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Greece has chosen the path to default!
Specifically, Greek officials called for a nationwide referendum on July 5 over the European bailout program rather than reach a direct agreement with creditors over the weekend.
Next, Greece itself said it will skip a 1.7 billion euro debt payment due tomorrow to the International Monetary Fund (IMF). That, in turn, is a default in everything but technical name only. It also means Greece’s current bailout program will expire with nothing to replace it.
The European Central Bank (ECB) responded to the referendum news by refusing to hike its emergency aid to the Greek banking system, currently around 89 billion euros after several recent increases. Since those funds were the only thing keeping Greek banks alive, the Greek government was forced to shut down all the nation’s banks through at least July 6.
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Will Europe be seeing the return of the drachma? |
Greek citizens can still take money out of an ATM, but only 60 euros per day. The Greek stock market was also shut.
Those moves temporarily halt the worst of the financial bleeding in Greece. But they also open up a whole host of other questions.
The most pressing one for depositors: What the heck will they get back the next time a teller window is open to them? Euros? New drachmas? IOUs? And the bigger question for investors around the world is: “Does this mean Greece is going to get kicked out of the euro currency union?
If Greek citizens vote “No” to Europe’s last and best offer on the table this coming Sunday, I believe Greece will get kicked out. If they vote “Yes,” there’s always a possibility the country hangs on by its fingernails for a while.
But without permanent debt relief that acknowledges it can never pay back all its bonds at face value, Greece might be forced to abandon the euro and introduce its own currency anyway. It sure seems like Germany, France, and other European nations – which hold all the financial cards here — are fed up and ready to cut the country loose.
Greek Prime Minister Alexis Tsipras tried to put a brave face on the situation. He tried to rally his political base behind a “No” vote, couching it in terms like this: “The dignity of the Greek people in the face of blackmail and injustice will send a message of hope and pride to all of Europe.”
But the initial reaction in global markets was swift and severe. Asian markets tanked, while stock markets around Europe plunged as much as 5%.
Bonds issued by peripheral European countries fell in value, while the euro currency dropped below 1.10 against the dollar, before bouncing a bit. Anyone unlucky or unwise enough to own the handful of direct Greek investments that trade here in the U.S., such as the Global X FTSE Greece 20 ETF (GREK) or National Bank of Greece (NBG), lost even more of their money. NBG plunged 24%, while GREK lost 20%.
Now, we’ll see where the rubber meets the road. I laid out my three possible scenarios for what would happen in Greece, and how that would impact investors like you, two weeks ago.
We clearly did not get Scenario #2 (a last-minute can kick deal). That leaves Scenario #1 (a quick and painful, but ultimately healthy move) and Scenario #3 (a long, drawn-out disaster scenario).
I suggested #1 was the most likely all along. But the truth is, the markets are going to determine the ultimate answer. My three “tells” to see which is getting the upper hand? The euro currency, the European bond market, and U.S. financial stocks.
“There’s pressure on all of them … but none of the out-of-control panic of 2007-09.” |
If the euro tanks and other peripheral European bond markets start following Greece’s into the abyss, that would be a huge red flag. And if U.S. financial stocks start plunging, that would be a sign that contagion fears were spreading beyond Greece’s (and Europe’s) borders.
So far, there’s pressure on all of them — with the Dow dropping by around 350 points today … but none of the out-of-control panic we saw during the credit crisis days back in 2007-09. That could easily change, though, and you can bet I’m watching closely. So stay tuned for more recommendations and commentaries about what to do next – right here at Money and Markets and in your other subscription services.
What about you? Do you think Greece was wise or foolish to launch a referendum? Will the result matter, or is Greece doomed to get kicked out of the euro regardless? What immediate and/or lasting effects do you foresee for U.S. stocks and bonds?
Are you making any moves in your personal portfolio in light of the latest news? Here’s the link to the website where you can share your thoughts. I definitely want to hear from you in these turbulent times.
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There’s a lot going on in the world, and I’m sure you’ll have plenty to say about that in the days ahead. But on Friday and over the weekend, a lot of the discussion at the website concerned Obamacare.
