Looks like the plan is for a straight euro loan from the IMF to Greece:

“IMF support will be provided under a three-year €30 billion (about $40 billion)Stand-By Arrangement (SBA)—the IMF’s standard lending instrument. In addition, euro area members have pledged a total of €80 billion (about $105 billion) in bilateral loans to support Greece’s effort to get its economy back on track. Implementation of the program will be monitored by the IMF through quarterly reviews.”

FACTSHEET
IMF Stand-By Arrangement
November 23, 2009

In an economic crisis, countries often need financing to help them overcome their balance of payments problems. Since its creation in June 1952, the IMF’s Stand-By Arrangement (SBA) has been used time and again by member countries, it is the IMF’s workhorse lending instrument for emerging market countries. Rates are non-concessional, although they are almost always lower than what countries would pay to raise financing from private markets. The SBA was upgraded in 2009 to be more flexible and responsive to members countries’ needs. Borrowing limits were doubled with more funds available up front, and conditions were streamlined and simplified. The new framework also enables broader high-access borrowing on a precautionary basis.

Lending tailored to member countries’ needs

The SBA framework allows the Fund to respond quickly to countries’ external financing needs, and to support policies designed to help them emerge from crisis and restore sustainable growth.

Eligibility. All member countries facing external financing needs are eligible for SBAs subject to all relevant IMF policies. However, SBAs are generally used by middle income member countries more often, since low-income countries have a range of concessional instruments tailored to their needs.

Duration. The length of a SBA is flexible, and typically covers a period of 12–24 months, but no more than 36 months, consistent with addressing short-term balance of payments problems.

Borrowing terms. Access to IMF financial resources under SBAs are guided by a member country’s need for financing, capacity to repay, and track record with use of IMF resources. Within these guidelines, the SBA provides flexibility in terms of amount and timing of the loan to help meet the needs of borrowing countries. These include:

• Normal access. Borrowing limits were recently doubled to give countries access of up to 200 percent of quota for any 12 month period, and 600 percent of total credit outstanding (net of scheduled repurchases).

• Exceptional access. The IMF can lend amounts above normal limits on a case-by-case basis under its Exceptional Access policy, which entails enhanced scrutiny by the Fund’s Executive Board. During the current global economic crisis, countries facing acute financing needs have been able to tap exceptional access SBAs.

• Front-loaded access. The new SBA framework provides increased flexibility to front load funds where warranted by the strength of the country’s policies and the nature of its financing needs.

• Rapid access. Fund support under the SBA can be accelerated under the Fund’s Emergency Financing Mechanism, which enables rapid approval of IMF lending. This mechanism was utilized in several instances during the recent crisis.

Precautionary access. The new SBA framework has expanded the range of high access precautionary arrangements (HAPAs), a type of insurance facility against very large financing needs. Precautionary arrangements are used when countries do not intend to draw on approved amounts, but retain the option to do so should they need it. Three HAPAs, with Costa Rica, El Salvador, and Guatemala, were approved during the crisis.

Fewer conditions, focus on objectives

When a country borrows from the IMF, it agrees to adjust its economic policies to overcome the problems that led it to seek funding in the first place. These commitments, including specific conditionality, are described in the member country’s letter of intent (which often has a memorandum of economic and financial policies).

Building on earlier efforts, the IMF has further reformed the conditions of its lending to focus on criteria that are measurable and observable. These changes include:
Quantitative conditions. Member countries progress is monitored using quantitative program targets. Fund disbursements are tied to the observance of such targets. Examples include targets for international reserves and government deficits or borrowing, consistent with program goals.

Structural measures. The new SBA framework has eliminated structural performance criteria. Instead, progress in implementing structural measures that are critical to achieving the objectives of the program are assessed in a holistic way in the context of program reviews.

Frequency of reviews. Regular reviews by the IMF’s Executive Board play a critical role in assessing performance under the program and allowing the program to adapt to economic developments. The SBA framework allows flexibility in the frequency of reviews based on the strength of the country’s policies and the nature of its financing needs.

