Europe was putting the finishing touches on yet another bailout for Greece over the weekend, even as new scrutiny fell upon the growing problems of Spain and Portugal. Under the latest rescue package, the IMF and 15 nations – presumably including Spain and Portugal – will pony up $133 billion to keep Greece from defaulting. Will that be enough? Although it more than doubles the amount of an emergency credit line extended to Greece less than two weeks ago, some observers think it could take as much as $700 billion to avoid bankruptcy. One thing’s for sure: For the average worker, the austerity measures imposed on Greece by this rescue package seem as harsh as chemotherapy. “We find ourselves before the most savage, unprovoked and unjust attack,” said the head of the nation’s civil service union after seeing an outline of the cuts.
Unfortunately, there are no guarantees that even severe belt-tightening will work. “There is a very real possibility that at the end of two or three years, Greece will still have an unsustainable debt and will have to restructure because it will have a deep, deep recession in the meantime,” noted a Berkeley economic professor quoted by Bloomberg. Considering that riots started breaking out in Greece when relatively mild austerity measures were being talked about a couple of months ago, it seems plausible that the country could be in for a long, hot summer.
17,000 Swimming Pools
Ironically, there is supposedly enough wealth in Greece to have headed off the crisis in the first place — wealth generated by a shadow economy representing 20 to 30 percent of the nation’s GDP. Alas, tax evaders may be costing the country as much as $30 billion a year, according to estimates. In a wealthy Athens suburb, according to the New York Times, although only 324 residents admitted on their tax returns to owning swimming pools, satellite photos commissioned by tax investigators revealed that the actual number of backyard pools was closer to 17,000.
Even if Greece is forced to come back to the well, there are those who doubt that its problems will metastasize to bring down Europe. Sovereign debt bubbles are “another false Wall of Worry,” writes our friend Bob Bronson, a Colorado-based quant who predicted the U.S. housing bust more than a year before the pundits and mainstream media even acknowledged it was possible. “Bailouts of sovereignties, (countries, states and even counties and cities) are qualitatively different than bailing out overleveraged, and technically insolvent, private sector banks, especially mixed with too-big-to-fail and intermingled, and underregulated, shadow banking intermediators like AIG, in fractional reserve based monetary systems,” Bob notes. “Greece, the PIGS et al., have plenty of assets, unlike CitiGroup and AIG, for example, to collateralize central bank loans at reasonably less than market interest rates. The financial media’s hyped concern on this is nonsense and not a meaningful case for the bears, or the bulls, just entertainment value for non-institutional investors and observers.”
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Reading through all the comments I failed to discover what I believe is the underlying motive of the US financial gurus and bureaucrats. I doesn’t take a genius to know that the USA is broke (and broken). So why not pour on the media to depress the only other potential reserve currency? If I was head of the EU I’d be buying full page ads in the USA and running TV commercials about the idiotic mess created by former US administrations and especially by the current one.
If the $US – I should say when – the $US collapses under Obamaweight, the riots here will make the Greek ones look like a frat party.
Bottom line, gold will be, must be part of the solution. My guess is that countries other than fraud-riddled USA will be first to the table and they will have center stage while US citizens destroy themselves.
God didn’t say bring me your fiat money, He said bring me your gold and silver. Smart guy our GOD!
No problem, Greece has lots of assets. He is kidding – isn’t he?
Reminds me of CNBC (which I don’t watch anymore) folks trying to argue that our savings rate of 0% was not really a problem at all because the savings numbers did not include HUGE growth in “savings” called the Stock Market valuations. HaHa Which one is more funny, I don’t really know.
Thank You, Benjamin,
ok, granted, if all Piigs were to pop, that would indeed bring some kind of apocalypse.
But I think the European governments, especially France and Germany are going to move really swift now to allow regulated default on Euro debt.
And swing into austerity government policies with reduction of misallocated capital and reducing the Gaussian tax belly for the productive middle class.
This can now be quickly done as Germany has shown how well that works, when they were hit with the “Reunion”, – monetary and debt-wise.
The Germans even put a debt limit into the US-constitution-like “Grundgesetz”. This example will spread. This might actually turn into a Austrian school recovery over time – …and rocky road, granted.
Yea, I think most northern Europeans tried to be nice, actually. I belonged to the cassandras telling everybody, in end effect, this will not be nice at all for the PIIGS. Et voila.
But if they adopt this Austrian school deflation and reallocation of resources method, first awful, but later really constructive and sustainable, all this might turn out a blessing for the PIIGS.