Reader Allan K. said the following in response to a previous comment about how we’re better off with the Supreme Court fending off the latest Obamacare challenge:
“Remember, the job of SCOTUS is not to make law but rather to ‘establish’ Constitutionality. Many are cheering; many are not. Regarding ‘better off’, ask those folks who were told they could keep their policies and their doctors … and those folks who are now paying much more for much less coverage … and those folks who have a new tax. Like much in life, our opinions are jaded by which end of the telescope we’re using.”
Reader Donald M. added: “The insurance companies are infinitely smarter and more experienced than the academic egg-heads and political hacks who gave us Obamacare. The insurance companies will play along only as long as it is in their collective best interests.
“When Obamacare collapses under its own weight, the insurance companies will have Plan B ready to go. Ideally, the Republicans will be wise enough to pass enabling legislation that will result in a truly equitable health insurance program incorporating nationwide free market competition and tort free/loser pays attorney control.”
Reader Richard P. added: “Obamacare has always been the wrong solution. It is costly and inefficient. What is needed (and adopted by every first world country but us) is a ‘single payer’ or ‘Medicare for all’ plan which cuts out the insurance companies from the cost equation, reduces paper work, etc. and is far better and cheaper than our mish mash mess with or without Obamacare.”
Finally, Reader Richard said Obamacare might not help the hospital operators as much as some think. His rationale:
“I question whether the Supreme Court ruling will lead to more medical care being provided to more patients. Any increased access to care by the poor will be offset by less care being sought by those with insurance as the deductibles, often in excess of $5,000, and copays which will increase, will make healthcare unaffordable for the middle class that works and has insurance.
“They will only seek care when they are seriously ill, as the real cost of care will continue to go up dramatically. This is a fools’ game perpetrated by politicians who don’t have to deal with the cost of the healthcare they have forced on their constituents because their Cadillac plan is being paid for by us, the taxpayers.”
Thanks for weighing in. I’ve written about many of the twists and turns in the Obamacare debate over the past several quarters. It’s clear that many of you question the program and its impact on your financial lives, even as some support its broader goals. But given the latest Supreme Court ruling, it is the law of the land for now – meaning we all will have to cope with that reality one way or the other.
Any thoughts I didn’t cover? Then don’t keep them bottled up – share them with your fellow investors at the website.
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While Greece is grabbing all the headlines, China is experiencing more turmoil of its own. The benchmark stock markets there have now plunged more than 20% from recent highs, putting them “officially” in bear market territory.
The Chinese central bank responded by cutting interest rates a quarter point, and by easing bank reserve requirements. But it didn’t do much to stem the selling over there, nor to ease analyst concerns about China’s economy.
While we’re at it, Puerto Rico is in lousy financial shape too. The government admitted there is no way it can pay back its $70 billion in debt, and that it will need to default on and restructure its bonds and loans. Billions of those bonds are sprinkled throughout municipal bond funds and the accounts of individual investors attracted by the U.S. commonwealth’s high muni yields. So losses tied to the restructurings will ripple through the debt markets in coming days and weeks.
* The second escaped convict from a New York prison was shot and arrested yesterday, ending the massive manhunt that had been underway for most of June. David Sweat is said to be in critical condition, while his accomplice Richard Matt was shot and killed two days earlier.
General Electric (GE) continued its international garage sale of assets, selling fleet financing and management businesses to Element Financial for $6.9 billion. The deal covers fleet financing operations in the U.S., Mexico, Australia, and New Zealand, and it’s part of a plan to jettison $100 billion in businesses this year alone.
What are your thoughts about the financial problems in China and Puerto Rico? The slimming down at GE? Other stories I haven’t covered here? Let me know over at the website when you have a chance.
Until next time,
Mike Larson
{ 88 comments }
GE is getting smart concentrating on their core business. Conglomerates can become too unwieldy to manage. Look at what General Motors shed over the years, Frigidaire, Hughes Aerospace, Control Data, its locomotive division, and what really dragged it down GM Mortgage. Greyhound was once a bus line, food processor, leasing company, and soap maker, now it just runs buses. Concentrating on what you do best may be the best way to profitably survive in the marketplace.
