Greece: Changing the  Channel   Blog 16   July 6 2015

What’s wrong with Greece? Depends on whose propaganda you believe. One answer (heard in the the locker room this morning): “Well, they’ve just been living beyond their means. Spending the money they don’t have.” 

Cogs Blog Comment: 

Well, Dan, that’s applying the basic, number one rule for household economics - you have to earn it in order to spend it. However, sadly, applying the basic rule for household economics to the global monetary system just ain’t relevant. IT JUST DOES NOT APPLY.  Repeat: IT DOES NOT APPLY.

Then there’s Rule Number Two for household economics (if you borrow it, you have to pay it back) That one does not apply to the global monetary system either. In fact, if everybody - folks, governments, corporations - tried to pay back their debts, there would be no money left to buy anyone’s daily bread, not even your favourite bank teller's.

Now with that introduction from the gym scene, let me address the big challenge I have set for this blog and the next one - to explain why what looks like common sense for the household does not apply to the global money system  as it now exists.

Let’s introduce a solid citizen, call him Arthur Banks. He dresses well, takes trips, pays his bills. His neighbour, Chuck Chaplin, wants to buy something, say, a poodle for his wife.  But he doesn’t have any money. Arthur, however, just over the back fence, asks “How much does the dog cost”

Chuck says, “$200 bucks.”

 Arthur says, "Just tell Peter the Pet Man that I will cover the cost of the poodle. Here, I’ll just give you a note that says I’ll pay him $200.”

Would that work? Would the wife get her pooch? The probable answer is yes. Right? And why?

Because Peter believes Arthur is good for the 200 bucks. He holds in his hand a piece of paper to prove it. 

Peter believes. Do you know the Latin  word for “he believes”? It is the word “credit”. Yep. Credit, in Latin, means “He (or she) believes.” So when the world’s big banks stopped believing that two of their big friendly competitors could meet their obligations-to-pay, they dropped. them like a pair of tarantulas.

But to get back to Art, Chuck and Pete. Let’s follow the note. Suppose that Peter persuades the farmer who supplies his bird seed to take Arthur’s little note in exchange for a load of bird feed, and the farmer explains to his hired hand that Arthur is good for the payment and pays her with the note. She lives in a flat in the village, and pays her landlord the rent with the note. Imagine this going on indefinitely until somebody takes the tattered and torn piece of paper back to Arthur and gets the two hundred. 

So far, what has Arthur bought with his $200?

1 dog $200

1 load of bird seed    200

1 week’s farm labour   200

1 month’s rent   200______

            $800

Pretty good for a hand-written note. It’s almost like a miracle. That little note is almost like money. $800 dollars dropped into the local economy, just like that. It’s certainly better than trying to barter a poodle for a month’s rent, isn't it?. 

I’ll leave you with a question. Could the Greeks do that?