These countries have been struggling forever. We don´t know each other otherwise.
It was just really more about getting together. Too fast, granted. But it has a lot of nice effects, too.
The Greeks are defaulting on their debt for full 150 yrs now, minimum. 🙂
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Great post, Oliver. Thanks for taking us off the beaten path with a very interesting scenario. RA
Well, Oliver, you’re a better optimist than I, for sure.
Not that there’s anything wrong with it. Just not my cup these days.
The way they keep coming up with Greece to pay it’s debts through more emergency loans I just don’t see Austria anywhere (though I can also speculate about it lurking somewhere underneath, I won’t think so until it is). Germany can have it’s “Grundgesetz”, but we’ve had our Constitution for over 200 years. Fat lot of good a document does to make human action behave more sensibly.
Yes, I’ve emptied my last vial of hope, and replaced it with something stronger. It’s a like a shot of whiskey in the mornin’, mmm mmm! And with that sort of kick, hope is just a town in Arkansas. I’m sober with negativity, and it feels… not so bad! 🙂
Thanks for the clarification to my question, Rick.
Oliver: I should probably leave the question to Malcolm, as it was originally asked of him, but my two cents worth is…
The PIIGS are nearly 20% of the EU membership and 30% of the Eurozone membership. Is it enough of one to bring an end to the EU and Eurozone? I don’t know, but when 20-30% of something fails it’s certainly not a shrug-and-move-on event.
Another way to look at it is like this. What if the U.S. were to ditch California because of it’s outrageous level of government spending? If theoretically that were to happen, then we’d have to do so to many other states, and there aren’t many states (if any) in the nation that doesn’t have that problem to one extent or another.
But one has to wonder one thing here… If everyone and their grandmother knew PIIGS (Greece in particular) was a problem nation, then why did they ever let them into the EU in the first place? Was the rest of Europe in need of some stimulus or something? Or was the EU just being nice?
Larry: I´m not German, by the way. I just live here for some years now. I come from everywhere. Persia, London, New York. And my family, too. Care for a french general helping to liberate the German people from the Nazi nightmare? Grandpas half-brother.
Germany uber alles must be some misunderstanding. By the way, 85 million people, small country.
Factually, it´s the US uber alles. The US is everywhere.
For centuries now. Good.
If it is the Franklin and Jefferson idea.
Is it still the Franklin and Jefferson and G. Washington idea?
Am I overlooking their present day influence?
And the exception in presidents I see in the Reagan (and Thatcher) years. About Kennedys influence in free market matters, I´m not even so sure sometimes…
You probably know better.
Where you happy about GWB? I already didn´t like the idea he was the son of a president. Is that not what free market entrepreneurs are fighting for? No nepotism? Is that not the core of it all in the constitution?
Somehow implied, at least?
Malcolm: I am not sure sometimes, whether it is known that the European Union consists of 27 countries and the Euro zone consists of only 16 countries.
I don´t get how the “experiment” ought to falter if one nation leaves the Euro?
Were is the big deal? I´d like to see some numbers and cybernetical cause and effect scenarios, because if I count around and study scenarios I just can´t come up with how the European Union should falter. Or is it always the currency, the Euro only, that is implied?
The collapse of the Euro is nowhere in sight if Greece leaves the Euro. Even if Germany left, in my opinion, it would not need to be the end of the Euro. Or yes? How exactly?
Posted by Rick for Malcolm Martin:
Your friend has rather missed the point when he says that the sovereign debts of the PIIGS are so much media hype.
It’s of only secondary importance as to whether Greece’s bailout is sufficient, because as you point out, austerity measures have already caused a lot of unrest. No government can tolerate banks being bombed (HSBC) and ongoing street riots.
If things don’t settle down soon, I would expect martial law to be declared, with dusk to dawn curfews and severe measures taken to restore order. If that doesn’t work there’s always the prospect of a military coup – I’m struck by the similarities between Greece 2010 and Chile 1970.
Should that happen we should anticipate Greece being expelled from the EU – and that might trigger the collapse of the Euro and ultimately the end of the European experiment.
Best,
Malcolm
Oliver:
Jawohl. Deutchland uber alles.
Speaking of food… Ich bin ein Berliner (yum!)
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Alas, JFK may have died without knowing why the Germans were so very fond of him. RA
On a different continent, if prior support for GS was at 151 and change, does prior support become resistance, so we should be shorting it about now?