So, if GE is selling off many parts of its old business model, what does it plan to do with the money it receives? Pay off debt, I would hope, but will stockholders get any of it, or will it eventually go to the upper levels of management – and maybe privileged investors?
GE. Reminds me what Citi Bank did 10years ago.. The stock will meander around. They need a new CEO..
Jack Wech got out at the right time.. Jeff is no Jack Welch .. It has taken him q long to realize what he is doing now. This is not forward thinking.
I could be CEO and do a better job . I know that is easy to say but I could.
I still think a last minute kick the can down the road deal will be done. The majority if the Greek population are likely to want to remain in the euro.In 1929 in the Great Depression here in the United Kingdom 75% of the working population remained in work, for them life was pretty good.
Similarly for the Greek establishment life is relatively better than it would be outside the euro.
TEST OF WILLS
Its not a long term panic, as gold and silver markets barely moved. Fear of a global contagion surely would have been reflected in the precious metals markets today. As yet, gold is hovering around or below $1200/ounce. It is stuck in a range and Greece is stuck in a liquidity crisis. Europe ( ECB) will eventually have to release some more funds for Greek banks to loosen things up a bit. In the mean time, hold on tight. Its going to be a volatile ride for a while.
say what? since when has long term become one day? balderdash!
Gold seems to have formed a strong support level between 1150 and 1200, but should have broken upward sharply on today’s news if it is a true support – unless Greece is going to be “saved” again – or unless the support level is false, and gold is due to fall hard, maybe 400 more bucks per ounce.
Craig, I agree with you! I started buying at the close. I went for top quality giving interest I haven’t seen in a while. Time will tell,hope were right.
China’s markets had been getting into almost bubble territory. They needed a sizable correction to show that their markets were healthy. After the correction will be the time to buy FXI, AHSR, or other China stocks.
What has the federal government done that has not led to incompetence, more taxes and less benefits?
Greece is an example of what eventually happens when society votes for socialist promises rather electing to depend upon oneself.
Belatedly Eurozone via ECB European Central Bank is moving to follow the Obama/Geithner/Bernancke lead in QE Quantitative Easing and bank bailouts. Unfortunately sovereigns can drag their feet unlike our states which have no role with Fed action. EZ can’t more effectively like the Fed because of Germany’s Merkel insisting on austerity for Greece when more liquidity, bailouts are the order of the day. No doubt Greeks must tighten their fiscal belts, collect taxes due and express interest in staying within the EU. Brinksmanship like Premier Szipras is playing is not the answer, which is in the numbers, which are known and can be projected depending on his actual policies, not his rhetoric.
Meanwhile Grexit isn’t cause for all the roiling in markets, only for those bondholders and stockholders affected. No need for fear or panic in the rest of EZ or the world’s markets/investors. You became a Greek creditor; you took your chances–only you. You own companies with Greek exposure, you took your chances. I’ve not been involved in Europe for years because of this possibility starting with (remember) the PIIGS?
Greece never should have been involved with the Euro from the beginning. But the Snake Oil of Socialism/Communism was too tempting for them. Now, they have run out of other people’s money. I have no sympathy. They dug their hole. They need to be not dependent on government and grow up. Socialism has NEVER succeeded. And this proves it again. The United States and its Socialism/Communist Central Banking System will eventually cause the U.S. economy to crash. And it will be nasty. Too many people depend on government handouts and government contracts.
Michael,
As many have stated over and over, the Greek Debt Crisis is NOT JUST ABOUT GREECE. This is about a Keynesian banking system that is out of control and has printed Trillions and Trillions and Trillions of dollars of fiat/based paper currency worth less over time and the associated creation of Trillions and Trillions and Trillions of dollars of DEBT, MASSIVE DEBT that simply cannot be paid off…which instead has been miss-allocated and used as a LEVER TO FORCE AUSTERITY into the economy. This DEBT could not be paid off even in THE BEST OF TIMES!. Greece is simply the very tip of the current DEBT and LEVERAGE ICEBERG! Wow, how fast we forget how we were told the Subprime/Credit Derivative Crisis was just a little itsy bitsy crisis and once we get the little refund checks the economy will be back on its feet.Yeah, sure, it created the biggest financial and economic crisis since the GREAT DEPRESSION…Amazing how we humans have such short memories….As if the EUROPEAN SOVEREIGN DEBT CRISIS is not bad enough, hat will be next??? China’s MASSIVE Real Estate Bubble????
