I wish that I had an "aha moment" to share with you today, but instead all I have is an "ack moment" to share. As I was analyzing all of the info coming out of Europe in recent days, I came to the following realization: "Ack! They are actually going to let Greece default!" The only question is whether it is going to be an orderly default or a disorderly default. Of course the EU (led by Germany) could save Greece financially if it wanted to. But Germany has decided against that course of action. Many in the German government are sick and tired of pouring bailouts into Greece and then watching Greek politicians fail to fully implement the austerity measures that were agreed upon. At this point a lot of German politicians are talking as if a Greek default is a foregone conclusion. For example, Michael Fuchs, the deputy leader of Angela Merkel's political party, recently made the following statement: "I don't think that Greece, in its current condition, can be saved." But that is not entirely accurate. Greece could be saved, but the Germans don't want to make the deep financial sacrifices necessary to save Greece. So instead they are going to let Greece default.
Many prominent voices in the financial world that have been watching all of this play out are now openly declaring the Greece is about to default. Moritz Kraemer, the head of S&P's European sovereign ratings unit, made the following statement on Bloomberg Television on Monday: "Greece will default very shortly. Whether there will be a solution at the end of the current rocky negotiations I cannot say."
You might want to go back and read that again.
One of the top officials at one of the top credit rating agencies in the world publicly declared on television that "Greece will default very shortly."
That should chill you to your bones.
If the EU allows Greece to default, that would be a signal to investors that the EU would allow Italy, Spain and Portugal to all default someday too.
Confidence in the bonds of those countries would disintegrate and bond yields would go through the roof.
Right now, confidence in government debt is one of the things holding up the fragile global financial system. Governments must be able to borrow gigantic piles of very cheap money for the system to keep going, and once confidence is gone it is going to be incredibly difficult to rebuild it.
That is why a Greek default (whether orderly or disorderly) is so dangerous. Investors all over the world would be wondering who is next.
At the end of last week, negotiations between the Greek government and private holders of Greek debt broke down. Negotiations are scheduled to resume Wednesday, and there is a lot riding on them.
The Greek government desperately needs private bondholders to agree to accept a "voluntary haircut" of 50% or more. Not that such a "haircut" will enable the Greek government to avoid a default. It would just enable them to kick the can down the road a little farther.
But if Greece is able to get a 50% haircut from private investors, then why shouldn't Italy, Spain, Portugal and Ireland all get one?
Once you start playing the haircut game, it is hard to stop it and it rapidly erodes confidence in the financial system.
This point was beautifully made in a recent article by John Mauldin....
So our problem country goes to its lenders and says, "We think you should share our pain. We are only going to pay you back 50% of what we owe you, and you must let us pay a 4% interest rate and pay you over a longer period. We think we can do that. Oh, and give us some more money in the meantime. And if you refuse, we won't pay you anything and you will all have a banking crisis. Thanks for everything."
The difficult is that if our problem country A gets to cut its debt by 50%, what about problem countries B, C, and D? Do they get the same deal? Why would voters in one country expect any less, if you agree to such terms for the first country?
But if Greece is able to negotiate an "orderly default" with private bondholders, that would be a lot better than a "disorderly default". A disorderly default would cause mass panic throughout the entire global financial system.
One key moment is coming up in March. In March, 14 billion euros of Greek debt is scheduled to come due. If Greece does not receive the next scheduled bailout payment, Greece would default at that time.
But the EU, the ECB and the IMF are not sure they want to give Greece any more money. There are a whole host of austerity measures that the Greek government agreed to that they have not implemented.
Since the Greeks have not fully honored their side of the deal, the "troika" is considering cutting off financial aid. The following comes from the New York Times....
Officials from the so-called troika of foreign lenders to Greece — the European Central Bank, European Union and International Monetary Fund — have come to believe that the country has neither the ability nor the will to carry out the broad economic reforms it has promised in exchange for aid, people familiar with the talks say, and they say they are even prepared to withhold the next installment of aid in March.
But the austerity measures that Greece has implemented so far have pushed the Greek economy into a full-blown depression. Greece is experiencing a complete and total economic collapse at this point. The following comes from the New York Times....
Greece’s dire economic condition can hardly be overstated. After two years of tax increases and wage cuts, Greek civil servants have seen their income shrink by 40 percent since 2010, and private-sector workers have suffered as well. More than $75 billion has left the country as people move their savings abroad. Some 68,000 businesses closed in 2010, and another 53,000 — out of 300,000 still active — are said to be close to bankruptcy, according to a report issued in the fall by the Greek Co-Federation of Chambers of Commerce.
“It’s an implosion — it’s an endless sequence of implosions from bad to worse, to worse, to worse,” said Yanis Varoufakis, an economics professor at the University of Athens and commentator on the Greek economy. “There’s nothing to stop the Greek economy losing 60 percent of its G.D.P., given the path it is at.”