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The breakdown below 151 implied more downside to at least 134, and that presumption will remain unless GS can rally above 166.71. The low so far has been 143.30, so Goldman “owes” bears an additional $9 of slippage. The stock is therefore a tempting short near 151, but I recommend doing so only if you can whittle the entry risk down to no more than 20 cents. We usually do this ourselves by using Hidden Pivot “camouflage”. RA
With respect to Mr. Bronson’s call, just what “assets” do the sovereigns have? Here, in the US, we certainly have national parks, tanks, fighter jets, etc. Hmm, that national park land is, admittedly, mighty nice and, I suppose, ripe for development into some other sort of wonderful tourist Mecca like….Pigeon Forge, Tennessee or Branson, Missouri. Count me out of that market but maybe the Chinese will be in so they can relocate some of their oversized population. And lots of businesses in the existing middle class tourist havens seem to be suffering and consequently the inflated real estate prices they experienced have tanked. But I guess we could sell tanks and jets to the Chinese??? You see, I just don’t get how all these assets that the sovereigns have will magically bail out the overindulgent governments who might decide to put them on the sales block in the face of a deflationary tsunami. What am I missing?
Lots of assets to hock. Wonder how much the Parthenon would fetch? Oh, and someone suggested selling off all those uninhabited islands, there must be several thousand of them. Is he kidding? The civil servants are raping the country. Retire at 53, get paid two extra months pension per year for summer. It’s a kleptocracy, as bad as the US. There’s a limit to how much any one wants to dump down their sink hole or ours. No, the sovereign debt crisis is the last bubble and it will end very badly, default by declaration or default by inflation. The end result will be the death of fiat currency everywhere. All fiat currencies are eventually worth zero.
How much of the IMF portion of the Greek bailout money is being supplied by the U.S. Taxpayer? Any guesses? my guess is 100 billion. What’s yours?
“Under the latest rescue package, the IMF and 15 nations – presumably including Spain and Portugal – will pony up $133 billion to keep Greece from defaulting.”
No need to presume. As portuguese I can confirm that our share will be over 2 billion euros. This is calculated from our participation in ECB capital.
Didn’t the rate that Greece can borrow at shoot up to 16%? If Greece has lots of great assets (to auction off?) then why the high rates. Argentina has a great Pampas I hear but didn’t sell it to satisfy bond holders when it defaulted. Yeah I know that land is privately owned. Would China take California in payment for debts? Lots of empty houses there just waiting for new fresh occupants.
To Rick A (ought not be published) – Maybe it´s the depression: if the Euro-zone, which is something else than the European Union, should topple like it sometimes sounds Americans wish for, then you should pray, for all US liabilities from now on will be asked to be paid in full immediately.
The US will go blanko, rien-ne-va-plus, that very second. The pound will go bust and wish it were a Euro.
Absolutely all money would rush into the euro or German mark, whatever comes in a situation like that. And some other currencies left with some budget.
It´s the US that has a deep trust problem. Greece has always been like that. Greece never had an economy. Nobody expected Greece to become one either, seriously. CDs will soon be forbidden in Europe. Naked trading of any kind will soon be prohibited in Europe. Trading that helps no one will soon be prohibited in Europe. All that damn useless US/UK-money-invention business can be stopped dead. And it will be. These things will not return to Europe.
You know, the Germans do things differently. Germans don’t believe in (too much) debt. But due to US debt-dollar-abusive imperialistic hegemony it was impossible to say something. Not long ago, Germans were collectively ridiculed and hill-billied by little boys, who want power to be something and not to do something, for believing in sound fiscal and monetary management. The Germans did not understand economics of scale. Well, I have news for you: the US WILL learn economics of scale, now.
The US will now learn what it means, when debt runs out of control. The big-mouths of the last decades are now being presented the tab. And they can´t pay. They would have to regain an industrial base they had destroyed over the last 20 yrs in childish consumerism and debt-growth-euphoria.
The US controlled news rooms target Europe so nobody targets the dollar. Which is quite nice right now, as Germany makes money and produces jobs (already! I never, ever expected this…). Without the incompetent sons of some half-competent ex-presidents running rampant, many more countries would be in better fiscal order. The greatest contagion so far since WWII has been the utterly inept leadership-quality of the people leading the US. Some exceptions not counted.
The danger that Germany could be leaving the Euro has risen dramatically. The news mag “Die Zeit” described the mood in G with the words: “…the air is inflammable.” “Die Zeit” usually does not use poetry to describe these things. What “Zeit” wants to say with this is: this time will be different.
