From the Mises Daily, some interesting points by Ganesh Rathnam:

Make no mistake, this supposed “containment” boondoggle was yet another bailout of the world’s largest banks. The majority of the PIIGS’s debt (Portugal, Ireland, Italy, Greece, and Spain) is held by large French and German banks. An outright default would’ve called into question the solvency of these banks for the second time in two years.

Greece is also looking to raise taxes, in combination with the austerity measures, to reduce deficits. Raising taxes would impact the Greek government’s revenue collection negatively in two ways. Higher taxes would reduce economic growth and thus lower tax revenues. Further, high taxes would also drive more Greek businesses underground. Already, 25 percent of Greece’s economy is said to be off the books.

What is unknown is if the negative consequences of raising taxes would outweigh the initial, nominal increase in revenues.

The most infuriating aspect is that the eurozone […] will arrive at this same juncture again in about 3 years or so, when they must pay interest on their current debt plus the one trillion in bailout dollars and repay the maturing debt. In addition, they will probably be issuing new debt to fund continuing deficits. There is also a very good chance that creditors may refuse to rollover maturing debt, at which point this process will begin again.

Given that governments are reluctant to take their lumps now, what are the odds that they will do the right thing — outright default and debt restructuring — three years hence when the debt bubble is that much larger, the economy is in worse shape, and the pain of default and austerity is much higher than today’s? The words “slim” and “none” come to mind. The world is firmly ensconced on the path to an inflationary depression.

Given this dire outlook, what is one to do? Starting or acquiring a business, preferably one that is not capital intensive and could still function in a highly inflationary environment, is the surest way to preserve and maybe grow your wealth. For the vast majority for whom entrepreneurship doesn’t come easily, dollar-cost averaging into precious metals such as gold and silver and select other commodities isn’t such a bad idea to protect one’s life savings. Inflationary depressions transfer wealth from holders of paper assets to holders of hard assets. The bailout has bought a modicum of time for the PIIGS before the noose tightens once again. Fortunately, it has also provided time for the prudent and informed to prepare for the crisis and acquire hard assets while the getting is still good.

Source: Mises Daily


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