Home > Uncategorized > Debt Deflation in Greece: a textbook example.

Debt Deflation in Greece: a textbook example.


Diogenes, always ready to mock ‘social contrivances’ (to quote a famous Paul Samuelson definition of money), was kicked out of Sinope because he debased the currency. In Greece, at this moment, the opposite is happening: the price level is declining.   And not with a little bit. Deflation runs at about 3% a year. Which disables the ability of the Greek to pay back Euro-debts. The amount of production already declined with about 23%, on top of this the price level of production (and therewith the total amount of income) is declining, for about two years, now. Which may become the reason why they will be kicked out of the Euro Area. My twitter stream is ablaze about the speech of Tsipras, the new prime minister of Greece. By far the most controversial measure is a halt to foreclosures. Normally, I’m in favor of foreclosures, provided there is a procedure to split up the remaining debt between the debtor and the creditor in a more or less reasonable way. Whenever there is deflation, foreclosure and fire sales of foreclosed property only makes things worse. It’s called debt deflation. And we have known this for quite a time now (Irving Fisher in fact already mentioned this in his second edition of ‘The purchasing power of money‘ (1922). There are reasons for controversial measures, in Greece. As we’ve known for over 90 years. Sigh. The Euro Area clearly is a monkey trap.

  1. investmentposition
    February 8, 2015 at 9:30 pm

    Tsipras not Tsirapis

  2. Helge Nome
    February 9, 2015 at 2:38 am

    The inflation/deflation phenomenon is part of a mechanism enabling the big fish to eat the small fish. By design, it is a mechanism for wealth transfer from the many to the few that control the system.
    This system should not be tolerated any longer. It plays us all for suckers, using our tunnel vision greed as a lure.

    • blocke
      February 11, 2015 at 10:04 am

      The “Greek Crisis” amounts to a battle for the future of Europe: the stakes are high, between a Right Centered non-democratically elected Banker-oligarchy-friendly European Commission, which is an expression of European states run in the interest of the 1% and a democratically anti-austerity Europe, which for the first time has gained some leverage in European politics because of the election of a Left-leaning government under Tsipras in Greece, with surging political allies in other European countries. Germany’s political arrogance in handling the issues of austerity, is another example of the history of German ineptitude in European affairs. Germans need to show some leadership or they will preside over the dissmemberment of the European project, which has been the only real hope for a prosperous European democracy since WWII.

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