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The Final Nail In The Economic Coffin

Now that the pesky little Greek problem has been solved, we can move on to more important matters. What? There are people who feel there has been no solution?

Bob Chapman is one who believes that nothing has been solved in Greece. He comments:

Greece is on its way to its next crisis whether it be via austerity, demonstrations or a military coup.

He further believes that Greece is merely the first act in a long-running European play:

In all likelihood Greece will be followed by Ireland, Portugal, Belgium, Spain and Italy. It will also be interesting to see if bank deposits return to Greek banks. They probably won’t and there will be great difficulty affecting any kind of a recovery. The Greek people through all of this have been left out of the equation.

To achieve this non-solution in Greece, lawmakers have been revealed as lawbreakers. They made laws and then arbitrarily decide to enforce the ones that meet their needs at that moment:

The deal that was structured for Greece holds the law in contempt and it will be litigated for years. Why would investors want to invest under these circumstances? The rules are what they say they are at any given moment or juncture. Are other nations going to be willing to follow the same path? Every promise of the bankers, politicians and bureaucrats was broken.

When the rule of law becomes meaningless, then the rule of man fills the void. That represents no rule at all, since it is in the power of whomever holds power to change it at will. The US has experienced this arbitrariness with the bankruptcy of General Motors and the treatment of its creditors, a Justice Department more interested in racial “justice” than law, the imposition of ObamaCare as an unconstitional forced purchase, etc. etc. etc.

Investors may be burned via these changes, but it is unlikely they will expose themselves to additional arbitrary (and non-lawful) treatment. When the rule of law disappears, so do investments and contracts. Capital emigrates to areas where law has meaning, or it goes into hiding until the rule of law is reinstated. That is true for the US, Europe and the rest of the world.

In the case of Europe, Mr. Chapman believes more arbitrary settlements are ahead for other countries. Furthermore, as conditions deteriorate around the world more governments will prey on their citizens:

Citizens of all nations pay close attention. This theft is going to be a way of life for all bankers and politicians. They are all going to steal your retirement, so get ready for it. That is why we have been recommending all citizens in the US to exit all retirement funds that they can. In five months the IMF decides whether Portugal needs more money. Of course they will need more money. Portugal cannot now raise

funds in the open market at reasonable rates, so the IMF has to step in with the EFSF. How will this fit with Spain and Italy? Not very well we imagine. All this means bondholders in the bonds of these countries will be sellers not buyers, which will place the ECB and the IMF in a desperate situation. Europe’s problems have years to go.

Ultimately modern market economies depend upon the trust and integrity provided by clearly defined and administered laws. When the lawmakers feel free to override these sinews of trade and commerce, uncertainty rises and trade declines.

The loss of trust and respect for the law may ultimately be a bigger problem than solving the mismanagement errors of government interventions. Economies depend upon the stability of a reasonably constant and consistent legal framework. When the law is administered arbitrarily, only the politically connected are protected. Why should anyone take personal risk knowing that agreements and contracts mean little?

Frederic Bastiat, in his famous essay on The Law, described in 1840s France what now is happening in the US and other countries in the developed world:


The law perverted! And the police powers of the state perverted along with it! The law, I say, not only turned from its proper purpose but made to follow an entirely 

contrary purpose! The law become the weapon of every kind of greed! Instead of checking crime, the law itself guilty of the evils it is supposed to punish!

This quote is the beginning of Bastiat’s wonderful essay which only gets better from there. It is in the public domain, can easily be found on the internet and should be read by anyone wanting to understand how corrupt the law has become.

When lawmakers can no longer be trusted to consistently administer basic laws, trade will decline. Without legal stability and predictability, trade will cease.

As government and lawmakers get more desperate in their need for funds, more laws will be ignored or overruled. The damage this does to economies may ultimately be more harmful than all else. Loss of confidence in the law is the final nail in the economic coffin.