How about the U.S., where there is about $200 TRILLION of public and private debt; but I read there is only about $280 Billion issued and circulating madly through the computers to cover it? Velocity, man, velocity!
To bad we ever let Goldman go to Greece……. :)
http://www.nytimes.com/2010/02/14/business/global/14debt.html?pagewanted=all&_r=0
Considering all past world history, wouldn’t it be funny if Greece is the first country to face the reality of world government and finance by pulling out and saying NO. What irony.
Frankly I’m for their vote of ‘no confidence’ by Star Wars standards and following Larry’s advise accordingly. I’ve already been doing as Mr. Weiss advised by selling all holdings less than B- rating and all luxury stock as well…..been out of bonds for months.
WELL HOW ABOUT THIS LATEST TRADE PAC EVRYBODY NEGOIATED WITH 12 NATIONS INVOLVED THAT WILL BE A DISASTER OBAMA WANTS TO RUN IT WHEN HES OUT OF OFFICE CAN WE GET RID OF THIS GUY ? HE KNOWS NOTHING ABOUT TRADE AND ECONOMIES IMPEACH NOW !!!
A Neil,
The Republicans (the same folks that brought us NAFTA under Bush 1) wrote and brought this legislation and every Republican voted for it along with a few Democrats…. How they got Obama to believe this BS is beyond me…. That said, Clinton singed the final NAFTA treaty also… Go figure… :(
You just don’t get it. Trade deals with other foreign slave labor countries is good for corporations in both the U.S. And abroad and their shareholders. It is a disaster for the American economy since manufacturing jobs are replaced by service industry that pays very little. Most of the new Jobs are part time minimum wage jobs with little to no benefits. We elected Reagan, Bush, Clinton, Bush, and Obama and they all sold out American Maufacturing Industry which was mostly the middle class. France went through this centuries ago and destroyed their middle class as well as freedom of religion. So we will have the poor and rich and where do you think 98% will be.
Actually little MIKEY S. ……………………… BILL + HILLERY CLINTON signed it into law 12/8/1993… DECEMBER 8TH 1993 along with not just a few democrats but a whopping ONE HUNDRED TWENTY NINE YES 129 and BILL CLINTON claimed that this bill would create 300,000 good paying jobs in the first month ……………xcept he forgot to mention it was in MEXICO.
How many of you are aware that only 5 of the 29 chapters in this trade accord deal with trade? The other 24 chapters deal with a lot of other crap like how to make us sicker by letting the FDA approve all sorts of bad things in our food supply. Like the new Roundup Monsanto has developed that allows Roundup to be sprayed on crops. It doesn’t hurt the crops but kills the weeds. And guess what? We eventually eat the crops where Roundup was sprayed. No wonder the incident of Diabetes has gone up dramatically the last 10 years. Question. When you were in high school/college (assuming you are over 40-45) how many of your classmates came down with some of these weird diseases we see today? Children ages 3,4,5,4,6 getting cancer? Are you kidding me. Our food chain is slowly killing us.
the whole financial system is a house of cards , you can’t believe data coming out of any
government can you ? when your real close to retirement this is scary.
The huge demand on Greece call to mind the onerous terms Of the Versailles Treaty
after WWI. Germany could not meet these demands and the result by a circuitous route was Hitler
YES & READ “HERBERT HOOVERS’S MEMOIRS” VOLUME 2 ABOUT THE DEPRESSION…this is going to repeat the 1929 story
Gotta love Fiat Money!!! If it wasn’t for our printing rights and the Petro Dollar Purchases we would be right next to a Greek asking what the heck happened to our money too. Well the petro dollar is on the decline and China may just enter the IMF and start printing there version of Fiat next. Although they actually have Gold and Silver to back it up. We’re broke, so be very careful as to whom you may be turning your nose up to. You may just be sitting next to a Greek one day with your hands on your head trying to recover from a Federal Reserve one two punch to the face.
