Sunday, June 21, 2015

Is This the Week Greece Drops Out of the EU?

We've been talking about the Greek situation for years - I know I've been writing about it since I started this blog.  You'll see many people refer to this as the Greek financial crisis, but to me it's hard to call something that lasts over five years a crisis.  A crisis is pure adrenaline dump; something that gets you into absolute "fight or flight" mode.  People and countries can't survive five years of adrenaline, so I prefer to call it a situation.

This week there was a massive run on the banks amounting to half a billion Euros per day, and there's speculation that the banks will just be closed tomorrow.  That's not really necessary, now, because the ECB extended them more loans of cash reserves.  About $1.25 billion was extended Wednesday,and another $2 billion on Friday, bringing the total liquidity assistance up to roughly $97.58 billion.  At the current rate of the bank run, they're covered for another month.

There's Yet Another Emergency Summit about Greece tomorrow (Monday, the 22nd - I can never know when you're reading this), but unless Greece finally takes the plunge of leaving the EU, the famous "Grexit", there will be more of these.  The man leading Monday's emergency summit, EU Council president Donald Tusk, is sick of the blame game and the game of chicken. He doesn't like games.
"The game of chicken needs to end, and so does the blame game. There is no time for more games."

"We need to get rid of the illusion that there will be a magic solution at the leaders level. This summit will not be the final step - there will be no detailed technical negotiations, that remains the job of the finance ministers.

We are close to the point where the Greek government will have to choose to accept what I believe is a good offer for support, or to head towards default. At the end of the day, this can only be a Greek decision. There is time, but only a few days. Let us use them wisely.
As for the run on the banks, Investment Watch author "WorkerAnt#11" put it this way: "What is perhaps more shocking is that anyone still had money in Greek banks at all…"., especially with the talk starting to surface about more bank haircuts; get it out before they take it from you.  But it's not just Greece; Citi argues that Italy and Portugal are also on the verge of death spirals.

You may have seen stories about Greek Prime Minister Alexis Tsipras meeting with Vladimir Putin.  While it's possible there might be financial agreements between them, my view is that this is just posturing; Tsipras is trying to put pressure on the EU.  Putin's Russia isn't in good shape economically and there doesn't seem to be much incentive for them to take on a basket case like Greece.  The threat has, however, gotten Angela Merkel to flinch, and say an EU agreement with Greece is not impossible. 

Another of those things I got out of Jim Rickard's book is that the first drive at a Single European Currency isn't this one under the Maastricht Treaty of 1992, but was under Charlemagne.  It's not a new idea, it's an old idea that has been tried and failed before (and Charlemagne's was based on a silver standard, instead of gold).  Will it fail again this time?  What's your bet?

Even discounting or ignoring the Greek melodrama, there's plenty of caution and unrest in the financial world right now.  That article links to a well-read comment from Fidelity UK Fund manager Ian Spreadbury that investors should be preparing for a systemic (read global) 2008-level financial crisis:
The best strategy to deal with this, he said, was for investors to spread their money widely into different assets, including gold and silver, as well as cash in savings accounts. But he went further, suggesting it was wise to hold some “physical cash”, an unusual suggestion from a mainstream fund manager.
He declined to predict the exact trigger but said it was more likely to happen in the next five years rather than 10.
It's a little surprising a Fidelity Fund manager would recommend stuffing cash in the mattress instead of a Fidelity product, but I can't see it being really controversial.  If you're talking about savings accounts, you're getting negative interest when real inflation is included, so there's marginally almost no additional loss to keeping that money in the mattress.  According to this web site, the very best savings accounts are paying ~1% interest on all amounts (I only focused on amounts up $50,000 in savings).  The Shadowstats inflation rate, using the 1980s method of measuring, says inflation is around 7%, so your 1% interest is really -6%.  Putting it in your mattress just makes that a 7% loss.  Sure you'd like to lose less, but look at it as paying 1% in insurance for a SHTF event.

This sort of awful market disturbance comes courtesy of the Federal Reserve, the European Central Banks, and all of the other Central Banks.  Stocks are incredibly over-valued, the housing bubble is reinflated, and don't even get me started on how screwed up China is. 

(not mine - from Preparedness Pro)


  1. The euro nation concept was idiotic from the beginning of course. I'm only surprised that it took so long to reach this point; perhaps just once again proving Adam Smith's observation that there is much ruin to be had in a nation's economy.

    By delaying the exit & paying the banksters, Greece may have unwittingly set the stage for a domestic "volatile situation". Now, they must have income from outside to ensure domestic tranquility. Will be interesting.


  2. It will be interesting to see just how hard the landing will be, and to what political subdivision of the EU it spreads to next.