Lending terms

Repayment. Repayment of borrowed resources under the SBA are due within 3¼-5 years of disbursement, which means each disbursement is repaid in eight equal quarterly installments beginning 3¼ years after the date of each disbursement.

Lending rate. The lending rate is tied to the IMF’s market-related interest rate, known as the basic rate of charge, which is itself linked to the Special Drawing Rights (SDR) interest rate. Large loans carry a surcharge of 200 basis points, paid on the amount of credit outstanding above 300 percent of quota. If credit remains above 300 percent of quota after three years, this surcharge rises to 300 basis points, and is designed to discourage large and prolonged use of IMF resources.

Commitment fee. Resources committed under all SBAs are subject to a commitment fee levied at the beginning of each 12 month period on amounts that could be drawn in the period (15 basis points for committed amounts up to 200 percent of quota, 30 basis points on committed amounts above 200 percent and up to 1,000 percent of quota and 60 basis points on amounts exceeding 1,000 percent of quota). These fees are refunded if the amounts are borrowed during the course of the relevant period. As a result, if the country borrows the entire amount committed under an SBA, the commitment fee is fully refunded, while no refund is made under a precautionary SBA under which countries do not draw.

Service charge. A service charge of 50 basis points is applied on each amount drawn.

37 Responses

  1. Hi Warren,

    OK, so we’ve got the $1 Trillion Eurozone bailout in full swing, and the FED has re-opened currency swaps with European banks.

    Operationally speaking, I assume that what this means vis-a-vis the FED (and by extension the U.S. Treasury) is that ECB and other European banks will have zeros and ones added to their reserve accounts at the FED, thus providing the ‘liquidity’ necessary to keep the bond markets from imploding and allowing sovereign default risks to be temporized for the moment. Many inquiring minds in the financial blogosphere are clamoring that these moves place the U.S. taxpayer on the hook for hundreds of billions of additional dollars (as the U.S. dollar comprises some 17% of IMF funding, and because of the growing FED balance sheet).

    My questions are:

    1. Am I on target with regard to the operational realities?

    2. If so, is the taxpayer in fact on the hook for these dollars?

    3. Can the operational realities trump the political ramifications that these seemingly hubristic and insane monetary policies create?

    4. How does inflation play into this picture?

    You see Warren, while I understand YOUR points with regard to the operational truths in a fiat system, I ALSO happen to believe that your view, and the view held by your colleagues, is only viable if the the American people came to the conclusion that we must turn ALL of our monetary decisions and policies over to Washington. In this overwhelmingly populist and anti-government moment in American history, your policy ideas appear to run-aground immediately on the rocks of social distrust and anti-Washington sentiment.

    As things currently stand, however, I see your views—while operationally and in a pure accounting sense true—as steeped in a certain amount of political, social and economic denial. As a good friend of mine recently wrote:

    “…As we have discussed at The Automatic Earth many times, credit expansions create outward appearances of great real wealth. They do this by creating multiple and mutually exclusive claims to the same pieces of underlying real wealth pie. Many people feel wealthy, but that is perception, not reality. This wealth is virtual. The structure is Enron-esque. At maximum expansion it appears robust, yet it is destined to implode rapidly. When such expansions happen on a small scale, borrowers can end up in long term debt slavery but a centre can hold, albeit after taking a haircut and perhaps seeing a change of control to some larger external entity able to absorb the impact. When the same thing happens on a large scale, or indeed an all-consuming scale as it has this time, it will take down both borrowers and creditors alike, in a climate of mutual recrimination. The debt exposure to the periphery is simply too large to avoid taking down the centre as well, especially as there is no external structure large enough to absorb the impact. This time we have created the first truly global Ponzi scheme, with a myriad local manifestations…” (Stoneleigh, @TAE)

    My assumption is that you would argue that the FED, if allowed to go about its business with no constraints on its operational abilities to create liquidity, could actually BE the ‘…external structure large enough to absorb the impact…’ that Stoneleigh describes as being non-existent.

    I’d love to hear your thoughts on this.

