ago, in which people got some fifteen or twenty cents on the dollar back – I mean a 100% default. And that would be a good thing.

L: How so?

Doug: First of all, it would punish people stupid enough, or immoral enough, to lend governments money. They don't deserve to get their money back – they've been supporting these governments and their bad habits…

L: Some of which involve killing people. And all of them make tax-slaves out of their subjects. Sounds like just desserts to me.

Doug: Yes. Why should future citizens be effectively made into serfs in order to pay for the excessive consumption of people today? It's completely unjustified to foist the debts of the father on the sons and daughters. Most of that money has been totally wasted. A huge amount of what's been spent on foreign aid has been siphoned off by officials in the recipient countries. Just as much has gone into the pockets of "consultants" from the West, in payment for giving them rotten advice. Huge amounts have been skimmed in profits of companies who sold them projects that should never have been undertaken. So I say, default on it. Absolutely! To start with, it would bankrupt the IMF and World Bank, which would be a good start.

L: And the consequences?

Doug: Almost all good.

L: Care to expand on that a bit?

Doug: Sure. The thing to remember is that we're talking about governments, not individuals. When we talk about a country defaulting on its debt, we're really talking about its government defaulting on its debt. And the consequence of that is that that government isn't going to be able to borrow money again, not for a long time.

L: I can see that as a good thing; it would impose some fiscal discipline.

Doug: Exactly. So, it's a good thing for the citizens in the country, as the government will lose a source of money to spend harassing them. And longer term, because they won't have a millstone of taxes around their necks – the taxes that would have been raised to pay off all the debt. It would also mean that whatever the government wants to buy would have to be paid for from current tax revenues; people might get the idea that the state isn't a cornucopia. Of course governments will still try to inflate their currencies to buy what they want – but that game is rapidly coming to an end as well… although these miscreants still think they can avoid the fate of Zimbabwe if they keep inflating.

Businesses needn't falter, because it's not their debt that would be defaulted on. They'd just carry on.

L: What about "essential" government services?

Doug: I'm not sure there's any such thing. There's actually nothing government does that the market wouldn't do cheaper, better, and for a profit. But assuming that police, courts, and a military are essential, those constitute such a tiny fraction of most government budgets, even a government on a starvation diet should be able to afford them.

The real question to ask is: "Who owns the Greek government's debt?"

L: Who will get burned.

Doug: I don't really care. And neither should anyone else who actually wants to see the problem solved. Whoever they are, those people should be punished for having encouraged the government to act so irresponsibly.

L: [Laughs]

Doug: Other governments are not going to want to see this happen, of course. I'm pretty sure EU banks own most of that debt. The way things work in today's world, governments where those banks are domiciled are going to have to bail those banks out. The whole thing is vi ciously circular – they'll feel they have to bail them out one way or another. Of course, they shouldn't. Because it's the average guy who has to foot the bill for these huge, corrupt institutions.

That gets us back to something we've said a few times: the whole world's financial system is built on quicksand, and it's got to collapse. And it should collapse.

L: Financial apocalypse now.

Doug: For governments, yes, but not necessarily for the people who see it coming and take steps to protect themselves.

L: Or profit.

Doug: Yes. People think that all the wealth in the world will go away if some institutions that shuffle paper go bankrupt. It won't – it will just change hands. And that's a good thing; mismanagement of capital should be corrected. If that happened, the politically connected would be hurt the most.

L: Couldn't happen to a nicer bunch of people!

Doug: In a real free market, those who create the most, and provide the most desired services, become wealthy. But the system is now such that those who hold political power, directly or indirectly, become most wealthy. They're the ones who've created the corrupt system we have today, and they set it up to make sure they can profit from it through their political connections, so it stands to reason that they will suffer the greatest losses when the system breaks apart. I have no problem with that at all.»

Doug Casey em Conversations with Casey.