Greek bail-out nonsense: suddenly we’re all experts!

The MSM is full of apocalyptic visions of why we are doomed if we bail out Greece again and doomed if we don’t, largely dreamed up by people who have little clue about banking and finance and so on.

As far as I can see, there isn’t much to worry about if we allow Greece to default, leave the Euro-zone etc. History is littered with similar examples, no two cases are ever exactly the same, but as a general rule, the country concerned usually devalues, dusts itself off and is back to normal after a year or two.

A few recent examples are:

1980s Latin American debt crisis
1990 German debt waiver
1992 Black Wednesday
mid-1990s Argentine debt restructuring
1997 Asian financial crisis
1998 Russian Financial Crisis
2008 Icelandic banking collapse (compare the favourable outcome here with the complete and utter mess that the O’Irish made of it).

There have been plenty of instances where a currency has devalued by twenty or thirty per cent in the space of weeks or months (which to a foreign debt holder is tantamount to a twenty or thirty per cent default), sometimes it bounces back, sometimes it doesn’t, sometimes it leads to inflation, sometimes it doesn’t.

Never forget that the sum total of all the money in the world is always precisely zero, because for every financial asset there is a financial liability, and beyond a certain level of abstraction and on supra-national scale, money really just is numbers on bits of paper, it’s not real money any more (as Nick Leeson once said). It’s the pretending that these numbers mean anything which causes the damage.

As a silly example, sometimes a tramp asks you if he can “borrow” a pound; if you hand over a quid and say “Keep the change”, all is well with the world. What would be stupid is taking him at his word and then trying to track him down asking for your money back.

I won’t bore you further with why this is so, but take it from me, it just is.