Friday, April 27, 2012

A Blueprint for Greek Economic Future

1. In the coming Greek elections people have to VOTE AGAINST MORE OF THE SAME.

2. Current policies have totally failed, they have only enabled the elites to transfer money out of Greece.

3. It is the Rational Expectation that eventually Greece will have to exit the Euro that is causing Capital Outflows from Greece in unprecedent historic proportions. This Capital is never going to flow back into Greece until such time as Greece Exits the Euro and returns to a different currency either Drachma or an alternative name for a new currency.

4. Despite many Greek concerns, exiting the Euro WILL NOT automatically banish Greece from the EU, far from it. In actual fact a Greek exit from the Euro would in fact potentially strengthen EU relations as it is the current economic tensions brought about by the currency unification that does not allow a currency devaluation as a quick and efficient method of restoring economic competitiveness that is causing the current European tensions.

5. On a Greek Euro Exit, The So Called "FIREWALLS" should only be used to ensure that current business contracts priced in Euro's allow for the currency adjustment, aiding a smooth transition.

6. Despite the fear of massive inflation in Greece on a Greek exit of the Euro, I would suggest as happened in 2008, there would be such a massive and quick unwinding of speculative commodities contracts as the financial system realizes the game is up that Crude Oil contracts would fall from the current over $100 Dollars a barrel to at least $50 Dollars a barrel. This would counter any new Drachma that may also halve in value.

7. While the initial value of new Greek Drachma currency will inevitably fall exceptionally heavily, as Capital inflows back into Greece take hold, the new currency will stabalize and will actually begin to rise as investors want to be part of a Greek Economic reconstruction. The stabalizing of the new currency and the Capital Inflows of capital that has fled Greece in the past well over 2 years now, will significantly reduce the need for Greece to print money and Inflation will not be as rampant as the many scare mongers of a Greek exit may claim

8. In any Greek economic restoration "Social Enterprise" should form the back-bone of the new economy allowing for all people to be involved and not just the few who may attempt to buy up assets on the cheap.

Whatever the eventual Political outcome on the 6 May for Greece, the world is praying for all the Greek people, that this will be the turning point and the powers that be implement an economic program that allows Greece to Default and Exit the Euro, as this is the only path for an economic recovery.


  1. I agree with the views in your post, but i think that they rely to much on the idea that the process is going to unwind in a "free" market economy.
    In fact, I think that we are currently in the presence of a currency cartel (the Euro) which denies competition and contradict the market principle "one government one currency, one currency one government".
    It is resonable, then, to admit that the organized interests which take profit from the cartel may have the power and the will to punish a Greek backturn much more than the market mechanism would do in the short term.
    The price for not doing so, for these players, could be a massive exit from the euros of other countries and a major inpredictable reshuffle of comparative advantages.

    1. The powers that be want an Internal Devaluation

      as per recent LSE Debate

      Listen to my question about up-coming elections and the powers that be do not accept Austerity has failed and were not concerned people would vote against Austerity banishing the current bunch of politicians.

      See what is now happening, people are voting against Austerity.

      Rise up Greece and Vote out those who have made you all suffer

    2. Thank you very much I will listen accurately to this resource.

      I am not in a position now to fully understand the concept of Internal Devaluation, but hopefully I will after that.

      I also do not understand why an euro devaluation does not seem to be considered as an option in this situation.

      Coming to Austerity there is one kind of it that i would strongly suggest and encourage: us common people should restrain as much as possible from using consumer credit. It could be good to draw each week from our accounts the money we need (ideally up to 1/5 of our monthly income) and try to stick by all means to that hard currency budget. credit should be diverted to investment, its price should be dependent from profit expectations through a change in the profile of aggregate demand. It is not our duty to cover ourselves with debts to spur economy growth. As this seems to be a credit management crisis, i think it is our interest to do that little we can as individuals to help moving credit management in a sounder direction. That little being help reducing the amount of consumer credit in circulation and to increase the amount of transactions regulated by hard currency.

    3. The powers that be are attempting to avoid the full economic loss that would impair Bank Balance Sheets in a default and exit Euro.

      A Default and exit Euro with currency devaulation is a quick and easy way for Greece to restore economic competitiveness

      Instead they are trying to achieve economic competitiveness by lower internal wages. This is causing the depressionary economic cycle Greece is now trapped in.

