Detlev Schlichter understands the sovereign debt crisis, unlike so many others

Detlev Schlichter has a very apt post today on his blog Paper Money Collapse entitled “The Inconvenient Truth about Sovereign Debt.” He talks about the ongoing crisis in Greece (soon to be coming to various other places around the globe). Here are a few excerpts:

The efforts of our political leaders to socialize the fallout from the financial crisis by means of the balance sheets of the government and the central bank, and to thereby sustain an illusion of normalcy, have guaranteed that the financial crisis is now morphing into a sovereign debt crisis – a process that is unfolding at different speeds globally but that in many places is well advanced already. On a long enough time line, everywhere is Greece.

The following is a brief analysis of who owes who:

Who owes government debt? Who do the lenders to governments ultimately hold a claim against? The answer is not as obvious as it is in the case of loans to private entities, such as individuals or corporations…

In the case of Greece, for example, many will consider the answer to this question obvious: The Greek “people” have an obligation to repay the loans that banks and bond investors have extended to the government of the Greek “people”. After all, the government represent “the people” and have thus borrowed in the name of “the people”. So “the people” of Greece have a collective obligation to pay.

This is nonsense. It is unjust and economically absurd. Also, it is simply not going to happen. Forget about it. Not only in Greece – forget about it almost everywhere. Once the debt load has reached a certain level the “people” won’t pay – and rightly so.

The question of who owes who when governments and central banks blow up their balance sheets to bail out banks and other miscreants cuts right to the heart of the fuzzy notions of representative democracy.

The loan from a banker or bond investor to a government is a contract, and many people will assert that contracts have to be honoured for the market economy to work. But most Greeks never contracted for this debt, their government officials did. The loan is between a lender (bank or bond investor) and the government – a political entity. That entity has seriously overspent and is now going broke.

I maintain that the vast majority of people do not consider the debt of their government to be the equivalent of their own personal debt, nor do they feel obligated morally to assume responsibility for any action that government officials undertake or any contract that they sign. This position is sensible.

To paraphrase Frederic Bastiat, government is the great fiction where everyone tries to live at the behest of everyone. What we have is a very really system of all against all, the very system governments were supposed to “protect” against. Governments are not the people. They don’t even represent the people. They just do whatever they can get away with to help their cronies and then hope the people are dumb enough to re-elect them every so often. So far, their plan has worked well.


The whole notion of democratic “representation” has been obscured by constant propaganda trying to tell us that the government qua democratically elected government represents “the people”, that it looks after the “national interest” (which is a convenient political fiction) and “society as a whole”. This is evidently not the case. The government is not a true representative of anybody

If governments can make ridiculous deals with bankers and expect taxpayers and future unborn generations to foot the bill then the very foundation of liberal society, private property, no longer exists.

The German anarchist philosopher, Max Stirner, saw this very clearly already 166 years ago when he wrote in his “Der Einzige und sein Eigentum” (“The Ego and Its Own”) that if there was a state, all property was owned by it. The individual can just borrow it for a fee – taxes. Or, as Doug Casey put it: Try not paying your real estate taxes for a year or two, and you find out who really owns your house.

Such clear thinking is sadly the exception today when most people happily state that we need a state to protect private property. I would argue that today in all advanced democracies the state is almost certainly the largest threat to your property and future market income.






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