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SamuelRSmith on 03 November 2011
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Mr Khan said:
Kasz216 said:
Mr Khan said:
 

Greece seems to be willing to defer it, as their upcoming plebiscite indicates. They will likely reject any punitive solution, and this is a forewarning against other attempts to institute austerity.

I think that's his point.  If they reject the austerity they will more or less immediatly defualt on their debt as they NEED austerity to survive.

Auesterity is coming either way pretty quickly.

Yes, but if democracy defies austerity to the utmost, who can win? The banana republics of yore simply defied their debt, like Venezuela, Haiti, and the Dominican Republic

Before we start, I'd just like to say that I had never heard the term "defied debt" until this point. A quick Google search actually did nothing, so I'm just assuming that you mean that they refuse to pay the debt (as I know this is what Venezuela did, and that was one of your examples).

First and foremost, I'm talking about how the soverign debt crisis can lead to a financial system collapse. If Greece defies their debt, the banks who lent out that money will be put into the same financial crisis. The ONLY way a financial crisis will not occur is simply if Greece makes those payments. They cannot do this, so all other routes lead to a financial crisis.

Second, democracy cannot defy austerity. At most, democracy can only lead to sustained deficits. The problem arises with funding these deficits. If Greece cannot borrow the money (which they pretty much can't, and certainly won't be able to if they default/refuse payment), the only means of funding the deficits is through printing money. This cannot be done while Greece is a part of the Eurozone. If Greece took the route of claiming back their own currency, for the simply means of just being able to fund deficits, the currency wouldn't be worth the paper it was printed on, hyper-inflation would set in, and austerity would be forced on the Greeks, that way.

You cannot create wealth from nothing. Any form of deficit spending is merely taking wealth away from the future. When you cannot borrow, it literally becomes physically impossible to run a deficit (any gains made by printing the money to fund the deficit, will be lost in inflation).