  2. Right on! But why not avoid the drama, dislocation and pain by introducing the Drachma as a purely internal currency and continue to use the Euro as hard currency. The use of an internal currency will reduce the debt by the size of the economy and remove the need to borrow more to maintain and govern it. This will leave Greece free to pick its defaults according to fair criteria that will not create any fear in those that wish to do honest business.

    1. That is a definite possibility and might be a better controlled default particularly during a transition phase

    2. I have given more thought to this. If you want the nations public and private holdings of Euros to be internationally respected then you have to respect them too and not convert them to a new currency. Instead you run a dual currency system in which the Euro is commercial bank money, good for international use but not guaranteed by the Greek state, and the Drachma which is only good for trade within the nation but its deposits are electronic cash and guaranteed by the nations laws.

      I think that when internal trade is collapsing through lack of money in the economy you merely need to issue the Drachma as payment for public service that would otherwise not be done to someone who would otherwise have no income and the shop that otherwise would have no business will accept it. Not shops selling foreign imports though, you will need Euros for that.

      People receiving only Drachmas as income will initially be grateful but will soon feel like a sub-class if they are excluded from the world that Euros can buy. I have worked out some redistribution mechanisms which I am willing to describe by which the state can intervene and restore equity so that all citizens can use Euros and feel European and all citizens use the Drachma and feel Greek. They have some complexity but they are well within the ability of a modern democratic nation.

      Although the Drachma may eventually gain the strength to become a strong convertible currency, it is not at all certain that it would be good to follow that path. There are strong reasons for believing that the money used by a nation and the money valued internationally should be kept separate. It insulates the internal currency from external speculation.

    3. Your thoughts are really interesting as I must admit from the discussions I have had with LSE Professors they cant face up to reality that Greece has to exit the Euro.

      However the day is fast approaching.

      Look forward hearing more

  3. Toby, here is the currency distribution mechanism I spoke of. It is designed for any Euro country to regain some monetary sovereignty without disrupting the Euro which can continue to be used as a common hard currency. As I said before, in the case of country already suffering monetary austerity, the currency can be issued first to provide immediate relief and the currency distribution mechanism applied later.

    To issue a full national currency and exit the Euro is scary. What is needed is a purely internal currency to provide debt free liquidity for internal economic activity while continuing to use the Euro for all hard currency purposes including existing Euro obligations. Such a currency must satisfy two conditions: it must not pretend to be the Euro or be valued against the Euro outside of the country and it must be acceptable to its own citizens. Here is one mechanism of introducing such a currency:

    The government introduces a new national currency, a modest supplementary currency to circulate alongside the Euro. Instead of making it legal tender, which is impractical with so many Euro obligations around, it decrees and enforces that:

    Every wage or salary earner must receive say 10% of income as new national currency.
    Every business entity whose national currency income exceeds 10% of its total income may redeem the amount over 10% with the government as Euros at a nominal loss of say 1%.
    The government initially fixes and publishes the value of the new currency against the Euro for pricing purposes.
    It is illegal to sell or buy goods with national currency at anything other than the published rate.
    It is illegal to settle Euro obligations with the national currency.
    It is illegal to exchange between national currency and Euros except with the government as part of its monetary control program.

    Those are the rules. Here is the most concise description I have managed yet of how it works.

    The government pays 10% of its public wage bill as new currency keeping the Euros it otherwise would have had to pay and also receives Euros worth 10% of the private wage bill as employers exchange Euros for new currency to pay 10% of their own wage bills. The government has withdrawn 10% of all public and private wages from the economy and has replaced it with new currency. Initially up to 90% of these Euros that the government has removed from the economy are likely to be returned to the economy through the limited Euro redemption program.

    Circulation starts with wage and salary earners who, anxious to keep their Euros for standing Euro obligations, will want to spend their new national currency as full payment for uncommitted spending, that is shops, cinemas, zoos etc. They will be doing this constantly with 10% of their income, few will think it sensible to save it. Shops etc. will accept the national currency but they may ask the government to redeem 90% of it as Euros and accept the 1% loss of value in the exchange as the price of the extra business. Shops etc. will still be left with 10% of their income as national currency which they will have to spend purchasing from each other. Once you have businesses within the nation purchasing from each other, you have permanently circulating currency. Only 10% of the money issued, that is 1% of incomes, is coerced into permanent circulation in this way. That is good because coercion is dangerous and should be applied lightly. Permanent circulation will increase as businesses find opportunities to spend their excess national currency and avoid the 1% loss on redeeming it as Euros. Any permanent circulation of the national currency is a reduction in the nations Euro borrowing requirements and the foundation of monetary sovereignty.