The total potential loss from Greece and Puerto Rico combined is a fraction of the losses incurred in 2007-09 from just the investment banks in the US. Will there be pain? Yes. Will it slow economic growth throughout the West? Maybe by 1% temporarily. Like a virus, can it be contained and treated with strong medicine? Of course. Will lessons be learned? Hell no!
GOOD FOR YOU GREECE!!!!!! AT LEAST THEY HAD THE BALLS TO STAND UP AND DO SOMETHING FOR THE BETTERMENT OF THEIR PEOPLE. THE ONLY BALLS THAT OBAMA HAS ARE THE ONES ONE HIS FOREHEAD FROM HILARY’S DICK IN HIS MOUTH
Hillary is transgender now? LMAO!
Wouldn’t you be if you were married to Bill
I wouldn’t marry Bill, in the first place. I’m hopelessly hetero.
Well I think you got her mixed up with Michelle Obama ooops I meant Michael Obama
thacher said it right the problem with socialism , sooner or later you run out of somebody else’s money.
I was raised by my parents to be honest. We were also told, as part of being and acting responsibly, not to take on a debt we couldn’t repay. Greece, should.be kicked out of the EU, in my opinion, period. Don’t prolong the agony. Let’s get on with the business of salvaging the world economy by cutting our losses, not by making things worse.
Hahahaha…you do realize that if the IMF didn’t allow us to print our own money we would be sitting in front of an empty ATM right now as well? 17 Trillion in debt is not acting responsibly. If I was say 4,000 in debt in 2008 and was now 16,000 in debt today that is not a recovery or acting responsible. Even if I was “renting” a 60,000 SUV and lived in a 6 bedroom house. What you see on the surface will almost never show the truth. The fall of Greece is just the truth coming into the light. Greece will be better off the tit of the EU and putting an end to their fiat loaning programs. But now the IMF owns their ass…so we shall see what happens next. Be sure to pay attention so you will know what to do when the IMF comes after your bank account for a US default.
Greek Prime Minister Alexis Tsipras tried to put a brave face on the situation. He tried to rally his political base behind a “No†vote, couching it in terms like this:
“The dignity of the Greek people in the face of blackmail and injustice will send a message of hope and pride to all of Europe.â€
Blah, blah, blah. Said a long time ago by the great Samuel Johnson:
“Patriotism is the last refuge of the scoundrel.â€
Regarding the situation of two escaped convicts in upstate New York, very bad men, both of which who’s threat to society has been rectified, a deeper message has been sent to any convicts who might be thinking about making a breakout, or to anyone who might be thinking about robbing or committing a crime in New York State. The police here will find you, if they have a mind to (1,200 LE agents were involved in this particular search for more than three weeks), and you can expect no mercy if they do. Either give up immediately, or you will be killed! No shoot to wound, but shoot to kill! The convict that they encountered last Friday was told to put his hands in the air. He didn’t comply, and was promptly shot three times in the head, and although armed, did not raise the shotgun he was carrying, nor in any other way threaten the LE agent from Vermont that found him. He simply didn’t respond quickly enough, and he was shot dead. The second convict was seen, by a NY State Trooper, walking along a rural highway on Sunday. He was unarmed and ran away from the Trooper who chased him and was shot twice in the back. Now he is in critical condition in a hospital. No shoot to wound here either. Shoot to kill! My heart isn’t bleeding for these dregs, but I’m just saying to anyone who might be thinking about doing bad things in NY State, you’d better think again, and find someplace else to do your crime. Even in a state as liberal as New York, you’ll get a very conservative solution from LE!
I’m told NY had to spend over $1,000,000 a day to conduct this manhunt.
We should have national regulation of insurance companies instead of 50 state
regulation the co’s. The states are outgunned by the big legal depts. of the big companies.
The states end up with separate pools for separate states. If the nation was one big
pool and all claims flowed through it rates and expenses would go down.
