Monday 11 July 2011

Could bank deposits be used to fund sovereign debt?

Probably yes (available also in my webpage with additional footnote. Sorry, in Portuguese only).


  1. NO WAY!

    Listen, I may not be an economics professor like yourself, but it doesn't take a genius to realize that what you propose is a hell only slightly better than the hell troika is trying to impose.

    Slightly better because at least in your proposal Portugal would have 'some' control by internalizing its debts, vs owing its debts to external PREDATORY creditors such as troika; however, what would be learned from such a move? What would prevent debts from getting out of control again? Above all, of what legitimacy is a government who prays on the savings of its own people?

    Have you ever analyzed the recent Japanese economy? For the past 20 years, their debts have grown and grown and grown. And their economic prowess shrank and shrank and shrank. The only reason they haven't collapsed economically is because their debts are owed primarily to their own people. My point is, even if the debts are internally owed, this does not necessarily prevent a slow economic spiral and can result in yet another lost decade for Portugal.

    What should be taking place ASAP in Portugal is the following:

    a) A full unbiased conflict of interest free audit by the people of all of Portugal's internal and especially external debts for the past 50+ years.

    b) The goal of the audit should be to determine whether or not each debt should be classified as "odious". If you (whomever is reading this) have not heard of this term, please take the time to learn about this concept: "odious debt" (wikipedia)

    In short, odious debts, are debts accumulated by past governments that were illegitimacy in the sense that they did not serve the people. Example: Why did Portugal invest hundreds of millions in submarines, when it is on the brink of economic collapse? How exactly does that serve the people of Portugal? Upon further investigation, illegitimate can surely be found - somebody, at some level, was receiving kickbacks.

    c)Announce with justified proof that all illegitimate debts will be immediately defaulted upon. This is of GRAVE importance. It will send a strong message that any external bankers/creditors with malicious intent not engage with Portugal in the future, or they risk losing their dirty shirts.

    d) Renegotiate the terms and outstanding balance of all outstanding legitimate external debts with each respectful creditor such that Portugal will truly be able to pay them, and not become a perpetual debt slave.

    Above all, the interests of the people - NOT THE PORTUGUESE BANKS OR EXTERNAL CREDITORS - must be
    the primary focus.

    I do not proclaim these ideas to be mine in the slightest. They were inspired by the following ~1 hour documentary that I urge all sincere people with altruistic economic goals for the nation of Portugal watch.


    Best Regards,

  2. Thanks for the comment. The post title may inappropriately suggest that the government would simply use bank deposits. This is not what I am arguing.

    I believe that bank account holders might, of their own free will, and with the right set of incentives, choose to withdraw their deposits and buy a new type of public debt.

    If the revenues were used to repurchase debt in secondary markets this would result in debt reduction and a reduction in interest outlays.

    Regarding your comment, even if we accept that there is debt that was the result of "odious" events, the fact is that the debt securities were sold to investors who most likely were not at all involved in the "odious" events. These investors were willing to fund, all along, investments that may have been worthwhile, for example in the construction of hospitals and schools. They did not know what use was given to the funds that they lent to the Portuguese government and to Portuguese private institutions.