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(Were I to be appointed to lead the "negotiations" this is the communication I would send...)

Dear Troika Members;

I am in receipt of the Troika's demands as set forth in your presser today and am prepared to respond on behalf of the Greek Government and people.

Let us begin with the basics.  No government is accountable for the crimes of previous administrations.  This is an international truism; Germany, for example, has never paid Greece for the economic and property damage done to our nation during WWII by Nazi Germany; that government was of course removed from office.  While it would be nice to see those funds, which under inflation would exceed our gross indebtedness, we recognize that we cannot hold the current German government accountable for the sins of a previous German administration.

Similarly, the Troika and remainder of the EU cannot hold the current Greek government accountable for the unlawful acts of the previous administration -- an administration that, I remind you, was fired by the people of Greece.  That said firing came peacefully through ballots rather than bullets is immaterial.

The debt which you seek to collect was, in the main, unlawfully contracted.  Many international banks conspired together with the previous administrations to unlawfully present a false view of the nation's finances.  Further unlawful and fraudulent acts occurred thereafter, including during the bailout a few years ago when Merkel herself, it has been revealed, knew she was negotiating a loan that could not be repaid under any reasonable commercial terms.

Fraud vitiates all contacts and this is no exception.  As such the debt you seek to collect is, under both Greek and International law, invalid, never mind that the present administration cannot be compelled to honor it even were it to have not been fraudulently contracted.

We therefore present the following:

While we are obligated to honor none of the outstanding debt as a gesture of good will we will honor one fourth of the approximately €330 billion owed on a renegotiated basis, or €82.5 billion.  These old bonds shall be tendered to our Treasury in exchange for new Greek bonds with a 10 year maturity at 17 basis points over the current yield of German Bunds, or a 1% rate of interest.  We shall pay said interest in the amount of €825 million euros due annually in fourths on a quarterly schedule, with the first payment to be made on September 30th and then quarterly thereafter, as is standard in the international community.  We further reserve the right, but do not have the obligation, to prepay and extinguish up to 1/10th of this remaining indebtedness (€8.25 billion) at any time during each of the next 10 years.

With the rest of the alleged debt certificates we will hold a ceremonial bonfire on the steps of Parliament tomorrow morning at 08:00.

We understand that this will lead the Euro zone and others to decide not to lend us money in the future, quite possibly for a long time or perhaps forever.  We are perfectly ok with this, as no government can borrow on a sustainable basis anyway and that is a large part of the fraud that you, and the previous administrations of Greece, conspired in.  Such claims of "sustainability" are per-se frauds as they violate the laws of mathematics.

We are not leaving either the EU or the Euro, however as we fully intend to take full advantage of the EU economic zone advantages, including visa-free travel between EU nations and tariff-free trade.

With regard to our banks I am instructing them to demand the return of their collateral from the ELA program at the ECB beginning tomorrow morning.  The ECB has applied a 45% haircut to said instruments, which we find outrageous -- provided said banks have not been lying about their asset values.  We intend to find out immediately whether this is the case, and the means to do so is to sell each instrument into the market as necessary in order to fund whatever withdrawals bank customers wish to process and pay the ECB for each returned instrument in good funds.  I will note that since most of the remaining €82.5 billion in our debt that we are honoring is in fact at the ECB (effectively all of it) should the ECB fail to return said instruments promptly as requested we reserve the right to set aside said Greek debt in exchange on a face-value par basis, tendering the replacement 1% instruments to the banks in question.  Since this collateral is deemed good under EU rules we are also thus authorized to issue however many Euros are denominated against them as required to fund said withdrawals.  I'm sure the ECB will not want us to do this since that would permanently transfer the credit risk of these instruments to the ECB and as a result I'm also certain that the ECB will promptly return said instruments to the banks.  Please be prepared to process their instructions beginning tomorrow morning.