It is ironic that the total loss of wealth today on the stock markets was probably more than the total debt of Greece combined! Let us not forget where this debt problem for Greece originated to begin with! Goldman Sachs facilitated it when Greece joined the Euro zone! The BANKS were largely responsible for the original debt, not the people of Greece! Now, let us look at the Referendum question! The average man in the street will not have a clue what it is all about! Greece as a nation will surely survive, it survived much worse circumstances in their history. I cannot say the same for the Euro currency. There is simply not a track record to rely on! The IMF and ECB will learn that you can push austerity and higher taxes only so far, and then the people will revolt! Let us observe the coming collapse of the BOND markets, (Italy and Portugal first, then Spain and France to follow! So how will this play out? On the agenda of the IMF meeting in October is an interesting point to observe! Will the Chinese currency be accepted as another RESERVE currency?? If yes, 40% of the world’s currencies may end up in the Yuan. (They nearly made it in 2010, but this time the Chinese exports almost raised threefold since then). How will that affect the other Reserve currencies?? The era of easy money is gone for good! How can the Bond market then NOT collapse??
“We live in interesting times” to say the least!
Ah…someone with eyes wide open. Good to see. It’s kind of hard watching all the finger pointing at the Greek people. Little do most know we are probably just a few years from standing in front of an empty ATM. Sad that not one person on my television has talked about China and their new found position on the world stage. Or the fact that the petro dollar is in decline. When there is no more demand for out toilet paper money…it will all come home. All 200 trillion of it. Maybe then I will use one 1000.00 dollar bill to wipe my behind and 6 more to buy a loaf of bread.
IN 2008 ICELAND WENT THROUGH THEIR FINANCIAL RUINATION…..DO YOU KNOW WHAT THEY DID? WELL THEY DIDN’T DUMP BILLIONS UPON BILLIONS INTO THEIR BUDDIES POCKETS IN THE FINANCIAL WORLD, THEY GATHER THESE THIEVES UP A PROSECUTED THEM ON MULTI PAL FRAUD CHARGES AND EMBEZZLEMENT CHARGES, UNLIKE OUR OVAL OFFICE MONKEY WHO JUST LINED THE POCKETS OF ALL HIS PALS AND DID IT BY FLEECING US THE PUBLIC
Hey mike I think we fixing too start seeing more and bigger bloder and blooded wedoes days .hold on can be a tufo ride.
Vern Myers was and old gold bug who used to speak at the Blanchard Gold Conference in New Orleans (with Martin Weiss and his father I think) and he said something that has always stuck with me: EVERY LOAN FROM THE BEGINING OF TIME HAS BEEN REPAID, BECAUSE IF THE BORROWER DID NOT REPAY IT – THE LENDER DID.
WE WILL SEE IF THAT IS HOW IT WORKS OUT WITH THE GREEK SITUATION
You might as well make money in this debt-laced market and ride the Put wave and inverse wave. With July 4th around the corner the markets will be fearful and puts should at least offer some good protection.
Does Anyone find it Interesting…that earlier this Month while Greek’s PM should have been negotiating with the blood-sucking IMF and EU Bankers…he was Instead at an International Economic Conference in St Petersberg..Russia. In attendance were Putin and numerous members of Various Sovereign-wealth funds and big business Interests from many Countries world-wide..from South America…EU…the Middle East..Far East..China etc etc…Greece is not without some interesting ‘Guardian Angels ” lol Nor does Greece occupy an Obscure Geo-Political Area..correct..? thanks for reading
How can any person OR country retain their dignity and claim blackmail by re paying their creditors already much less than they have borrowed? We live in an ENTITLEMENT society and better get over it soon. Remember what your grandparents told you about “No free lunch”? well they were wrong, but for how long? Wake up. We are next.
What impact do you see the events in Greece having on American Tourists to Greece this summer?
Take cash, meaning dollars and/or euros. Don’t expect any banks to work. You’re going to a newly underdeveloped country.
I still think it’s #1 for the next 6 months, then #3 for the next few years, as the eurozone disintegration continues after a pause. The referendum is important politically, but not economically or financially — the die is cast regardless.
The best Greece can expect is to leave the euro and remain in the EU, receiving transition aid. It’s not going to get much from Russia, which will be unable to finance its own foreign trade by the end of this year or early next year. Hopefully, the EU will do with Greece what it should have done in 2012 or 2010.
GREECE DEFAULT: I do not agree with Mike that Greece has chosen the path of default on its debt… at least not yet. What Greece’s President Tpsiras did is what I think is the right thing to do under the circumstances, and that is get a vote from his countrymen about the most recent deal offer from the EU, which has every indication that it is the last offer to Greece on this matter.
