1. How can Greeks save more money?

2. Not “Adults in the Room” but “Children in Charge”
Resolution of the Amsterdam European Council on the stability and growth pact
“The Member States undertake to abide by the medium-term budgetary objective of positions close to balance or in surplus…”
Consider another monetary union: TomDickHaria
Each of Tom, Dick & Harry starts with €100: total money supply €300
Each starts with spending €200/Year on the other two
Expenditure & Income
Tom
Dick
Harry
-200
100
Savings
Aggregate expenditure €600
Aggregate income €600
Expenditure is income: GDP is €600/Year

3. Not “Adults in the Room” but “Children in Charge”
Kingdom of Tom decides to aim for budget surplus of 5% of GDP/Year (€10 in 1st year)
Expenditure & Income
Tom
Dick
Harry
-190 95
100
-200
Savings
+10 -5
Tom’s surplus
€10
Aggregate GDP €590
€10 fall in GDP
Tom’s savings causes equal fall in GDP
Aggregate savings €0
Kingdoms of Dick & Harry aim to restore balanced budget
Cut spending by €5/Year
Aggregate GDP €580
€10 fall in GDP
Dick & Harry’s savings cause equal fall in GDP
All 3 fail to meet savings targets
Aggregate savings €0
Expenditure & Income
Tom
Dick
Harry
-190 95
97.5
-195
Savings +5
-2.5

4. Not “Adults in the Room” but “Children in Charge”
Tom decides to aim to overshoot: spend €10 less again
Dick & Harry only reach halfway to balance: repeat €5 reduction in spending
Expenditure & Income
Tom
Dick
Harry
-180 90 95
-190
Savings
+10 -5
Tom’s surplus restored
€10
Aggregate GDP €560
€20 fall in GDP
Savings by all three causes equal fall in GDP
Aggregate savings €0
Kingdoms of Dick & Harry decide to overshoot: Cut spending by €10/Year
Expenditure & Income
Tom
Dick
Harry
-180 90
Savings
Tom’s surplus eliminated
Aggregate GDP €540
€20 fall in GDP
Savings by Dick & Harry cause equal fall in GDP
Aggregate savings €0

5. Not “Adults in the Room” but “Children in Charge”
If Tom tries to restore his surplus target…
End result of this process is a GDP of ZERO
Individuals save: economies (and Unions of economies) cannot
Collective increase in money requires more money to be produced
Who produces money?
Countries, by exporting more than they import
Trade surplus converted into domestic currency by Central Bank
Only sustainable basis for EU objective of surpluses is Mercantilism
Banks, by creating more debt than is repaid
Bank-originated Money and Debt (BOMD) creates money & debt at same time
Bank money comes with identical debt liability for recipient
Governments, by spending more than they tax
Government deficit creates liability-free money for recipient
“Stability & Growth Pact” objective makes this negative, thus destroying money rather than creating it

6. Not “Adults in the Room” but “Children in Charge”
Pact ignored private debt on basis of childish Loanable Funds model
Banks as Intermediaries: the Ashley-Madisons of Money
Real world: Banks Originate Money and Debt
Bank of England: “Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.”
Bundesbank: “banks can create book money just by making an accounting entry: according to the Bundesbank's economists, "this refutes a popular misconception that banks act simply as intermediaries at the time of lending”
Bank of Norway: “The bank does not transfer the money from someone else’s bank account or from a vault full of money. The money lent to you by the bank has been created by the bank itself – out of nothing”
Macroeconomic consequence of this:
Bank credit (annual change in bank debt) adds to aggregate demand…

7. Not “Adults in the Room” but “Children in Charge”
Tom takes out a loan of €10 (not shown in this table) from the Bank & pays 10% interest on the loan to the Bank
Total expenditure is total income equals €612/Year
Turnover of existing money as before (€600/Year)
Credit (€10 in first year)
Gross financial expenditure (€1/Year interest)
Finance sector expenditure (€1/Year) …
Expenditure & Income
Tom
Dick
Harry
Bank
-( )
100
100+10 +1
-200
+0.5 -1

8. Not “Adults in the Room” but “Children in Charge”
Pact allowed huge credit bubble in countries that followed Pact policies: like Spain
Government could cut its debt because of huge stimulus from private credit
Reached almost 40% of GDP equivalent in 2007
Crash when credit collapsed to -20% of GDP
Rising government debt after crisis a symptom, not a cause

9. Not “Adults in the Room” but “Children in Charge”
Credit-Unemployment dynamic obvious for Spain:
Same dynamic in all “Walking Dead of Debt” countries that had crisis in 2008 (& Japan in 1990)
Data available at ata-on-credit-employment-and- house-prices/

10. Not “Adults in the Room” but “Children in Charge”
Same processes apply in Greece. Pact let private debt bubble build…

11. Not “Adults in the Room” but “Children in Charge”
Credit drove economy up as it rose, down as it fell
As in TomDickHaria voluntary austerity, EU-imposed austerity is destroying GDP as much as it reduces government debt
Recipe for permanent collapse
Keeps private sector in permanent deleveraging mode
Only reason for slight recovery since 2012 is decrease in rate of deleveraging

12. Not “Adults in the Room” but “Children in Charge”
“Stability & Growth Pact” actually a pact to destroy money
Answer to “How can Greeks save more money?” is “Only if government creates it!”
Pact prevents this & destroys money in Greece equivalent to surplus target
Greek response is falling GDP, continued deleveraging…
“If a country or region has no power to devalue,
and if it is not the beneficiary of a system of fiscal equalisation,
then there is nothing to stop it suffering a process of cumulative and terminal decline
leading, in the end, to
Emigration as the only alternative to poverty or starvation.” Wynne Godley 1992
Greek Austerity is the Irish Potato Famine of the 21st Century
The “Stability & Growth Pact” is the Potato Blight of the 21st Century

13. Not “Adults in the Room” but “Children in Charge”
Politicians can’t be entirely blamed for destructively childish policies when these are the product of mainstream economic theory
We need realistic, adult, monetary macroeconomics to avoid catastrophes like Greece

14. Help bring about a new economics
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