I trust that our banks have not falsely declared their asset values but this is a matter for them to sort out through sales into the market in order to fund withdrawals by their customers, should they choose to so-withdraw their funds.  If our banks have fraudulently inflated their asset values that will become immediately apparent and the banks involved will go out of business.  The ECB has, for many years, had a regulatory responsibility to oversee the solvency of all banks in the ECB system and prohibit them from continued operation were they insolvent.  If the ECB and EU have shirked said duty we will expect the EU and ECB to fully fund any deposit insurance required up to €100,000 for each depositor should our banks be found to have lied.  We will, of course indict and prosecute any such banker as fraud is a serious matter and in addition we will extradite (at the completion of their sentence, if any) such persons should any state in the EU or the EU itself wish to pursue criminal fraud charges against them as well.  Should the ECB refuse to honor its obligations under the common EU deposit insurance system we again reserve the right to offset on a euro-for-euro basis every penny that is not promptly paid to said depositors.

Since we will not be availing ourselves of any further borrowing from the EU or ECB nor do we have any need for ELA assistance as our banks are allegedly possessing enough assets to back their deposits we reject any and all interference in the domestic budgetary and operational affairs of our sovereign nation.  This, however, does come with the caveat that since we will not be borrowing any money from your fine folks in either Brussels or Berlin we will obviously not be running a budget deficit on a grossed-up cash basis.

The necessary political debate as to the desired size of our government and the taxation to fund it is an internal Greek matter and none of your damn business, but I assure you that I have set that debate forward as the foremost duty of our Parliament at this time and expect it to be resolved within the next few weeks.  Any attempt to interfere in this process by EU, ECB, or any of its members states will be treated as attempted subversion of the Greek government by force or fraud, which I will remind you is a serious crime in any nation.

Should you find this proposal unsatisfactory we will burn all of the bonds that are allegedly due and, should the ECB refuse to return our banks' collateral we will exercise a right of offset against newly-issued treasuries on the above terms directly to said banks to be posted for the issuance of Euros here in this nation, as such a refusal would be theft by conversion and theft is unacceptable among free nations.   In addition we will be forced to issue criminal indictments against Herr Juncker, Herr Draghi, Fraud Merkel and a whole string of other individuals, including former government officials here, for theft by conversion and fraud against the Greek people.  Again, I'm certain that the ECB would not like to accept the credit risk in those tendered instruments nor does the EU and ECB wish to become embroiled in the difficulties that would ensue from the unpleasant but necessary action in issuing and prosecuting criminal indictments and as such I'm sure you will find this proposal to be satisfactory in all respects. 

Through this process we will be lifting the banking holiday and all capital controls upon your agreement or, if we are forced to exercise the "put" of those assets upon the ECB and take the above specified actions, at the close of business tomorrow.


Alexis Tsipras

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All it takes is a company to start doing medicine on a cash, no insurance, no-BS basis to point out the blatant and outrageous overcharging, monopolist robbery and gate-keeping, all of which add up to behavior and pricing that is felonious in virtually any other line of work (and arguably is here too according to 15 USC but is never enforced.)

The Surgery Center of Oklahoma put this in stark relief when they showed up on the scene, offering no-insurance, flat-priced common operations where the price is known before the procedure is undertaken and typically winds up costing 80% less than a hospital charges for the same procedure -- with no surprises.

Now we have Theranos, which has taken advantage of a new Arizona law that allows any person to order their own tests without doctor involvement, reading or gate-keeping.  In other words your tests are your tests, as are the records (and results) of same. And their prices?

Anyone can walk into these Wellness Centers at convenient hours and get accurate, rapid lab testing with transparent prices that are always at least 50-80% below Medicare reimbursement rates.

Got that folks?

Medicare is an 80/20 system; that is, you pay 20% of the charge.

Theranos just destroyed any reason to pay for or have Medicare (say much less Obamacare or "private" insurance) when it comes to testing because the full price is approximately equal to your deductible.

I argue this same paradigm in pricing would be the case virtually everywhere in medicine were we to get rid of the monopolists, and I cite as my evidence that every time we get rid of them the same thing happens -- price falls by anywhere from half to more than 80%!