    1. Two currencies circulating at the same time with relative value fixed by authority? In present conditions is this not as saying that the new currency is bound to be overvaluated at every time? And how could we escape the Gresham Law in this situation? Is not every single euro going to be thesaurized and are we not going to see a huge pressure for printing more and more of the new currency for circulation purpose, and is that not potentially out of control?

      I admit that this is my first impression, but how is this scenario avoidable, or is the Gresham Law the very tool to realize a soft Good-bye to the Euro, instead of a disruptive abandon?

    2. Many Thanks

      Sounds very interesting

      This might be very useful for LSE post Greek elections Debate on 8 May link

      The debate so far has centred around the absolute imperative of Greece remaining in the Euro.

      The outcome of the Election will determine the future course for Greece.

      Amazingly enough 75% Greeks still want Euro as their currency, but it is acting as a Noose Throttling their own survival.

      Recent technology with mobiles could act as a potential catalyst for internal currency payments providing easy means of internal payment transfers and the internal liquidity to avoid the Inflationary money printing

      The New Currency could be called "MOB"

      We shall soon see if Greece is Set Free

    3. “Amazingly enough 75% Greeks still want Euro as their currency ” - of course, they don't want to be cut off from the things that Euros can buy. This is why I am suggesting that they keep the international spending power of the Euro but that they don't waste expensive Euros on internal transactions when a state issued internal currency can perform that role at no cost.

      Even if Greeks end up receiving only 20% of income in Euros, they can still buy mobile phones, personal computers, internet access and travel abroad a bit. That it will be very difficult to buy a new up-market foreign car is probably the genuine austerity that they will have to face up to.

      I think we all have to face up to the austerity of consuming less non-renewable resources. That is a genuine austerity that many recognise and are ready to embrace and it is something that can be done with dignity. The social austerity being imposed on us that regards compassion and social responsibility as unaffordable is is something different and we must reject it. We may be ready to accept that we cannot afford to consume so much but we must stand against any suggestion that we cannot afford to be human being and care for each other.

    4. Giannicola, In a way you have got it in your last sentence.

      “...or is the Gresham Law the very tool to realize a soft Good-bye to the Euro, instead of a disruptive abandon? “

      It relies on a Gresham's law type dynamic in that people will want to spend the internal currency and hold on to their Euros. But they won't be holding on to their Euros, they will be using them to pay off existing Euro debts. This is exactly what we want, the internal economy oiled by internal currency and Euros reserved for what they are needed for.

      These are not specifically the conditions for Gresham's law in its entirety. Neither currency is a commodity of intrinsic value and the internal currency will not be legal tender. Not legal tender! - then surely it has no legal basis ? That is correct, it is a currency with no legal basis which means it is absolutely useless to foreign speculators. The law only insists that you do not devalue the internal currency by trading it below its value, you are still entitled to refuse it. The moral basis of this law is that you may refuse the internal currency because you have Euro obligations for which it is no use, in which case, receiving more internal currency for the same goods is not going to solve that problem.

      In place of legal tender that directly forces acceptance of the currency the government imposes the internal currency on the income of everyone so that everyone has a stake in its acceptance. The value of the internal currency should be based on the labour performed in return for its issue and the goods and services of the nation that are an appropriate reward for it and have nothing to do with the Euro. The Euro though must be valued against the national currency to allow pricing in both currencies. The comparative values should be set by government so that all follow the same standard but it should follow market condition so that no corrective black market need occur.

    5. Toby, please feel free use any ideas I have presented here as best you can at the LSE Debate on 8 May.

      I have already presented a brief outline some months ago in an e-mail to Costas Lapavitsas who will be speaking. He did reply showing that he had read it but probably very quickly without realising quite what it was saying. I think Costas is on the 'Greece must leave the Euro side of the debate' whereas I am suggesting a way of staying in the Euro but making more economical use of it – going Euro Lite.