But Greece is not the only one in Europe with major economic problems. The unemployment rate for those under the age of 25 in the EU is an astounding 22.7%. And as I have written about previously, there are a whole host of signs that Europe is on the verge of a major recession.
Greece is just the canary in the coal mine. The truth is that the entire European financial system is in danger of collapsing.
Today, it was announced that S&P has downgraded the European Financial Stability Facility. It is pretty sad when even the European bailout fund is getting downgraded.
Of course most of you know what happened on Friday by now. Very shortly after U.S. financial markets closed, S&P downgraded the credit ratings of nine different European nations.
Only four eurozone nations (Germany, Luxembourg, Finland, and the Netherlands) still have a AAA credit rating from S&P.
But even more importantly, the nightmarish decline of the euro is showing no signs of stopping.
Right now, the EUR/USD is down to 1.2650. It is hard to believe how fast the EUR/USD has fallen, but if a major financial crisis erupts in Europe it is probably going to go down a whole lot more.
So what happens next?
Well, if there is a Greek default all hell will break loose in Europe.
But even if Greece does not default, the coming recession in Europe is going to put an incredible amount of strain on the eurozone.
Many have been speculating that Greece or Italy could be the first to leave the euro, but actually it may be the strongest members that exit first.
The number of prominent voices inside Germany that are calling for Germany to leave the euro continues to increase.
In addition, public opinion in Germany is rapidly turning against the euro. One recent poll found that only 47 percent of Germans were glad that Germany joined the euro, and only 36 percent of Germans want "a more federal Europe".
As this crisis continues to unfold, there will probably be even more "ack moments". European leaders have mismanaged this crisis very badly from the start, and there is no reason to believe that they are suddenly going to become much wiser.
Once again, it is important to emphasize the role that confidence plays in our financial system. The entire global financial system runs on credit. Banks and investors lend out money because they have confidence that they will be paid back. When you take that confidence away, the system does not work.
Let us hope that the folks over in Europe understand this, because right now we are steamrolling toward a credit crunch that could potentially make 2008 look tame by comparison.
***Epilogue***
Now another of the three major credit rating agencies, Fitch, is publicly saying that Greece will default....
"It is going to happen. Greece is insolvent so it will default," Edward Parker, Managing Director for Fitch's Sovereign and Supranational Group in Europe, the Middle East and Africa told Reuters on the sidelines of a conference in the Swedish capital. "So in that sense it shouldn't be a surprise to anyone."
More than a million signatures will be submitted to recall Scott Walker. A moment of silence (and awe) is required.
Bye Bye rightwingers!
Freakin public unions, you have no idea how much the rest of the nation hates you guys
The Wisconsin governor will need all the help and encouragement he can get….We can’t let the USA become another Greece…
Exactly.
Thumbs Up!
Speak for yourself
How many of them will be valid? Typical corrupt leftists cant get their way so they resort to cheating.
Explain to everyone why you prefer he fire 5000 teachers rather than have them contribute a PITTANCE to their own benefits, benefits FAR in excess what they could get outside of tax payer support. Explain why you want to recall Walker now that things are starting to financially for a state that was on the verge of bankruptcy. Explain to us who YOUR candidate is, and why you regressives can’t handle opposition. Walker won’t get removed via a general vote. You Marxists will attempt to use force. You all are a danger to this country. explain to us why you consider fleeing a state to be a valid option for legislators.
Oh, and I LOVE the irony of you posting this in a topic about Greece, a nation that is burdened by the public employees to the point of bankrupting the entire nation, and this is what you’re pushing for in Wisconsin.
Get that bumper sticker on your car gary!
“Greece has it RIGHT !!”
Bye Bye balanced budgets, bye bye public employees paying a portion of their healthcare premiums and retirement costs like private employees have to do….its ok you can tax people more so the public union employees don’t have to pay anything for their benefits /sarc….
Let them have it and let the state implode. As businesses and people flee to another state because taxes skyrocket, the pubic employees can p(l)ay (with) themselves.
I actually agree with Gary2. I say recall Scott Walker so we can speed up the total take down of the US and Global economy. Won’t it be fun when no one has a job?
Rodster… I actually agree with your sentiment except for the “no one will have a job” part.
They’ll be plenty of jobs… just not in Government. Maybe you won’t get paid in worthless dollars… but there is always a method of exchanging goods and services for those that understand what paper money really is in the first place.
Bring on the Collapse!
Ultimately the whole world will default….a complete reset may occur as $700Trillion dollars worth of crap derivatives are set to zero and the whole financial system becomes insolvent.
The banks are culpable for ALL of this as we relinquished any form of control and the ‘free market’ nutters run roughshod over regulation and control. Humans don’t live long enough to learn from history…we are set up to make the same mistakes over and over.