    1. I have no issue with the fed providing infinite liquidity to its member banks, but not with doing same for foreign central banks without specific congressional approval.

      as i’ve stated elsewhere on this site, lending functionally unsecured to foreign cb’s to cap libor setting is the wrong policy for a process US banks should be prohibited from engaging in.

  2. Just some thoughts, as no doubt Warren and others will address in more detail and precision than my abilities warrant. The TAE statement above seems to confuse public and private debt. I would agree with the ponzi statement and debt slavery comments if we are talking about private inst. lending, which just transfers existing wealth around, while attaching strings such as interest payment which, along with over-borrowing create the slavery. However the borrowing analogy is different for public debt because it is never the ability to pay back the debt that is the issue, only the price of money (or the level of inflation). So there is no looming debt-bomb in the public sector, only (ever) a potential looming inflation/devaluation bomb. That there are political issues with trust in Washington on this issue speak more to the fact that the corporate class has been able to infiltrate it, not because there is something wrong with the operational system. If you want to fix it, clean out the lobbying and subsequent disinformation shock n awe. Ha, sounds easy enough eh?
    cheers

    1. @ Jason,

      Again, I grok the public/private dichotomy. However, there is a growing inability to distinguish between public and private debt, as governments (such as the U.S.) are now back-stopping and purchasing all of the ‘toxic’ private debt in an effort to make economies healthy again. This is quite problematic, however, because such actions are inherently destabilizing and only serve to further entrench the Ponzi system. Once the private debt has been ‘nationalized’, the private sector is free to play the game again…and so on, and so on, until the fiat system collapses under the weight of its own moral hazard.

      The point about public debt not being subject to ‘default’ per se is erroneous because the distinction between public and private debt is being obscured.

      1. I think, this is more or less a government of the US option, and it’s probably born out of criminality. I can see how it’s destabilizing to markets but I can’t see how it’s destabilizing to fiat currency or MMT. As I understand it, a currency only collapses when people stop paying taxes and therefore negate the government’s fiscal power. Again, if people stop paying taxes it won’t be because they are rising up in revolt against fiat currency, but in revolt to a government that has criminal elements. I think the type of currency is irrelevant (i.e. if we were on gold standard or whatever) The US still would have bought these toxic assets.

      2. @ Jason,

        I do NOT disagree with you. HOWEVER…

        Operationally speaking, under a fixed or commoditized standard, the government would not have had the ability to purchase or backstop all of these assets…that limiting factor was of course removed in August of 1971.

        YES…the issue is more about criminality and the predatory nature of human systems than it is about FIAT currency per se. But the two cannot be separated if we want to talk about fixing the system and “saving” the world.

        I would posit that the criminality of our leadership (in all realms) has been complimented by our monetary system. They have no checks on their ability to game and defraud our floating currency FOR THEIR OWN GAIN.

        Is the solution a return to the gold standard? I think not. HOWEVER, unless the global system of finance—a predatory system based upon a pyramid-scheme mechanism—is reform, fiat currencies WILL collapse under the weight of their own abuses.

      3. Dan,
        I am not convinced that the govt. wouldn’t have found some other way to backstop these assets if we were on gold standard. I do hear you though that the use of fiat currency appears to give the govt. an easy way to do whatever it wants as long as the US dollar reigns supreme (I believe this is long-time criticism of Ron Paul and the US ability to fight endless wars financed by fiat). That being said, would one say we have had more or less criminality in the use of govt. finances since conversion the fiat? Pretty hard to say more…Have read some pretty scandalous stuff regarding govt. spending. But I am no expert here, so I won’t make any claims.
        In the end of course, is the real cost of the use of resources, and opportunity costs.

      4. @ Jason RE: purchasing toxic assets while on a gold-standard:

        As you know, the government is limited in its ability to ‘create’ dollars (for the purchase of toxic assets from banks, for example) when its dollars are tied to a commodity. There is always the risk that the world will make a “margin call”, and if Fort Knox doesn’t have enough bullion, then the nation defaults on its obligations.

        So…YES…I believe that under a ‘gold’ standard, we would not have experienced the type of credit-bubble—and attendant rescue operations—that we are witnessing today.

        Now, do I think that FIAT currency has created MORE criminality?? That is a good question.