      Technically it should appeal to those against Euro exit because it is a way of avoiding disruptive exit from the Euro but I believe that its natural allies are people like Costas who see the strength of Greece reclaiming monetary sovereignty. I am definitely talking about a path to monetary sovereignty regarding a nations valuation of its own resources and its ability to mobilise and apportion them amongst its citizens.

    6. Hi John

      That is great.

      I was at a Debate tonight at LSE and it did come up in relation to Greece and possible dual currency.

      An area that I am very interested in is Crowd Funding and the use of social media as a potential alternative market mechanism of allocating resources.

      Currently working towards Phd acceptance and also developing working model of Crowd Funding platform.

      At the moment everyone is searching for an alternative to Capitlism that responds to social problems such as environmental climate change, equality of opportunity,equality of health care, eduational opportunity, energy and resource depletion etc However people do not want a Socialist / Communist solution where Governments dictate the allocation.

      The current market mechanism of large financial institutions having basic control over capital allocations has distorted the alloation of capital and resources.

      I believe Crowd Funding and social media allow for more efficient resource allocation, free from government dictate. However with the ability of individuals to allocate capital both socially for the social good and with a return on investment.

      The disallocation of Capital that is being caused by ZIRP is resulting in people seeking higher speculative yields in commoditities etc in turn fueling inflation on staple products resulting in less disposable income as wage growth has remained well under control. Although in reality it oould be viewed that Austerity has been a way of controlling inflationary pressures from QE

      Be great to have your thoughts


    7. Toby, I do have an idea related to Crowd Funding. One of the features of Crowd Funding is that contributors very often have an ideological motive. They contribute as much because they want to see something happen as because they see it as an opportunity for personal gain. It works because the truth is that we are not all selfish little misers, the spirit of combining our resources to achieve something collectively is a natural characteristic of humanity and is alive and well. What I am going to suggest is another way to mobilise this spirit of collective responsibility which doesn't require people to part with money that they may not have. It is well suited to non-profit making social projects that provide real benefit to the community. This is how it works:

      Quite simply the project prints its own Community Money. Instead of asking people to part with their money, you ask them to:

      1. Accept as much Community Money in return for goods and services as you are able and willing to contribute to the community.
      2. Spend that Community Money with others to obtain the goods and services you want.
      3. Accept some more Community Money, spend it and repeat.

      The Community Money will be issued exclusively by the project and only as payment for the goods and services that it requires. The Community Money is more precisely a receipt for goods and services contributed to the community, it is a certificate of contribution. It is not redeemable because naturally a contribution is irreversible. It has no legal value but as a certificate of contribution it does have a legal status – to counterfeit it would be making a fraudulent claim of contribution. The effect of the Community Money changing hands would be to more widely distribute the burden of contribution and to provide the community with a means of trading with each other without using commercial bank money and its burden of debt and interest.

      Like Crowd Funding it relies initially on people either passionately supporting the cause, feeling that it is fair that they contribute or even feeling a pressure to be seen to contribute but there is an added difficulty that cash concentrating Crowd Funding doesn't have. All of the services and materials of the project have to sourced directly from this popular base, that is those who are willing to accept some Community Money. That isn't an insurmountable problem, if the community really feels that the project is needed and they should all contribute then even the most hardened traders will want to show they have participated.

      I really don't know how it would play out. I can imagine a few scenarios:

      1. Everyone accepts some Community Money and pins in to their wall to demonstrate their contribution. Well no harm done, you have at least managed to get one round of contributions.

      2. People sympathetic to the cause, trade with the Community Money and find they are able to reduce their use of official money.

      3. Others, with no interest in the cause, see that it is widely accepted and accept and use it themselves. Now we have a widely accepted debt free currency.

      It is clearly suited to an environment in which official money has become scarce, as I imagine is happening in Greece and as could happen anywhere soon.

      I heard of a hospital in Greece that no longer receives official funding and is operating under workers occupation. They are thinking of seeking contributions but are aware that nobody has any money. This seems to me to be an excellent opportunity to establish a Community Money that would get widespread support. I wrote to them but have not received a reply.