Should have killed off the banks decades ago – bunch of thieving bastards the lot of them….they have used their position of money owners to skim off (steal) value that they have not earned. Banks create no value and only destroy value.
They (the banks) got the dumb (paid off?) politicians to use (waste) all we have worked for to secure a fairer society in a STUPID and ultimately futile attempt to bail out what cannot be saved and then blame the poor and defenceless in society for the debt they incurred.
What was the banks behaviour after this – the creation of billions of more useless derivatives, payment of even larger bonuses to themselves and more speculative behaviour to destabilise bond and commodity markets (where they win as they are paid on transactions/commissions).
Many people don’t understand the real problem of the EU. The many different nations have their own languages and traditions. In Germany people retire at the age of 65, in Greece at 50 – 55. Not having a common language is the main issue in the course of shaping a strong and long lasting EU. Neither the romans nor strong rulers could enforce a common language over the centuries. Speaking the same language is an important means to create a sense of community. Different religions, different traditions and different languages are the main separating factors.
A common currency was never able to overcome this.
Those responsible for the introduction of the euro knew that and have ignored warnings. The confidence in deposits is shaken by products that no sane citizen morally accepts or understands. Insurance companies, banks and politicians have destroyed a lot of confidence with their false promises.
Greece. For years, no compensation of debts found place to the other states. Since years Greece is not able to pay back money. Does really anyone believe that Greece gets its own problems under control in the current system?
It would be a wrong sign, to condemn the so-called rich EU states to waive the payment of the products that they have produced and delivered for years to Greece. Other states would misunderstand this signal.
As a bad sideeffect greek people leave Greece and move to Germany. There they apply for state assistance. This must be banned because it increases the basic problem.
Germans do not want to save Greece anymore because : a) the German nation is sick and tired of sending billions of Euros to help nation that has failed to “comply with financial regulations” (that’show they perceive it).
b) German politicians need to keep in mind that the nation does not want to send any more capital our of Germany (see point a)
c) if they help Greece, then they will have to do the same with Italy, Spain, Portugal, Ireland, Slovakia, Slovenia, Hungary, Poland… one country simply cannot finance half of Europe, because there is not enough liquidity and those countries in most cases do not comply with what the money lender expects them to do (which is obvious as people are struggling to survive and go out in the streets to protest)
d) France cannot easily help Germans help the rest of the Europe. (see S&P recent stunt).
Germans are probably the only big country in EU (apart from UK) that have somewhat strong economy and that’s thanks to their reason. You can see more countries turning away from EU as that’s what we’ve always been officially told (I’m Polish) when joining EU – we have to remain Polish, protect our language and culture, etc etc. So now this attitude is growing stronger as nations will start drifting away from EU. Nobody lieks to be with the poor and broke guy. Only true friends stay with guy that bankrupts and nations as political systems have never been and never will be true friends. Besides, it is quite reasonable that each nation (tribe etc etc) protects itself and wants best for themselves.
Americans cheated Germans all of their gains from WWI. If Wilson didn’t succumb to the Polish and Czech lobbies, all of the Baltics thru Ukraine, and everything west of it, would be part of Germany and its weak ally AustriaHungary.
Germans are sick of doing everything for no return. If the Americans tell Poland ( a US puppet nowdays) to quit what it stole from Germany with Soviet hands during 1945, then Germany might oblige.
But Poland is not a Euro nation and has little incentive to sacrifice itself to rescue the Euroland.
Those socialists can’t get enough free money, and are the laziest people on earth…
Remember Grece default , americans banks will be the losers.
There are plenty of American banks that have nothing to do with Greece. There were plenty of banks that were not involved in sub-prime lending and exotic home loans…
Stop categorizing all Banks together. All that accomplishes is the Propaganda that the big banksters have to be bailed out when they make bad decisions when the reality is, they should be left to fail and allow the smaller banks that play by the rules to grow.
Greece Defaulting should “chill our bones”?
Hardly…. everybody has been waiting for it for over a year now. The message that will be sent is that the other countries better get their financial house in order.
Exports from the U.S. to Greece? Whatever…
When Iceland defaulted and went BK, it was probably more significant then some Socialist country such as Greece where people don’t really work anyways…
If it was real money…. maybe I’d be somewhat concerned. However… it’s not real money to begin with. Defaulting on debt made up of funny money is Defaulting on Funny Debt.
Of course the EU will let Greece fail. Many banks were asked to take a haircut. Many had insurance with US banks and US authorities. As this wasa a so called voluntary scheme your US insurers refused to pay. Therefore the banks refused to take any losses. By letting the Greeks fail, the US insurers (and others) cannot claim this is a voluntary action and therefore will have a massive claims against them. They thought they would make a killing bacause the Europeans would have to bail the Greeks out.
