Greece is becoming the main topic for comment in the media – but the main element it seems is being overlooked.
Banks no longer lend according to the money held in their vaults, but actually create money as an item on their balance sheets. This fictional money is then lent, as we have seen, to some such as Greece which should never have been considered for a loan.
If Greece was to default the banks, which only provided a paper loan anyway, would rearrange their books to show a fictional loss and carry on as before, except they would claim tax rebates.
A problem can arise if a bank fails, as happened with Northern Rock when savers rushed to withdraw their savings because money to them is the kind you can feel in your pocket.
Greece is not a bank that is going bust, but a lender that cannot repay a loan. Greece should return to the drachma which would attain a value relevant to other currencies and eventually gain stability, although with a much lower standard of living for the present feather-bedded population.
Surely a period of turmoil is preferable to a long, drawn-out time of uncertainty, ending with an even worse disaster than if action had been taken immediately.
However, until governments take back responsibility for control of the money supply and prevent banks creating fictional funding we shall suffer from repeated chaos in the financial world.
William W. Scott
St Baldred’s Road