One way out: From Government - debt to Shares in the Government.
Tuesday 11 August 2015
The people know it, the politicians know it as well.
Most governments can never repay their accumulated debt.
Hardly anyone dares to confront this problem, let alone propose a serious solution for it. Instead of passing the buck on to the next generation, smart people suggested a solution. Perpetual bonds with no maturity! They would be almost like Shares in the government.
That will be the long term solution: not only in Greece but also for Germany. This is already being considered for government bonds, which will ultimately convert to perpetual debt.
The haircut for Greece will in all probability not come.
It is worse: The Greeks will not even repay part of their debt.
The Greeks will not pay anything from the nominal value of their bonds.
They will need to convert their obligations to perpetual bonds.
Lenders who want their money back will need to find a buyer in the debt market for these perpetual bonds at the prevailing
offering price.
In essence such perpetual bonds are nothing more than shares in the government. Their value is determined by supply and
demand and the interest that must be paid and which the perpetual debtor can actually pay.
By the way: The British have experience with such perpetual bonds.
In 1752 they converted their former sovereign debt to a single "Consolidated Stock" bond issue. Because they - just like the Greeks today could not repay the debt. Logically the British applied a term for these bonds, namely "stock": government share. A part of this rolled over in the centuries to "consols" the British government currently pays a 4% interest, as they must "forever" be paid, which is excessive, compared to prevailing interest rates.
Perpetual government bonds would be an acknowledgment of reality. In fact, government debt will not be repaid today, but only extended. That's not different in the UK than in Germany, in France, in the US and in Japan. The repayment of such bonds are a fiction.
For the younger generation the perpetual bonds would be a huge relief.
It will liberate them from inherited debts. They will not need to repay the principal of bonds issued by their parents' generation.
The youths can even turn the tables on debt: The majority of the current outstanding federal bonds is held by their parents' generation - and in most varied forms of retirement and the general investment.
Once the parents are not content to only collect the current interest, but also need the capital for their care, and can not wait until the maturity of the bonds. They will then need to find buyers in the debt market to relieve them of these bonds and receive the market price.
A general conversion of government bonds to government shares would also solve another problem: The European Central Bank would not be required to buy more bonds, to provide money in this way for the repayment of maturing bonds.
These purchases are considered highly controversial.
Conclusion: an end to the motto " close your eyes "! We owe it to our children not to leave any half-eaten apples on the shelf. Let's empty the shelf - with perpetual government bonds.