Phillip Bagus, interviewed on RT, discusses the second Greek bailout. (Jump to 16:15.) I’ve transcribed the interview below. Bagus explains the logic of imports and exports by bringing the analysis down to an individual level, much as Rothbard does in Man, Economy, and State, Chapter 3, Section 5. He also makes a Rothbardian call for Greek national repudiation. As Lew Rockwell said on the same show a month ago:
“Default is a wonderful thing. The people who are going to have to pay for these debts are not the ones who contracted for them. They shouldn’t have to pay. And another great thing that happens when Greece defaults: nobody’s going to lend the government any more money. That is exactly what Greece needs. They need a government that would shrink, so the people can be enlarged in their role…”
Lauren Lyster: As I was starting to get into before the break, Greece’s bailout is reportedly moving forward, after Greece did get more than 85% of private-sector investors to agree to the debt-swap. Now this again is to reduce Greece’s debt, so it can take on more debt from international lenders to address their problem of too much debt! But that’s for another moment. Today the Greek government also approved using “collection action clauses” (CACs) to force more investors to take part in the swap, which is expected to bring that number up to 95% of those bondholders. Now Greek officials hail the debt deal. Take a listen.
Alegos Tsakanikas, Head of Research, IOBE: It is a successful PSI, because for the first time, such restructuring of the debt is a unique case of the global financial markets…
Lyster: But is it a unique case for the global financial markets? Because other countries in the Euro zone are saddled with too much debt, and this, coupled with austerity, unemployment, not enough growth, could be a big problem. So what precedent does this set exactly? Well best-selling author Phillip Bagus is here to help us figure that out. He is author of this book, Tragedy of the Euro. And he is here to tell us how that tragedy is impacting us today. Thanks for coming onto the show. Welcome back. Phillip Bagus: You are welcome. Lyster: You are great to have on, because you are a German economist, and you are sitting in Spain. You are at the heart of where this is all really going on. So before I get to what precedent this sets for Greece, for other countries, as I just mentioned, we do know that the ECB has been doing quite a lot, so that the government and banks can have more time to figure out the situation in other countries. As a result, we’ve seen its balance sheet explode. We’re often very critical of the Fed’s balance sheet on this show, but I want to bring up the ECB’s, because it’s actually increased very very much. And it’s expanded more than the Fed’s has in the past 3-4 years. How alarming is this to you? Bagus: Well it’s very alarming. Probably the ECB is the largest hedge fund ever on Earth with the highest levels. And its liabilities, that is, the Euro, is backed by a very bad asset: by loans to insolvent governments and insolvent banks. Lyster: Just to give our viewers a little bit more context, I want to bring up our chart that shows what the ECB’s balance sheet equals as far as portion of GDP. It’s quite staggering. It’s a third of GDP, compared to the Federals Reserve’s balance sheet, which is 19% of US GDP; the Bank of England’s, which is 21%; the Bank of Japan’s, which is 30%. But, moving on from that, I want to look at the Greek deal, because in a report from the think tank Open Europe, in Europe, they said at the start of this year, 36% of Greece’s debt was held by taxpayer-backed institutions. By 2015, after this deal has gone through, that share could increase to as much as 85%. So, let’s go through this scenario. Does this mean that this is going to amount to a lot more political and economic strife in the Eurozone, as we see taxpayers responsible for all of this debt, and Greece could have a situation that deteriorates even further? Bagus: Yes, Greece will need more bailouts, and sooner or later there will be losses, and these losses at the end will be taken mostly by taxpayers. And this was the idea: to move on with the illusion that there will never be losses. But there will be, and it will hit taxpayers, one way or another. Lyster: Or Phillip, riddle me this, are we seeing some kind of imperial Europe reemerge, where the core is essentially taking control of the periphery, but this time, not with armies: they’re doing it by sending in the Troika, and saddling them with debt? Bagus: Well, I think it’s more the other way around. It’s the hard-working savers and workers in the core, in Germany especially, that are exploited by the Club Med of the periphery, by transfers of wealth, in the form of bailouts and ECB-financed loans. Lyster: But, Phillip, didn’t Germany benefit for a really long time from the periphery being able to build up credit, and essentially subsidizing the exports of a surplus country like Germany? Bagus: Well, if you look at it from an individual level, why you really want to export, is not to give away your stuff, but to import. If I for example sell my goods, or work for other people, I’m exporting. If I buy a car or get a haircut, I’m importing. What’s more interesting to me? I would prefer only to import. So this is what the periphery did. They just consumed more goods than they sent away. This is a very comfortable position they’ve been in, and they want to continue this. And this can only be done by continuous transfers of wealth from the core to the periphery. Lyster: Well, then, how come Germany’s going along with it? Why isn’t Germany saying, “hey forget this, you’ve got to get out of the Euro zone”? Bagus: Well you know, Germans have a guilt complex. They think they have to make up for the Second World War, etc. They have been re-educated after the Second World War. And the political class, of course, is very strongly in favor of this European ideal of an ever-more centralized European organization, and there is pressure by […] states. So there are many reasons why Germany has gone along with it. Of course the German population would probably not, if they would be asked, but they are not. Lyster: Well, that’s interesting, because I think the last time we talked, you thought the German population was still on board for all of these solutions. Are you saying the sentiment has changed? Bagus: Yes, the sentiment is slowly changing. They are ever-more opposing it, but the problem is, they have never been asked. So all the established political parties for example strongly support the Euro. But if Germans would have been asked in the first place if the Euro should had been introduced, then they would have said no. And they would have said no to the Greek bailout, for example. Lyster: Well and that’s interesting. Because that’s an issue you have from Germany to countries like Italy and Greece, where technocrats have been put in to impose these measures such as austerity. And a lot of people have blamed the problems that these countries have been experiencing economically on austerity, and this vicious cycle. But at the same time, isn’t one component of this that you need the private sector to invest again, and don’t they need to feel that there’s a bottom, in order for them to invest again, and wouldn’t that involve liquidating more of the debt? And I just need a quick answer there please. Bagus: Yes, a quick liquidation of debts and a default would be the best thing, in fact. Lyster: For Greece, or for more countries? Bagus: Well, I would recommend all governments to repudiate the debt, actually. Lyster: All of them, to just liquidate all the debt? Bagus: Yes, and probably then, nobody would lend to them any more. And this would be a great result. Lyster: And there you go, start from ground zero; start from scratch. Thanks so much for being on the show, and bringing us your perspective from Spain. That was Phillip Bagus, author of… best selling author, I should say, and professor.
