Recapitalizing Europe - Money Grows on Trees - Page 2
Take away the Greek credit bonds, backed-up primarily by German banks, and the computer programs have no data to crunch and the software models cannot balance all the leger sheets. At this point money vanishes from bank reserves used to underwrite new credit and bank loans dry up for everybody, until the banks rebalance reserves to loans ratios and reprogram the trading computers without the bad EU bonds in the mix. Money is un-created and the computers have to catch up using different data.
"Recapitalizing the banks" just means that new money from economically viable parts of the world, like Germany, the US, China, and a few others, has to be found and spent to continue to fund the old Greek debt and issue new Greek debt to keep the non-productive parts of Greece going. The computers need the new money to play with so the banks keep running, and the world economic system makes it through another day.
If the new money is not found the old Greek debt bonds become worthless, new debt is not issued, and the nonproductive parts of Greece go back to the way they were 20 years ago. Simply extend this scenario to chronically nonproductive parts of Italy, Spain, Ireland, Portugal, France, and the rest of Europe to see what happens next. It turns out that you can predict the future after all.
Yes, this same play is acted out in English in the US as large numbers of people enter the nonproductive years of their lives and start to collect Social Security and Medicare. If the US does not help stabilize Greece and the EU now and the EU does not create new wealth as a result, then who will help fund US Medicare and Social Security debt in 5 years?