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A Solution to the Greek Credit Crisis A Solution to the Greek Credit Crisis
Desperate times require radical measures (Hippocrates)
By Paul Hibbert
Today, Greek Prime Minister Tsipras announced an unprecedented strategy that he believes will help the Greek economy recover from the dire consequences of its socialist policies of the past. It has economic analysts debating whether he is a patriotic, bold innovator or merely a fool. The following is the content of his proposal:
“I am coming before you today to create a new structuring of the relationship between our government and the financial sector. No longer will the government interfere with the free exchange of goods and services and we now repudiate any proposals to expropriate the contents of bank accounts or any other legally obtained assets. The government will defend property rights and prosecute fraud to the highest degree so that investors will have absolute confidence in the integrity of the system.
“As a start, and to this end, we invite foreign and local investors to create vaults for the storage of gold bullion. Because of the dire straits that our citizens are facing, there are enormous bargains starting with tourism to be had for all foreigners. Our citizens are now willing to provide services that are worth many times that which were offered before our crisis. Tourists will be able to deposit gold bullion to their accounts in the vault of their choosing and the transaction with your tour provider will be credited to that account. The provider can then transact with his suppliers in gold as the medium of exchange. In essence we will create a new economy, not based on dollars, euros, rubles or renminbis — but gold. The benefits are patently obvious — governments will no longer be able to “peg” their currencies, print money or otherwise debase and manipulate their currencies to the ultimate detriment of all.
“The functions of the gold vaults are to provide for safe-keeping and to maintain a system so that transfers between their own accounts and other vaults can be easily accomplished. They may also create certificates of ownership in the form of bank notes so that fractional amounts of gold may be transferred independent of the vaults. This, in effect, will be the currency that can be exchanged to those who have no gold vault account. The vaults will make their profit by charging fees for their services much the same way credit card companies do but credit risk is no longer an issue because there is 100% gold backing and thus the fees could be very much lower than those which credit cards charge. Of course, companies with accounts could negotiate loans with anyone they choose, with mutually agreed upon terms.
“ Tourism is just the tip of the iceberg and every skill and ability available of the Greek population can be accommodated in the same way with outrageous bargains from desperate Greek citizens being available for investors. So, instead of international pleas for humanitarian aid, the once proud Greek people can eventually come to terms with their plight, prosper and pull themselves up by their own bootstraps.
“ Because counterfeiting, fraud and debasing of the currency can have such severe effects such as starvation, civil unrest and war, invoking the death penalty on those who knowingly engage in those activities can be justified as a crime against humanity. The integrity of the system is of the utmost importance and the government will be obligated to detect and prosecute violators to the fullest extent.
“It is obvious that when such a system is implemented the government has no function in the economic sector. There will be no central banks, no import/export controls except for possible sanctions and national defense, no favorite nations, no tariffs, etc., no grants, subsidies, concessions to special interest groups, or incentives. The issue of taxes required to support the other legitimate functions of government is reserved for another discussion. “
Analysis
Prime Minister Tsipras has correctly understood that the only way to a permanent recovery is to allow the citizens to come to grips with the economy by their own efforts and to cut through the corruption, entitlements and wastefulness by starting afresh with an incorruptible, rational system for the exchange of goods and services.
A number of vaults will soon be established, each with its own list of services and amenities to distinguish itself from the others, much as the credit card companies do today. They will make their money by charging fees for each transaction, issuing bank notes (certificates), and providing the bookkeeping for the accounts. So, how is it possible to have common bank notes for all vaults when there may be different perceptions of security? If there is total transparency of security provisions of the vaults, independent appraisers will publish their findings and the lesser secure vaults will upgrade their protections in order to retain their clients. If, in the food and restaurant industry today, inspections weren’t controlled by local governments with a single inspection division, private, competitive inspection companies would spring up, garnering fees from subscribers and they would publish their findings, thus forcing deficient restaurants to improve their sanitization. Consumers Union is an example of such influence on public matters. There is no ongoing, perceivable difference in the level of contamination of restaurants and it is not a matter of concern of patrons. So it would be with the vaults.
Point of purchase sales could be accomplished with what would amount to a debit card. The vaults, themselves wouldn’t offer loans but companies holding accounts would be free to negotiate with whomever they choose under whatever terms and conditions they choose subject only to fraud laws.
What would be the purchasing power of an ounce of gold? It is important to obliterate any concept of the value of an ounce of gold in terms of an existing currency, such as the dollar. It is gold that is the reference of value, not any other currency. The purchasing power of gold will vary as time progresses, according to the laws of supply and demand. Currently, say, it may take 200 oz. of gold to buy a house but 10 years from now, if gold were to be widely recognized as a de facto currency, demand would increase, gold would become scarcer and thus it may take only 150 oz. of gold to buy the same house. It is true that those who become established as early owners of gold will profit greatly if the gold currency phenomenon progresses.
Unthinking people, even some important economists often say, “But there isn’t enough gold in the world to support the requirements of international trade.” They have been caught up in the fallacy that the purchasing power of gold is constant and its value is not subject to increasing demand. The purchasing power will automatically rise to the level required to support international trade.
Greece could make lemon aid out of its present state of being dealt a lemon and with determination and focus on the very basics of economics it could become the center of economic activity in the world with gold as the de facto currency of international trade.
The Texas Secession Movement
Central to the increasingly popular proposal for Texas to secede from the USA and create its own country is the issue of repatriating the state’s gold reserves which are held in a vault in Manhattan. There is suspicion that in the event of Texas proceeding with secession those holdings amounting to a billion dollars or so would be confiscated. The secessionist movement is looking, as an ultimate goal, to back a new currency with 100% gold. The effort to accomplish this in Texas would be very much easier than in Greece because Texas would be starting from a further point along the route. One billion dollars is a pittance in the overall scheme of things but it would be a start.
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