Better to let Greek crash and the insurers caqn pay up. After all they were happy to take the risk…
Why should Germans mortgage their future so Greeks can retire at 50? In modern times, Greece has never produced enough to allow a first world lifestyle. If they don’t want the austerity measures, fine. But if you take the king’s schilling…
IF EU is allowed to disband, and so leaving out BRUSSELS to host only the NATO (the war machine of the USA Imperium Military Extension), then how is the fate of NEW WORLD ORDER (NWO)???
EU is the pilot project for the One World Government, that’s why BRUSSELS demands a lot of authorities & power to control the entire EU.
Think the Globalist financial cartels will resort to other means to realize their ultimate agendas of the NWO, One World Government if EU is ever collapsed. Regime changes in various regions are the ongoing projects. After Tunisia, Egypt, Libya, now they are attempting on Syria and Iran. One after the other, this vampire giant squid is extending its grips everywhere, to eventually suck out the mankind and enslave most of them!!!
if anyone believes that germany can save europe and the euro they are mistaken. give it a month or two and the same commentators will be questioning the stability and creditworthiness of germany. but in the grand scheme its no big deal! this is just another bubonic plague… its the evolution of mankind. the strong will survive and the weak will perish… but lets be clear about something… weakness has no correlation to wealth… individuals who have the gumption and the will to survive will do so, regardless of paper wealth… it is time!
It is interesting that the people who know the least always have an opinion on everything and glad to share it.
The sky is falling, the sky is falling!!!!
Poor Gary 2, it’s all about Wisconsin for him. Too bad it matters nary a bit in the larger scheme of things. The U.S. is bankrupt in large part because of overspending (such as crazy union contracts in Wisconsin).
Look Gary 2, Greece will default, so will everyone else, including the U.S.A. You’ll soon be worried about feeding yourself more than any lefty b.s. fantasy. Oh, how about that Obama signing the military detention bill (to detain Americans WITHOUT cause)? Sounds just like G. Bush to me.
Vote RON PAUL! (when he runs as an independent in the coming election)
Europe could easily get out of the crisis, by finally turning the Euro into a real sovereign currency. Here’s a simple plan:
http://lifeseeeker.wordpress.com/2012/01/22/the-way-out-of…crisis-is-easy/
It’s painful to know the problems can be solved while you look at the rot spreading
This is the latest message on my blog http://www.watchman2009.blogspot.com
FRIDAY, JANUARY 20, 2012
Costa Concordia
That is the name of the cruise liner that hit the rocks and sunk on the coast of Italy recently. One of my readers brought to my attention yesterday that the decks on the ship are named after European countries. That reminded me of what David Wilkerson had prophesied several years ago about a European nation going bankrupt and that would cause economic collapses in many other European countries, and the United States as well.
The Costa Concordia was built in Italy and hit the rocks and sank on the shoreline of Italy. I believe the spiritual meaning of this is that Italy will be the first nation to “hit the rocks” and go under financially, and then the rest of Europe will follow shortly thereafter. The economic collapse of the USA will not be far behind. For those with stock market investments I suggest that if you hear that Italy’s economy has collapsed that you should immediately sell your stocks because the economic collapse of this nation will not be far off. As soon as Italy’s economy collapses the stock market will tank and will not recover. It will all be a fast downhill slide from then on.
Like the cruise liner, the nations have been cruising along into a financial abyss, unwilling to make the hard decisions and sacrifices necessary to bring their countries back to economic stability. They have just been having a great time, like those on the cruise ships, ignoring the stark realities of their failing economies. The United States is no different, spending money like there will be no tomorrow. It will come to an end shortly.
Yes, I believe that this message is a warning from the Lord to help you to be ready for what is coming.
Greeks are the harder workers in europe for all to know and the whole default is setup by a group of people who want to take over Greece .This is clear war and if they can do this to Greece ,they can do it in every country you americans think u are safe? think again. WW3 has started
Let Greece default? I’m not sure I understand. Greece, like the US, has technically been in default for a long time! When you are not able to pay your creditors with something of REAL value to them, you are in default. Of course we have shit-for-brains Bernanke at the Fed. printing off ever more worthless money to ‘bail out’ those who are wealthy enough to be ‘too big to fail,’ just like the EU has been doing for Greece because to face the inevitable means admitting we, dear children, are broke, which in fact the EU is. Nobody has any more money to bail anybody out anymore. The world has been pissing pretend money down a very real black hole of compressive deflationary contraction for years; digging an ever deeper abyss that we can’t get out of. Soon we will be forced to let those ‘too big to fails” to fail. Good! The wealthy elite have been squeezing the last bits of ressemblance to any real wealth out of the world economic system like a strong man might squeeze that last drop from a lemon. This has happened and now they will exit stage left leaving the rest of us who were led to believe we, too, could be wealthy like the big boys holding the huge bag of worthless dollars and IOU’s. Going to be a very bumpy ride kids!