    8. One last thing. I am worried about the popularity of internet based peer to peer arrangements for the distribution of resources, particularly BitCoin. We don't trust government, we don't trust anyone so we seek to put our fate in the hands of an algorithm or the aggregate effect of many individual selfish decisions, which is similar. Money is a social construct, it requires a society and has to be a product of that societies conscious collective decision making process if it is to be fair and useful to us. We must improve how we choose our governments, not disempower them and ultimately disempower ourselves. And hey, if we are going to have Peoples Money then it must see the light of day as cash, that is notes and coins. I am not impressed by money that can only flow in privileged circles, everyone may have mobiles phones but they don't all have smart ones with good internet access. Anyway any arrangement that doesn't allow for giving money to beggars and buskers is heartless.

    9. John, I have always been fascinated by the idea of us people creating our own money, but still i don't see this coming any soon, unless, God forbid, in case of a nuclear doomsday.
      I have another idea which could maybe have more viability. Government debt explosion could be seen as a direct consequence of the same Government losing control on money creation. A system which could create a perfect liquidability and marketability of treasury bonds, could create a sort of electronic money for internal use which can give back to national governments a good share in money control powers.
      The governments could also start (partly) paying its employees and supplier with this electronic currency.
      At the same time fiscal policy could incourage people to move towards the acquisition of this electronic currency. Ideally every form of investment but the "electronic debt" should be taxed with progressive personal income tax. Interest on electronic debt should be taxed at a very low fixed rate.
      To safeguard equilibrium in the long term new "money" (i.e. new debt) should be created only for funding investment in infrastructures, like schools, hospitals, or, in smaller measure, for increasing reserves in gold or foreign currencies.
      A sort of Tangible Assets Standard instead of the old Gold Standard.
      If this system could be viable than, if even i still believe in the one currency one governmet rule, it could be possible to mantain a single currency and maybe this currency could even be the euro as we know it now.

    10. Hi

      From reports it would seem Greece has been developing its own internal mechanism of exchange as basically the money supply has completely imploded.

      In the UK simply exchange systems have been developing with Time Banks and other Barter systems.

      I am currently working on a system similar to Brand Loyalty points.

      In fact before our very eyes new exchange systems are evolving.

      If people believe in the system and value the system it has value.


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  5. Hi John

    Your ideas are very similar to what I have in mind

    It would be worth listening to presentation Couple days ago at LSE and my question re Crowd Funding. Dr Robin Murray was very excited about the potential

    Also last night at LSE the Podcast is not up yet but Professor Richard Freeman was brilliant and while at the end he focussed on Crowd Sourcing rather than Crowd Funding they are both inter-linked and he seems to see it a way of keeping people in check.

    I know what you mean with Mobile technology. If you loose it you are lost, so still need Keys Coins paper pen etc to do normal things.

    Keep the ideas flowing as there is such an opportunity to play a role in shaping how the economy could be re-structured.


  6. Hi Toby,

    I listened to the debate and found it very interesting with a rich diversity of ideas that are applicable to a sustainable future. At the same same this diversity of ideas was a disappointment when the subject of the debate was “Is there a Plan B”. I don't think I heard anyone even begin to outline a Plan B!

    The first question facing Plan B is always “Where will the money come from if no-one will lend to the government?” The only answer to that is that the government departs from its accommodation with the banks and prints the money itself. There is a lot of work done on this, google Positive Money. Any Plan B looks silly without funding and the only solution to that is the proper exercise of national monetary sovereignty, a nations power to issue its own money in return for services to the nation and to issue it in sufficient quantity that the trading that is essential to the health of the nation is not impaired by a lack of it. Why does nobody dare speak of this?

    A one hour debate at the LSE on the specific issue of a Plan B without any mention of how it would be funded at a national level (the one that keeps most people alive) seems par for the course and it is specifically what does not convince the public.

    Much of the content of the debate sounded like coping measures for the inevitable ploughing ahead of Plan A. Commendable, because that may well be the fate we face but it does not even collectively amount to a Plan B which was supposed to be the topic. A rare chance for a Plan B to be articulated but not a peep of it.

    Toby, if get to meet any of the speakers, politely ask them to briefly remind you what their Plan B was.

    I am willing to listen to more debates if you point me to them, I quite enjoyed it.

  7. This seems to be the Million Dollar Question

    There is No credible Plan B, from any of the major economic thinkers.

