This proposal is for a conversion of the existing dated 'debt' liabilities into a modern form of the undated credit instruments ('stock') which pre-date modern banking by hundreds, if not thousands of years.
The Proposal
Firstly, Greece would dedicate an agreed proportion of tax income to long term funding. Let us say 5% of Greek tax income and an initial allocation of €12bn.
Greece then issues stock (undated credit instruments) at a discount, each of which is returnable in payment for €1.00 of Greece's taxes. This new issuance would then be allocated between the different creditors in a way reflecting the repayment date and interest rate of Greek liabilities.
From then on Greece would use 5% of its tax income to buy back this stock for cancellation, and the faster the growth of Greek GDP and taxation, the faster would be the rate of return of the stock.Pieria
Chris Cook
12 comments:
But never the simplest solution that will work - which is to just ensure that those that want to hold financial savings either have to do it in commercial banks or just retain the 'perpetual zeros' they already have.
Never the simple solution.
Two problems there. First other periphery countries will say “me too”. And why not? Their debt to GDP ratios aren’t much different to Greece’s. Second, why should anyone ever lend to a periphery country ever again? If loans to periphery countries earn less than the going rate, you might as well find someone else to lend to.
My hunch is that this is a good idea, but I’m not sure yet. Anyone like to comment?
http://johnhcochrane.blogspot.co.uk/2015/02/beware-of-greeks-bearing-bonds.html
The only thing that is going to pave the way forward for Greece is debt moratorium.
Either Jure or Kristjan reminded us this week that practically all of the Greek govt bonds are possessed by govt CBs/agencies as foreign official reserves
http://blogs.wsj.com/economics/2015/01/22/who-owns-the-government-bonds-the-ecb-will-buy/
.... so I dont know how motivated these govt entities that currently own the bonds would be by the "tax credit" nature of schemes like this and the others... the govt agencies dont even pay taxes they could care less...
And starting in March they want to expand their "balance sheets" not reduce them so they probably dont want to sell them as that might conflict with their monetary policy plans of QE... and plus they need the interest payments/coupons to operate so a "zero coupon" approach is probably a non-starter for that reason too...
The simple solution (to them) would be to just roll it over with some new terms.... buy yourself a few more years on the gravy train and hope "things turn around" by then....
rsp,
I think Cochrane is in the ballpark. Greek needs to create a second currency while convincing its people it is staying in the euro. However, if all they use the new IOUs for is paying benefits, and there is no floor on how far they can fall relative to the euro, then that amounts to a catastrophic benefits cut.
However, if they are accepted at par for tax bills that are stated in euros, and the number in circulation is limited, then they probably will not fall much against the euro. And if they did fall a lot, that would result in a huge government tax cut and leave Greek short of euros to pay its euro-denominated debt.
There must be some way of pegging the value of these notes to a commodities basket or something, so that the benefits recipients are assured they can use them to purchase domestically produced staples. But now we are talking about price controls and export controls.
So let me get this straight. Around 2007 we have a PRIVATE debt bubble world wide which threatens to bring down our international banking system because too many people start missing payments. Govts everywhere are forced .... um ....urged.. by the ECB to intervene and keep the banks (aka investors) afloat. These interventions are the primary source of govt debt increases in Greece, Spain, Italy and Ireland...... which then are compounded by GDP collapses after massive "fiscal tightening" at the ECBs request.
After 6+ yrs of failed "cuts to stimulate growth" and rising interest rates, the same entities that were able to sell their bad debts to govts now have zero incentive to buy it back..... and the ECB sits back and tsks tsks the irresponsibility of the govts??
How the hell do they get away with this
People in authority too dumb to figure it out or they are in on it ... rsp
Greg,
Haven't you heard? Bankers rule the world.
Greg, they are not getting away with it.
Southern Europe is rising in revolt, and there's a good chance that Marine Le Pen will win the next general in France.
The neoliberal ship is listing badly and now taking on water.
Yes it is listing badly Tom but the reaction of people, it appears to me, will not be one of "Oh we need to get a stronger public sector to reform this system" it will be "The public sector has ruined this system and we need to throw the bums out". Even now after all that has happened, I think the average citizen still thinks we need less govt, less fiscal action and just "sounder" money.
Most of the southern europeans think they need to keep the euro in order to recover.
That may be so, Greg. In the end, as conditions spiral downhill, the real danger is that the public turns hard right. If the left doesn't do it, that will be the outcome and what the euro was created for to avoid will be become reality in Europe as the old demons gain new life. Europe has been there before in Great Depression and interwar period.
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