Monetary Dictatorship

If you’re an American taxpayer, you should expect to receive a thank-you note from dole recipients in Greece fairly soon. The reason is that Barack Obama, working with his cohorts at the Federal Reserve, is using your money to bail out the Greek welfare state, thereby enabling dole recipients in Greece to continue receiving their dole.

Jacob Hornberger, Campaign for Liberty, 17 May 2010

The problem is that for decades the Greek government has been doing what the U.S. government and many other regimes have been doing: borrowing to the hilt to fund dole payments to welfare recipients. In the hope that Euro officials would not discover how bad things were in Greece, Greek officials were falsifying their financial reports. Unlike the U.S. government which has a Federal Reserve central bank, the Greek government couldn’t simply print up the money to pay off its debts. That’s because it’s part of the Euro zone, where German officials have traditionally opposed such a policy.

But finally, the welfare-state chickens came home to roost. The Greek government lacked the money to pay its ever-growing debts. Euro officials discovered that Greek officials had been lying about their financial condition. Fearing a default, investors were refusing to invest in Greek debt instruments.

So, the most likely scenario would have been a default, one in which investors in Greek bonds took a “haircut” ‘ that is, in which they got paid, say, 10 percent of their debt.

But that’s not what’s happened, thanks, in part, to the intervention of the U.S. government, which has promised to help guarantee, at least indirectly, not only the welfare-state debts of Greece but also those of Spain, Portugal, and others.

First of all, the European central banks are now going to be purchasing Greek debt instruments, thereby getting the Greek government off the hook. That effectively means that they’re printing the money to pay off the debts. In other words, inflation of the Euro money supply, which means rising prices across the board for Europeans.

To ease strains on the European central banks, the Federal Reserve has opened up a line of credit by which European central banks can borrow money from the United States. It’s not clear how much money is involved but it will surely be in the billions of dollars.

Meanwhile, the IMF is playing a role in the one-trillion dollar European bailout, agreeing to lend billions of dollars to Greece on top of already-exiting IMF conditions. As this article from the Wall Street Journal points out, it is impossible to calculate the exact amount that American taxpayers will be on the hook for, owing to the complexities of how the IMF operates in conjunction with its member partners. But one thing is clear: U.S. taxpayers are now on the hook to help bail out European welfare states, and the bill is certain to be in the billions of dollars.

Did you see Congress debating whether the American people should be bailing out the welfare states of Europe? Did you see congressional debates over whether to extend the infamous TARP program to that part of the world? Even German Chancellor Angela Merkel had to secure permission of the German parliament before she could commit German taxpayers to the deal.

But you didn’t see Obama and his Federal Reserve doing that. They have made that call entirely on their own, without any congressional vote on the matter.

When officials in the executive branch of the federal government have so rigged the system that they’re able to commit vast sums of U.S. taxpayer money, either directly in funds or indirectly in the form of loan guarantees, to subsidize foreign welfare states without going to Congress for specific permission to do so, that’s the time Americans should be questioning what type of political-economic system under which they live. After all, what other label can one put on such action than dictatorship?

Of course, what is also so amazing about all this is that the U.S. government is doing all this donating and lending when its financial situation is no different, in principle, than that of Greece. Everybody knows that U.S. federal spending continues to soar out of control, along with federal debt, and that the Federal Reserve is now cranking up the inflation printing presses to monetize its debt. Not only does the U.S. government have the same type of welfare-state commitments that Greece does (e.g., Social Security, Medicare, Medicaid, welfare, education grants, corporate subsides, bank bailouts, mortgage guarantees, etc.), it also has its vast warfare-state empire to fund, including the occupations of two foreign countries and the operation of imperial bases all over the world. Notwithstanding all that, the U.S. government is now committing our country to underwrite the welfare states of Europe.

Thanks to Obama and his merry band of foreign-aid grantors at the Federal Reserve, American taxpayers are now bailing out European welfare recipients. The question is: When our day of reckoning arrives, who will bail out American taxpayers when the U.S. government is faced with default on its bonds?


Jacob Hornberger is founder and president of The Future of Freedom Foundation. Send him email

Tom Sullivan