The German, and therefore European, reaction to all this will be sound monetary and fiscal politics. That, in turn, will produce imitators, fans and memes for sound fiscal and monetary policy all over.
McDonalds and Coca-Cola will be made liable for mass-obesity before that happens in the US. Or unless Ron Paul or Peter Schiff become President. And if that still makes a difference, I´m not so sure anymore. The countries which wake up and say: to heck with deflation, inflation, bla-bla-flation of US money “experts”, we owe too much, we save and start working again as of against this sicko-weird hollow consumerism we had been convinced to believe in against all common sense – those countries will return with might. Look at Russia, by the way…
You know you guys are talking about cities like Detroit going to the lagoon. Europe knows no such thing. If a city of the size of Detroit had problems like that in Europe all hell would break loose. Flint? Our industries are growing, worrying us about it´s space and energy needs. Empty malls? What is that? If we need something here it´s more space. Spain is Europe´s lettuce bar and new factory-building area: it won´t go. France can´t go, because France is France. This time will be different: this time the culprits will pay: and that´s the UK and the US.
The US will not regain the world influence it had before the baby-boy weeped around playing president or that hormoned corporatist had his affairs going rampant: and I´m talking about providing everybody and his brother with houses they can´t afford. Not the cigar. The cigar says everything about the US media and it´s Palin’s. And the ridiculous concepts from the mental trough of some pseudo-Christian bible belt.
You will now witness a full swing of almost all European governments to conservative or conservative/liberal governments.
This will end up in a return of true free market mechanisms with a lot more fairness in it.
By the way: US-citizens like to feel superior when they hear about Europe´s VAT.
Well, I got news for you here, too: ridiculous property taxes? Do not know them. When I own a house in Germany, I own it. I don´t pay ridiculous property taxes that makes owning a place in the US actually owing real money every month. I can stay in a rented place with taxes like that.
Don´t get me wrong: I love the US and Americans. Most. They make me happy, somehow, the way they are. And I sure hope all this nightmare will go away. But it´s not going away with denial. You guys need a serious philosophical overhaul about most everything – including your mass food. I think you underestimate the bad role bad food plays in pursuit of happiness and equilibrium.
By the way: the US still has a real problem with Germany: the weeping baby-boy said: “if you´re not with us, you´re against us”. Last time we heard this “quality” of wording was from a man called Hitler. This “remark” still sits with the Germans. It stuck for good. Blind believe in US leaders ended that day.
Rick,
WTF, about Kalifornia? We have olive oil, grapes and plenty of welfare handouts here, just like Greece! These 3 friday “furloughs” are killing the town, when just the 1 was enough! Talk about this bond market, the friggin center of the universe, sorry New York, you are not, we are. Who will buy our bonds?
I disagree with Bob Bronson. Vehemently. In two sentences he just completely brushed off the seriousness of sovereign debt. I think time will prove him very wrong.
“Greece, the PIGS et al., have plenty of assets… to collateralize central bank loans at reasonably less than market interest rates.”
I must be missing something here. How could someone who predicted the deflating housing bubble view Greece any differently?
If the average Greek worker has a civil union guy speaking on their “savagely attacked” behalf, and the 20-30% shadow economy is just the hidden money of said average workers…
That would be like me stealing a mansion to get a mansion-sized loan and saying… “Look closely at my castle. I _have_ the power to pay this money back! I wouldn’t have a castle otherwise, now would I?”
Unless Mr. Bronson is being sarcastic? It does tend to go over my head. Other than that, I’m just baffled as to why he thinks this is no big deal.
Oh, and 133 billion. Yeah, that’s right, I said 700 big ones. Deja vu. Must be a magical number!
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Bob has been prescient in the past, and he’s no Pollyanna for sure, but I too would disagree with him on this point. I think Europe is about to topple like dominoes, but time will tell. RA
The most savage, unprovoked and unjust attack?
How about the massive $600 minimum 1099 IRS reporting requirement hidden in the Healthcare Bill?
Greek Debt Woes may be the Trojan Horse that sinks the global economy propped up by deficit fiat usury and tungsten gold.
Add in a BP oil leak from 1000 to 1 million barrels a day,
plus Pakistan Taliban claims to massive detonation in Times Square, and pretty soon things get very interesting. We may have to move any hula dance to Union Square for safety.
What in the world is a 79 year-old who described derivatives as weapons of mass financial destruction doing with naked puts exonerating the number one derivatives house that cost him at least a billion bucks last week?
Expiring political capital?
Can’t wait to see Lloyd Blankfein and Warren Buffett dance the hula…