A Greek default, or any government default for that matter, is heavily misunderstood. I’m not speaking in terms of chain reactions here or what it may cause, just essentially what it is.
If a private person defaults, say if I go bankrupt, that means anyone who I owe money to, loses that money that I would have paid them. That’s it. Not one person who did not loan me anything will suffer at all. People who have no financial connection to me couldn’t care less if I default since it has nothing to do with them.
It gets a bit more complicated if I own a business. If I go bankrupt, my business will be sold by force for lack of payment of my debts, someone else will get the business and do what he wants with it, and the cash I got for the sale will go to my creditors in order of liens. All the capital I control, whatever it is, goes to someone else, and the cash goes to my creditors. That’s what happens. No capital is destroyed, nothing changes physically, just ownership titles.
So, if a government goes bankrupt, what SHOULD happen by that example is they stop paying their debts, which are their bonds. Then, by the example of myself going bankrupt and my assets being liquidated and transferring title to some other owner, what should happen and what WOULD solve the entire garbage situation in Greece is for the entire government to liquidate ALL of its asset, everything it owns, and sell it ALL for cash, in this case Euros.
Entire Greek government departments should be sold to whoever wants them for however much is offered. If someone wants the Greek Bureau of Regulation Whatever and to employ all its pointless bureaucrats, then they can. But you know what the problem is here?
If I go bankrupt but I own a business, my business probably makes money, just not enough to cover my debts. It has employees etc. So somebody buys it, maybe lays off a few people, ships up the outfit and makes it profitable
But who the HELL wants a piece of crap bureaucracy? It makes no money, it only obstructs business! So bidding for it would go through the floor and be equivalent to whatever hard assets the Bureau has like computers and real estate and cars and whatever, and all the dumb bureaucrats would be laid off and that’s it.
The other problem is the government owns the roads, and for some reason everyone is brainwashed into thinking that roads cannot be privately owned because then 1,250,000 people would die on the roads globally every year. But wait, no, that’s how it is now.
So the government owns assets that people don’t believe can be sold, when of course they can and should.
But the worst part of government default is that the government owns the money itself, because money is a government monopoly. So when a government defaults, anyone who holds government money is in serious, serious trouble. They will lose everything. Holding government money is like being a government employee when your employer goes bankrupt. It is bad. That’s why people own gold and silver.
The unique problem with Greece, however, is that the government there does not own the money supply. And that’s why they can’t print the currency to death and need bailouts. Germany and Brussels and the ECB own the money supply.
If this default were honest, everything the Greek government owned or controlled would be liquidated and sold, including the Hellenic Parliament building itself and all the roads and all the military equipment, absolutely everything, with cash raised to pay the bonds. All the bureaucrats would be laid off to find something to do in the economy. All the regulation enforcers would be unemployed. The economy would be freed.
A true, honest government default would be an absolutely great thing for the private citizen, if not for the fact that the government, instead of honestly going bankrupt like any private person and starting over at zero, will immediately set itself up another monetary monopoly, force everyone to use it, and inflate it to death, stealing from everyone just to stay in business.
If Greece starts printing drachmas, they will hyperinflate very quickly. If I were a Greek, I would buy real assets and hide them under the Parthenon. That, or sell all paper assets short now.
When a private person or company goes bankrupt, assets are liquidated and sold to new owners. Employees are let go and must find new jobs. Some stay.
When a government goes bankrupt, they destroy everyone else’s money so they can pay back their debts through theft. Greece is just a tiny little thing, a tiny domino in a line of ever increasing bankrupt dominoes.
When the US goes bankrupt, now that will be a sight to see.