    Krugman sprouts on about typical Keynesian approach, but today's US Payrolls suggest that even this approach is not working as America also seems to be slowing despite not implementing anything like the Austerity on our side of the pond and printing way more than Euroland.

    The real inflation rate is so under-reported when in the UK we are now paying £1.50 a litre and in your money (I assume you are in the USA) is $10 a gallon. This can only be caused via FED money printing and large traders Front running contracts continuely bidding up price from the basically free money before the real consumers actual fill up their car with a few gallons.

    The whole system is broken and this time no plaster will patch it up. Bernanke is scratching his head thinking he is pulling all the levers and yet the engines are not firing (Although firing a little better than Euroland) but given the Reserve currency status it is more a matter of good-fortune than his brilliance.

    The huge currency distortions are at the epi-centre and once currencies and commodities start unwinding as per todays Crude drop this may set the scene for the market to work itself out, although given previous Fighting market forces it might take longer than we all think.

    You might like my recent Blog on ending Commodity Super Cycle

    Great to have a forum and hope that we can encourage more to join the debate.


    1. This is why I say get out the national currency and use it to secure public infrastructure and essential commerce. Then we can ride out the storm without fear of internal economic paralysis.

      Democracy requires a government that issues its own money. If it has to borrow and re-borrow it, as it does today, then it will be the lender that dictates policy.

      I like your End of the Commodity Super Cycle ? Blog. It has a good touch of justifiable optimism.

  8. Hi Toby,

    I just sent this to all the Greek political parties as they need a basis for agreement. The chances are it will not be noticed but I would have felt bad not trying. Do you know any Greeks that know how to get heard in Greece?


    Reject austerity measures and replace government borrowing with the issue of a new internal currency to circulate alongside the Euro.

    Refuse to leave the Euro and instead play fair with it:
    Do not take your peoples Euros away from them by re-denominating them as Drachmas
    Do not pretend that the new Drachmas can be used to pay Euro debts.
    Do not default – being no longer dependant on borrowing you can now reschedule unilaterally and take your time to repudiate selectively.

    Allow the new Drachma to service the internal economy thus liberating it from the burden of debt and interest that comes with Euro use. Both government and its citizens can then keep the remaining Euros for hard currency needs. In this way Greece can find the level of Euro use appropriate to its economy.

    Greece has the opportunity to pioneer a Euro Lite model that other Euro Zone countries may choose to follow. If the Euro refuses to adapt to the internal needs of Euro Zone countries then it makes sense for those countries to supply their own internal currency and keep the Euro for what it insists on being, a currency of international trade. Using Euros for all internal trading is unnecessary and prohibitively expensive for many nations.

    1. Hi
      Just met costas lapavitsas


    2. Did he give you any impression of how well informed the left are in Greece? Have they thought of dual currency?

    3. Hi

      They do not seem to have any idea How It will all work out.

      However what i have come up with and will set up another Blog to see what people think

      Greek reconstruction fund (london)

      This would be social enterprise style sterling could be used at least as medium of Exchange process transactions

      At the moment oddly the main authorities do not seem have any plans in place

      The enterprise spirit in me thinks run with It and If can galvanize support could generate own momentum

    4. Do they not realise that the day the Trioka says no more money, they will be forced to issue their own currency to pay the public wage bill? If they don't then military command will be the only way to run the country. They should prepare for this possibility so they can deal with it intelligently.

      From the Guardian:

      “Tsipras called for a moratorium on Greek debt repayments, an investigation of the Greek banks, and the lifting of immunity of Greek MPs to facilitate their prosecution if deemed appropriate”

      He seems well orientated. I hope he understands monetary systems and is creative in considering the range of monetary options available to a country under financial siege.

      I am beginning to think that the reason Pasok & New Democracy were so keen to supplicate to the Trioka and insisted that there is no alternative was that it was the only path that would keep their corruption and misdeeds covered up.
      There is probably much debt whose successful repudiation requires the prosecution of certain errant officials and politicians as having been party to corrupt and illegal dealings.

      Certainly Tsipras, as an outsider and carrying no guilt of this is going to be able to bargain more firmly with Europe.

    5. Time is not on everyones side and as I had thought Commodities are being hit hard and even Gold has lost its shine, so before they can do anything cash will simply be withdrawn from the system

      Have set up following and will see what others think. Although so far everyone has been keen stay in Euro, this is going to be impossible.