^[1]We all know how the story goes…

In the mid-1990s, banks and lending institutions across the US and across the pond chucked lending standards out the window…

And began making trillions of dollars of loans based upon the skimpiest of lending criteria.

In the US, banks were making homes loans of hundreds of thousands of dollars to literally anybody…

From those with little or no income to folks in the country illegally, without social security numbers, with no cash reserves, and no visible means of paying the loans back.

Similar loans were made to high credit risk countries in the Eurozone…

Like Greece and Portugal, as well as Ireland, Spain and Italy.

Rich countries and their international banks made unbelievably generous loans to these periphery countries that had, in the past, no possible way of qualifying for such amounts of money…

But, with lending ratios and standards discarded… voila! Huge loans were suddenly possible…

And lend the banks did!

Fast forward to today and we see the results of these loans…

The streets of Athens are alight and the masses are protesting their government and the international bankers…

As cruel and unserviceable debt terms are forced upon Greece--the first of what will prove to be many nations-- to really kneel under the weight of debt and EU/IMF imposed austerity.

Is that the big plan of the bankers?

To first put nations under the yoke of an impossible debt burden...

And then to enslave them with impossible and socially destructive repayment schemes?

If so, it’s working.

As we see the end of social democracy in Greece, and Italy too, and before too long, Portugal, and Spain.

Even core Eurozone countries like France may well not be immune from the fallout of the debt crisis.

And some think that the same fate may well await us here in the US.

After all, in the US, our budget deficit and our whole national debt are couched in personal terms…

Such as…

“Each and every American owes roughly $48,000 to the government as their personal share of the national debt,” for example.

A Different Choice

But is what is happening in Greece the only future for debt-ridden countries?

Well there may be an answer that will surprise you…

“Nei” is what the folks in Iceland would tell you, because when faced with its own debt crisis, Iceland did what it had to do to survive…

It let banks fail, it let people become unemployed, and it took on the fiscal discipline necessary to overcome the crisis.

As Bloomberg observed recently:

Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country’s banks, whose assets had ballooned to $209 billion, 11 times gross domestic product.

And Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York, said that…

Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks.

Even the IMF has come to see that Iceland’s handling of their debt crisis—which was the beginning of the current crisis, was not only their only way, but also, the best way…

As the first country to experience the full force of the global economic crisis, Iceland is now held up as an example by some of how to overcome deep economic dislocation without undoing the social fabric.

In fact, the IMF has said that bailing out banks is usually the worst option and does not resolve the problem, but only makes it worse…

The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

In a nut shell, the IMF is saying that what the US is doing—propping up failing banks—not only is not working, but cannot work in the long run, and in fact, it will make things worse, not better.

Not a bad policy choice for a little country made up of a string of volcanoes in the North Atlantic…

That is saying a lot, given that here in the US, were are in debt to the tune of $15 trillion…and growing.

Will US Have the Option?

But would such a “plan” work for us here, in the US?

That’s not the question; of course it would work.

It would be painful, but at least the economy would come out the other side with an economy based upon a real albeit smaller banking system, instead of the phony one we have now.

The real question is will it be allowed to happen?

Will banks in the US be allowed to fail?

The question behind that question is will the Federal Reserve allow the banks to fail?

The answer is no, not as long as wealth is being transferred to the Fed via interest payments and ownership of US assets.

That transfer occurs through debt.

And politicians know that their real power doesn’t come from running a lean government…

In a debt-free country, the government tends to be limited, and the private citizen responsible and free.

But, with massive debts, governments gain more power by taxing more, regulating more, claiming to do so for the citizens, but ultimately for its increasing its power.

And who has the power regarding our debt?

That’s right; the Federal Reserve, “our” central bank.

Now, the arguments for and against having a central bank go back to the founding of this country.

Jefferson predicted that a central bank would suck the wealth of the country out of it through inflation and steal the country from those whose fathers conquered the continent.

And today, the US government owes ungodly amounts of money to our central bank….the Federal Reserve.

And thus, the Federal Reserve controls the nation’s government; not the citizens of the United States.

Given that reality, how likely is it that the US will be “allowed” to take the Reykjavik Option?

Not very, to say the least.

But as for Greece?

The Greek people may be unknowingly choosing the Reykjavik Option themselves, from the streets of Athens right now, whether the European Central Bank likes it or not.

That, however, remains to be seen.

But it’s no secret that the path the Greek government has chosen is right for the bankers, but isn’t the right one for Greece.

And those are…The Gorrie Details.