Crisis stricken governments have been finding ways to skirt requirements for them to scale down on their bloated bureaucracies.
Rumors have circulated that the Portuguese government have contemplated on paying public workers and pensioners in Treasury bills.
From the Wall Street Journal,
In his televised statement, Mr. Passos Coelho said the government would try to revise its budget plan through new spending cuts rather than new tax increases. A person close to the government said it had mulled the idea of paying public employees and pensioners one month of their income in Treasury bills, forcing them, in effect, to lend the Treasury the money the court said it couldn't cut from their paychecks. A government spokeswoman denied that the idea was being considered.
Since the Portuguese government can’t print money as they operate under the ambit of the euro which is managed by the ECB and Eurosystem (central banks of the Eurozone), then they will simply “print” debt papers.
Debt papers will possibly attain traits of “moneyness” or exchangeability. Since T-bills will be used by public employees and pensioners for exchange of goods and services.
One thing leads to another. “One month” of income may become a slippery slope towards perpetuity. This means debt papers may eventually substitute the euro (Gresham’s law).
More debt leads to higher taxes which will pose as a hindrance to productive commercial enterprises.
More sovereign debt issuance can be used as collateral by the Portuguese government to secure loans from the ECB, or that debt may be monetized by the ECB. So the Portuguese government will likely be incentivized to print more debt papers.
With debt papers used as money, this amplifies inflation risks.
More debt also means Portugal will remain stuck in her debt crisis.
And if and when Portugal defaults, then public workers and pensioners and all those other sovereign debt holders will become the “greater fools” (greater fool theory).
The world is transitioning from Liberalism into Authoritarianism where diktat, that is mandate of leaders, becomes credit, money and power. Debt papers would be a form of dikat money used by country leaders in technocratic government.
ReplyDeleteYou write “More debt leads to higher taxes which will pose as a hindrance to productive commercial enterprises”.
I comment that with the introduction of the Euro, FXE, interest rates on German Treasury Debt, started to move to zero. Eurozone ZIRP became a reality with LTRO 1, and LTRO 2, as well as OMT. Ever since the introduction of the Euro, German industriousness and German productivity rose to the point where Germany became not only Europe’s exporting state but also a global exporting superstar. Now with the collapse of government in Italy, EWI, the only EU country with productive, viable, and sustainable commercial enterprises is Germany.
And you write “If and when Portugal defaults, then public workers and pensioners and all those other sovereign debt holders will become the “greater fools” (greater fool theory).
I comment that the introduction of the Euro has multiplied and intensified Moral Hazard.