      5. So…YES…I believe that under a ‘gold’ standard, we would not have experienced the type of credit-bubble—and attendant rescue operations—that we are witnessing today.

        Dan, the world was on the gold standard at the time of the Great Depression. Irving Fisher’s Debt Deflation Theory of Depressions was written in response to the formation of the credit bubble of that day.

    2. public debt for Greece, US states, etc. is indeed revenue constrained.

      only at the ‘federal level’ that also controls the CB is it a matter of simply changing numbers.

  3. The IMF stuff is mostly for show. The real action is in the fact that the ECB will be buying Greek, Spanish, and Portuguese government bonds. The IMF has been chosen as the institution to enforce fiscal discipline, but I suspect all bond market eyes will be on what the traders at the ECB (or the national central banks acting under the ECB umbrella) are doing from day to day. Kind of a crazy solution — Warren’s proposal was much, much better — but in the short to intermediate term, it will work.

    1. @ ESM,

      “It” only works in the ways that a shot of Johnny Walker Black works for a guy with the shakes. The fiat system—despite Warren’s very accurate and astute arguments viz the operational realities of the system of fiat currency—is in defib. Trust in the viability of these instruments—particularly by the majority of middle and working class peoples around the world—is beginning to waiver. Perceptions are important in this game of virtual money, and the growing perception on the streets is that the folks in charge are growing increasingly predatory and self-concerned, while the majority of other folks grow increasingly poor and hungry and peeved. I am not negating Warren’s accounting and arithmetic arguments. But to argue that the fiat system can continue to prop us an inherently predatory and “bubble”-prone global financial system seems the stuff of blind faith and folly.

      1. As it stands today, we are not maximizing the effectiveness of the fiat system. If we were in a fixed currency/gold standard system, the financial crisis would have been on par with the great depression perhaps. How do you think the folks on the street would feel then? Would there be lines to buy iPods?

      2. @ JCM

        Respectfully, I think your argument is defensive. I did NOT opine as to the relative merits of the two systems of currency. I simply pointed out—in counter-distinction to the operational truths that Warren articulates—that fiat currency as a monetary medium is in trouble. AND, I am NOT saying that it is in trouble because of what it IS per se, but about how it is cheated and abused and manipulated by HUMAN BEINGS.

        Fiat currency must, by its very nature, be the object of significant trust and confidence. It is, after all, only backed by the full faith and credit of its issuers. When that faith wains, the value of the currency comes under pressure.

        And DESPITE the arguments of arithmetic accuracy and operational realities made by you or by Warren or by whomever, the TRUTH is that Ponzi finance and fraud and cheating and the like form the foundation of our financial system. These truths cannot be entirely divorced from your truths. They are not mutually exclusive, if we want to engage in a real discussion about the political and social and economic implications of our current fiat system.

      3. AND, I am NOT saying that it is in trouble because of what it IS per se, but about how it is cheated and abused and manipulated by HUMAN BEINGS. Agreed, and as much has been said/implied by Warren and co. on this site. If you read his proposals, he really wants to shackle the financial sphere. Financial elites are gaming the system and they have penetrated economic policy-making in both political parties. In fact warren has stated in the past that we need a more equity based/vertical economic expansion model (private sector doesn’t borrow to consume as much) rather than the debt based horizontal expansion model that we currently have.

      4. Dan, if you want to argue that fiat money systems are inherently unstable because government bureaucrats and politicians are in charge of keeping the value of the currency stable, I won’t disagree with you. But if you’ll allow me to paraphrase Winston Churchill, the fiat money system is the worst form of monetary system, except for all the others.

        If you tether your money to gold, for example, then your economy is slave to the particular (and idiosyncratic) dynamics of gold. If a major new deposit of gold was found in the world, then there will be inflation. If the population grows or if productivity booms and there is little new supply of gold, then there will be deflation. If Auric Goldfinger sets off a dirty atomic bomb and contaminates half of the gold supply, there will be a depression.

