Why you can't pay off your home loan with Monopoly money

First Trust Chief Economist Brian Wesbury recently published an outstanding one-page explanation of some of the underlying issues surrounding the ongoing eurozone debt crisis.

Entitled "The Drachma is Dead, and so is the Welfare State," it is an excellent primer on the topic of strong currencies versus weak currencies.

For those who might be wondering why Europe doesn't just kick certain countries out of the eurozone and let them go back to their old currencies (such as the drachma for Greece), Mr. Wesbury abundantly illustrates why that is not an option. Those who suggest such a remedy are implying that if Greece had their own currency, they could inflate it to help pay off their debts -- the reason Greece is in such a jam is that they cannot use this common method sovereign governments (including the USA) use to escape debt. The problem is that lenders to whom Greece owes money would not accept drachmas as payment for loans that were made in euros.

It's the same reason your bank won't let you pay back your home loan with some unreliable currency, such as Monopoly money: they don't have any way to be sure you won't go print out a bunch more of it, leaving them stuck with worthless dollars in return for the real dollars that they loaned to you. (Lenders wouldn't mind accepting Monopoly money -- or Greek drachma -- for debts, as long as they were tied to something that you can't print out at will, such as gold).

Mr. Wesbury's piece also gets to the deeper issue behind this whole drama: the question of whether the unsustainable costs of excessive welfare and government giveaways should be borne by everyone, or by those who depended on the government for guarantees and promises that proved to be too optimistic. For it is when governments inflate their currencies that their money-creating ways drive the cost of everything higher, slowly taxing everyone using those currencies. This approach especially hits hard those who save money only to find it worth less when they want to use it.

He points out that the choice most governments take is pretty obvious -- in the second choice, governments would have to admit that they were wrong, and take the anger of those who trusted them, while in the choice of debasing the currency, governments can blame markets, bankers, and the financial institutions that seem to be raking in money while everyone else suffers.

This deeper question does not face those in Greece, Italy, or even Europe alone: the United States and just about every other western country is facing the same question in one form or another, as the costs of guaranteeing more and more payouts to more and more citizens are shown to be a weight that no government can bear.