Note that these numbers are from Medicare's reimbursement rates which are typically much lower than what "private" (or Obamacare) insurance pays.  In other words the "screaming" from providers that they cannot make a fair profit at Medicare's pricing is a lie; Theranos is willing to run the tests and believes they will make money charging anywhere from 1/5th to half what Medicare pays.

The same disparity exists in diagnostic imaging.  The $2,000 MRI that has a "usual and customary" $1200 allowance, meaning you will get rammed for $800 if you allow it to happen to you, can be purchased for cash at $415 right now.  The same abdominal scan as a CT, with contrast, is $340 again, for cash.  What do you need "insurance" for when having it means you pay more, plus the premium?

The entire "traditional" model we have for medicine in this country is not just broken it is a cesspool of collusion and activity that, were I to have engaged in any of it when I ran my Internet company, or if the local car dealer engaged in any of it, would land us in prison.

Now add to this that if you stopped this there would be no federal budget deficit, there would be no federal debt (over time, as it would all get paid off) and the state and local budget issues, most of which revolve around "rising" medical costs, would also be resolved.  All of them.


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2015-07-07 06:00 by Karl Denninger
in Monetary , 643 references

I have often commented about innumeracy among the American people, but nowhere do I find it more-distressing than among those who are of sound mind and reasonable (or better) education.

There really isn't any point in having any sort of debate on government reform, monetary reform or anything of the sort with those who deny arithmetic.  It is a complete waste of time to discuss that which cannot work and if your answers do not comport with arithmetic they cannot work.

When it comes to government spending it's quite simple: Government cannot spend, in nominal dollars, more than it taxes.  It does not matter one bit whether the money that government is using is theirs (that is, they're a "currency issuer") or whether the money is issued as debt or by pure fiat -- that is, debt-free.

The reason is as I've put forward for years now -- pretty much since I started writing this column, and which I spent a lot of ink on in LeverageTwo compound (exponential) functions will always diverge from one another.  If the smaller, that is the component of the larger, is growing faster than the whole it will eventually consume the entirety.

There are no exceptions to this, ever, because this is a fact of arithmetic just as 2 + 2 = 4.

Since a sub-part (e.g. government) can never exceed the whole (the entire GDP of the nation) yet the progression of growth of government spending that exceeds that of output (both in nominal terms) must inevitably do so there is no way such a path can succeed.


Every single person who claims to have a high-school diploma knows this because you all learned it in school.

Our Congress refuses to face this -- both parties, not just one.  I have been told that deficit spending will not be stopped -- by Republican leaders, back in 2011 during the "debt ceiling" talks.

Since July 1st of 2011 to March 31st of this year total federal debt has increased by 26.6%.

Since July 1st of 2011 to March 31st of this year GDP has increased by 14.4%.

Federal Debt is increasing at a rate approximately twice that of economic output and this is beginning two years after the end of the "Great Recession"!

It is mathematically impossible to continue doing this; continuation of this policy will fiscally destroy the nation with mathematical certainty.

Yet despite this fact, and that you cannot argue with arithmetic, neither political party will stop it.

It does not matter whether you issue the currency as "debt" or not.  If you "print" the money then the destruction in real purchasing power happens just as it does if you issue as debt-backed currency.  This impairs economic growth in exactly the same way.

There is, in fact, a greater push-back in the form of compounding interest in that said interest also consumes more and more of your funds if you issue debt-backed currency.  It can be argued that this is a positive in that it (should) act as an inhibitor of bad government behavior, even though we have seen that it is entirely ineffective in the present tense.

However, if the government does not deficit spend, that is, if it does not take on debt then there is no impact on government sustainability irrespective of the monetary form.

There are plenty of reasons to like debt-free currency.  Philosophically if someone is going to get to the benefit of currency issuance it should be we the people through the government, not private banks.

But -- and this is key -- that debate is utterly immaterial until and unless deficit spending ceases and advancing it as an "answer" to debt-laden nations who are and continue to deficit spend is utter nonsense.  

Such debate on monetary form is irrelevant here, it is irrelevant in Greece, it is irrelevant everywhere that deficit spending (whether formally or simply through the expansion of debt) is taking place because if you do not stop advancing government spending in excess of economic output expansion your nation and its economic system are mathematically certain to fail.