        So the question for you is: “why do you believe that we are printing too much money today?” Warren believes that deficits and aggregate public debt have been continuously too small since shortly after the end of World War II. I don’t know if that’s right or wrong, but I do think that with 9.9% unemployment and no inflation today, it’s a little early to get worried about the size of government deficits. I am worried about the growth in entitlement programs and the growth of government in general, but that’s a completely different issue.

      5. @ ESM,

        You make excellent points.

        I am NOT a gold-standard proponent. In fact, I happen to believe that we have come too far with fiat currency to ‘go back’ to any commoditized standard, per se. To do so would, in my opinion, plunge the world into the darkness of an immediate and elongated depression of tragic proportions.

        HOWEVER…as an observer—not as an advocate or opponent of ANYTHING—I am very concerned about the toxic brew that is created when a floating currency is controlled by financial forces replete and suffused with that most powerful of “sins” [sic]—GREED.

        It is fascinating to me how we defend ‘Capitalism’ and free-marketism to our last breath, but we never really want to acknowledge that (a) there really is no free market system at play, and that (b) the current functions of so-called Capitalism has created a world in which 2 out of the 7 billion inhabitants are under-fed, under-housed, and under the thumb of horribly dictatorial forces.

        FIAT currency in the hands of those who run the ships of state now is destructive of positive social change.

      6. On this thread, I would say that although the public may be growing increasingly wary of fiat currency, they still need it to pay their taxes. As long as it’s the only way to pay taxes, and the government can (and does) enforce them, there will be a demand for little pieces of funny colored paper.

        When looking at the Euro through this lens, the issue seems quite clear. Greece may be forced to either default or leave the Euro (or perhaps both?). That hasn’t happened before. If they leave the Euro, will spain and portugal go next? If so, what happens to the Euro? Will Germany and France still accept it for their taxes?

        Only a little bit of doubt is required for investors to prefer dollars. And of course, when leverage is thrown in the mix, things can get exciting very quickly.

        SO the Euro may crumble, but investors will not reject fiat currency per se. They will reject fiat currency that cannot be used to satisfy tax liabilities.

    2. The best analogy I can think of is a family where one child has gotten themselves in a debt jam. Dad has all the money, and finally agrees to lend, despite having vowed to never lend. But he also decides to outsource fiscal discipline of the profligate child to a stern friend of the family, that the child hates.

      The entire problem comes down to credibility and moral hazard. Having been bailed out by Dad, will the child reform his ways? Will the threat of no more money unless the child brings his house into order work? Or will the child call the father’s bluff, and continue on his wayward course.

      And what of the other children? Having seen their spendthrift sibling be rescued at the very last, will they be frightened and reform their ways, or will they be emboldened, realizing that they can rely upon Dad to bail them out if they fail. And finally, what of Dad? If the children continue to spend, when will he realize that he cannot bail all of them out indefinitely? Will he realize it quickly, and cut them loose? Or will he realize it too late and be dragged down with them.

      The pity is that it need not be this way. If they had separate currencies, the profligate would be forced to devalue. They would pay the price for their own behavior. Warren’s solution would seem to solve the problem within one currency.

      I think the result of this will be significant moral hazard, bad behavior, and resentment. I have a hard time imagining this ending well in the long term.

      1. @ JCD,

        The more I read Warren’s thoughts, the more I come to feel that (a) in a political and social vacuum, Warren’s ideas are really astute and could in fact go a long way to curing many of our ills, but that (b) actually developing an intellectual and real environment that might accept these ideas is the true challenge.

        From where I sit, the entire system of global finance—as embodied in the corpi of the major private institutions, and as illustrated by the fabulous wealth enjoyed by the few and the concomitant poverty ‘enjoyed’ by the many—this system would have to be dismantled, and government would have to take over virtually ALL aspects of finance, in order to have Warren’s operational truths become the realities productive of both global financial health and positive social change.

      2. Bingo! The problem is not with the fiat money system per se. It is with the organization of the economic system in the interest of funneling income and wealth to the top. The stats speak for themselves. A study of history shows that this has been the case regardless of monetary arrangements. A few have always enjoyed the bulk of wealth based on power and privilege, resulting in either slavery or debt servitude for the rest. Anyone looking at this behavior of Earthlings from outer space could only conclude that the planet is run for a very small percentage of the life forms on it, including the rest of the species that the master race belong to. Just as it always has been.

        Now, we are fed sophisticated explanations as to why this produces maximum utility, whereas previously the “explanation” was generally non-verbal brute force, often coupled with the “divine right of the ruler” supported by the rulers’ religion. Now it is the “invisible hand.” Whatever you call it, what you see is what you get.

        It doesn’t have to be this way. MMT, Minsky’s financial instability hypothesis, and Irving Fisher’s debt deflation theory of depressions show the way to create the economic infrastructure for a distributed society, rather than one in which income and wealth concentrate at the top while the rest live in either penury or debt-servitude because they are dependent for their sustenance on a skewed system.

        The current problems cannot be resolved economically but only through a change in collective consciousness that makes comprehensive political change possible. Presently, the propaganda machine is exacerbating the problem instead of educating the people about operational reality and the policy options that correct understanding make available.

        The real question that should be asked is how the world can collectively use its real resources for human development, ecological sustainability, and maximum utility considered as global qualitative prosperity rather than as simply as quantitative growth regardless of the Gini coefficient.

      3. This is getting too far into the realm of politics, but income/wealth/consumption inequality (all distinct things, by the way) is not prima facie evidence of abuse or injustice. It is mostly a consequence of inequality in luck, skill, creativity, and work ethic, although I will admit that there is an element of corruption in there too (although in many countries corruption is a great equalizer, in addition to being a wealth destroyer).

        Think of the most productive person you’ve ever met and then think of the least productive. I bet the ratio in productivity is at least a factor of 100, and probably the sign is negative!

        You will not be able to come up with a system which equalizes results without making the pie lower (to paraphrase George Bush).

        Don’t get into zero-sum thinking either. J.K. Rowling has made over $1B writing the Harry Potter books. Did that $1B come at the expense of anybody? How about Steve Jobs’ wealth? Warren Buffett’s?

        There do not need to be poor people in the world to support rich people. But statistics and mathematics will tell you that inequality is inevitable.

      4. There do not need to be poor people in the world to support rich people. But statistics and mathematics will tell you that inequality is inevitable.

        Some inequality is inevitable and in the present and previous systems extreme inequality is/was inevitable. But there are big downsides to extreme inequality as well, like populist backlashes called revolutions. Don’t think that this is impossible or even implausible in capitalists economies.

        During the Great Depression, the socialist movement was large, organized, and powerful. It is not implausible that a populist revolt could have drastically change the political and economy of the US and world. Keynes and FDR can both be seen as defenders of the status quo who realized that some compromise was necessary to preserve a predominantly capitalist system.

        What does not matter to me if the pie is smaller but I have more of it when I am either in poverty or debt servitude? The idea of a bigger pie eaten by only a few is not all that appealing to the many who get only a tiny piece, others the crumbs, and some not even that.

        We are already seeing people rioting and dying in Greece. It this goes viral, there is going to be a lot more of that. And in case anyone hasn’t noticed, Latin America is slipping out of the US and Western sphere, largely to a reaction to the extreme inequality.

      5. @ JCD regarding fiat dollars and taxes:

        Yes. I understand that, as long as people continue to believe that they NEED dollars to pay taxes, the currency remains viable. And I’m not one of those ‘tax-revolt’ populist nutbars that like to post their pseudo-revolutionary nonsense throughout the blogoshere.

        HOWEVER…

        1. COST inflation is real. Energy costs and food costs are rising.

        2. The unemployment rate for the ‘working poor’ stands at some 30%. (see the report of the working group on labor at Northeastern University)

        3. The middle class—-regardless of operational truths under the fiat system—BELIEVE that every bailout of the banks, and every bailout of Europe, etc., is another dollar out of their pockets at the end of the day.

        4. Local currencies are on the rise. Barter is on the rise.

        I’m not saying tax revolts are coming. At some point, however—-particularly if inflation kicks in with a roar—the willingness and ability to BELIEVE in the need for dollars may wane.