America has one advantage over Greece and most of the rest of the EU: We have a piece of our federal, state and local government budgets we can whack off without destroying our economy.  We need only enforce existing laws. The answer is found found right here and were we to do it we'd be able to remove roughly $800 billion a year from federal spending alone.

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2015-07-06 15:31 by Karl Denninger
in Other Voices , 103 references

Ok, fair enough (and it was I who posted the critique.)

But, two points.

First, there's no interest to compound if there is no debt.  Therefore, if we stop deficit spending there is no debt to service and thus no interest to compound.  If One Dollar of Capital is implemented in the banking system then private banks cannot play their games in the private sector and devalue the currency via that method either, so the issue is effectively neutered.

Second, if you have a debt-free currency and issuing nations are free to issue it as they wish deficit spending can be simply printed into existence.

This is nearly as evil as debt-financed deficit spending.  The reason is found in arithmetic -- when you issue more "moneyness" into the economy irrespective of how you do it the devaluation takes place right then and there -- it is immediate.  While in a debt money system there is a second order effect in the form of compounding interest (which is inevitably financed, and thus gets rolled into the devaluation over time) it is a small percentage of the devaluation.  By the time it compounds sufficiently to become the primary issue destruction of your economy has already taken place in the gross sense (as is shown by Greece; the problem isn't the interest, it's the €300-odd billion principal and its refinancing-or-principal-payment requirement!)  It is deficit spending itself that is the major element of the problem because it expands geometrically in order to "keep pace" with the size of the economy that is being goosed by that act while the compounding interest expands as a percentage of that geometric expansion.  By way of example if your blended interest rate is 5% and you have a $15 trillion economy the point at which 10% of your economy is consumed by interest payments doesn't occur until you have $30 trillion in debt accumulated -- way beyond the "event horizon" of your economic destruction as you will be in permanent negative real GDP territory before that time arrives as a result of the direct exponential devaluation.

Therefore, yes, we must prohibit deficit spending because it is always and forever mathematically unsound and if practiced will always and forever eventually blow up your economy and nation's fiscal health.

But to be clear, it must be prohibited irrespective of the means by which it occurs, whether through "debt-free money" issuance or borrowing.  The sole instance where it can be justified is in true national extremis (e.g. during a declared, actual war such as if you are being invaded) as if you fail to prevail in that case there will no nation left to repay the debt or absorb the devaluation anyway.

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The latest from the ECB suggests that they have raised the ELA "haircuts" on collateral tendered by Greek banks to 45%.

That's obscene -- unless the so-called "assets" are in fact worth nothing.

So let's take the two possibilities:

  • The assets are good.  The Greek banks should take them back from the ECB and sell them into the market to repay the ECB, keeping the rest of the funds from the sale.  With a 45% haircut currently being applied if the prices the banks are holding them at are not frauds then they can easily do this and pay the depositors who wish to withdraw funds while having plenty left over.  The amount of collateral (bonds) involved is relatively small compared against the totality of the EU debt marketplace; there would be zero (or nearly so) move in price caused by such a sale.  Doing this would shrink the size of the banks involved (perhaps to extinction), but so what?  No depositor would lose a nickel and there might be created new business opportunities for new bankers to spring up to fill consumer and business demand.

  • The assets are worthless, or at least worth far less than claimed -- and most-importantly, worth less than the haircut marks!  If this is the case then the Greek banks have been and are today committing fraud.  In this case every one of their executives and managers should be arrested, tried and publicly executed.  Yes, in this case the depositor money has been impaired and some will be lost but the people responsible will be properly punished for what they have done, deterring a future similar event.

So which is it?

Either the ECB has no bullets in this gun with their "haircut expansion" because the assets can be easily taken back and sold for more than the haircut value and this is what any rational business person would do or the assets are either worth far less than the haircut value or worse, entirely worthless.

AGAIN: Is this entire charade smoke and mirrors or is the Greek banking system a fraud-laced enterprise that needs to have virtually all of its participants face the harshest possible sanction?

One of these two must be true.

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