      6. Dan, I’m not sure that cost inflation is at all related to currency. Energy tends to be price setting, and food costs, according to CPI data remain relatively stable. Some movement in fresh fruits and vegetables, but kind of hard to say that that has to do with currency instability. Points taken on 3&4.

      7. Inflation seems to be supply push, Saudis restricting output on energy front, bad weather in FL on food front.

        Unemployment is an international scandal, but is largely driven by structural impediments (regulation) against employment. (eg minimum wage, unemployment insurance, regulatory burdens on employers etc)

        Middle class have savings denominated in dollars that they worked hard to earn. They rightfully take offense to see similar assets given away to the profligate. It cheapens the value of the assets they worked hard to earn. They also understand that the tax man will have to get those dollars back, lest the currency depreciate. Those taxes must fall on their backs, and they get it.

        Rise of local currencies and barter can be attributed to deflation, not inflation. It’s scarcity of fiat currency that drives barter. When fiat currency is plentiful, consumers are eager to spend it for real assets. California pays in IOU’s because it cannot get enough USD …

      8. local currencies are based on people willing to sell their labor on ‘credit’

        i’ll work for you (instead of taking the time off) if you ‘promise’ to work for me later.

        it’s a relatively ‘weak force’ that arises when unemployment and desperation rises.

    3. except the latest release said this will be small and limited which puts it all back to square one.

      ecb purchases of greek debt would have to be at a fixed price and in unlimited quantities to shore up greek credit worthiness

  4. @ Jason and JCD,

    My primary argument is NOT that (for example) the rise of barter is directly related to lack of access to dollars and/or credit…or that COST inflation is somehow tied directly to inflation of the numbers of dollars in circulation (so to speak).

    MY primary contention is that, on the large stage of human systems, FIAT currency in its current iteration is being abused by the few at the expense of the many. And we ALL know, from our studies of history (which I have taught in schools for 20 years), what happens when the “many” come to believe that their interests are being subjugated by the interests of the “few”.

    The extraordinary volatility that has existed in the global economy for several YEARS now is not going to be fixed by a trillion dollar bailout or by the FED’s de facto European QE policies. It may be temporized, but the underlying fundamentals that brought us to this point persist.

    I am NOT optimistic.

    1. I won’t argue against your points, only agree with Tom Hickey above, that every form of hierarchical organization of human societies tends to lead to this sort of abuse. Communism no better as it still had the intellectual few leading the masses. This is a comment point by Chomsky as he argues for anarchist forms of society, to flatten out the hierarchy, that the abuse is from the hierarchy, not capitalism vs communism etc. So, the root is far deeper than looking at the monetary system. Maybe we need a new blog. ha.

      1. Chomsky is moron.

        he should be sent to mogadishu and some other truly anarchic soceity. he can then tell us how flat the heirarchy is as his wrinkled skin is flayed off to make pair of shoes. that is assuming they don’t just shoot him in spine for fun.

      2. way back my 10 year old son came home from school one day and told me he was an anarchist. i told him that meant no bathroom tissue and he never mentioned it again

  5. @ Tom RE: credit-bubble,

    YES, I know. I used the qualifying word “type” to describe my position. Under a gold standard, I contend—-THOUGH I DO NOT FAVOR A RETURN TO A COMMODITIZED DOLLAR—that the credit-bubble that we are currently experiencing would have been both qualitatively and quantitatively different. WHY? Because the non-floating regime would have placed a de facto limit on the bailout mechanism currently being employed. I contend that, under our current arrangement, we are witnessing the “Weekend at Bernie’s” effect, if you will. The credit-bubble is being kept from bursting altogether, though the fundamental conditions are making the inevitable bust even more potentially catastrophic.

  6. @ JCM RE: Warren,

    Yes. I think Warren is right. AND, I thought Tom’s “Bingo!” comment was spot-on! The issue is changing decades of cold-war historical memory and anti-“RED” sentiment and general perceptions about government control of $$$. We CAN have both: a free society and a prosperous society and a fair society, AND government control of money (and the attendant disempowerment of the financial sector)—but something tells me it’s gonna take a while. 🙂

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