Negations on this between the EU lenders and Tspireas and his team have clearly been deadlocked for some time. And one reason is there is no reasonable way to solve this problem. Greece has way too much debt, has been making repayments with more borrowed money (a financial no-no by any standard) and simply can’t cope with payments the EU is asking for. And their nation is mired in economic malaise of historic proportions – with nearly 26% unemployment and a GDP that has tanked. (for perspective, that’s worse unemployment than we had in the USA at the height of the Great Depression in 1933) Greece’s economy is a mess, their people are sinking fast and Tspiras is right – they just can’t handle the payment terms the EU is demanding to keep their lines of credit open.
On the other hand the EU lenders are sick and tired of being stiffed by Greece on loans, and they are exhausted with efforts to get Greece to rein in spending, raise taxes and make inroads to stop rampant tax evasion there, every one of which is a legitimate issue that should in fact be addressed. EU nations (and Germany in particular who has supplied most of the money to bail Greece out over and over again) are sick and tired of pay the price with their own hard earned money for Greece’s overspending and financial incompetence. Besides they all remember how they took a horrific 50% haircut on Greek debt as recently as about six years ago to help Greece right it’s financial ship – but did that work? No, it didn’t.
So if both sides have legitimate points – what’s the problem? The problem is that Greece’s gov’t spends more money than they can raise, and they have been doing so for a long time. The people of Greece have demanded it – and when faced with gov’t leadership that wants to rein in spending and put them back on track to being financially responsible – the public votes them out of office and installs someone else who will keep on showing them with money. THAT IS THE PROBLEM.
But Greece hasn’t had the revenues (from taxes, fees, other sources) to keep up with spending of that level in a long time. So they have borrowed and borrowed unit they up over their eyeballs in debt. And since they joined the Eurozone they don’t have the option that many countries have (including the USA) of printing money to pay the bills so they have been left with borrowing as their sole remaining choice to raise money. That’s why Greece has gone so deep into debt. And Tspiras didn’t do it – it is the result of many, many generations of Greek politicians doing essentially what the Greek public has made them do.
THE PROBLEM IS GENERATIONS OF OVERSPENDING BY THE GREEK GOV’T And there is little anyone can do about it now.
Greece owes way too much, can’t pay it back and should have said no to that much borrowing a long time ago. The EU lent them way to much. They should have cut lending off before things got out of hand, but they didn’t. As lenders it was the EU’s job to know the money being lent was more than what Greece could pay back – but did they pay attention to that? Of course not – and now (surprise) Greece can’t pay it back. They are BOTH to blame for the mess they are in today.
Tpsiras was elected on the platform of not letting his countrymen strangle on exorbitant debt at a time of depression in the country. And he has not sold out – and should be credited for that. But the time of hard decisions is at hand, and the default on debt coming on Tues (due primarily to the EU arbitrarily cutting of Greece’s financial lifeline – a lifeline they’ve been supplying for years) is the least of what’s going on. It matters now if the IMF gets paid this Tues, or Tues of next month. There is a lot more at stake that a months’ worth of interest. That’s what’s at stake and it was shortsighted of the IMF and EU to not grant Greece a month more in backing to get them through their referendum. Their choice to pull the rug out from underneath Greece is what will trigger the non-debt payment. But that’s just the tip of the iceberg here.
Saying that Greece is now in default is absurd. In a move of pure common sense Standard and Poor’s declared Greece in default back when the EU granted Greece a 50% haircut on debt. Greece has been defacto in default for nearly a decade. So you have to get real when it comes to talking about debt default that’s coming up this week.
The only intelligent thing that’s been said about this (in the media) lately comes from a surprising source – Vladimir Putin. He pointed out that Greece need more business activity so they can earn more money, and that will get them on the right track to being able to pay off those debts. (duhhh) At the time he was talking about the new pipeline to go through Greece of course – and that will help but it’s years off, and that project along isn’t enough of course. But the idea from Putin is right on. I really wonder why nobody else seems to actually voice understanding of this.
But the reality of the referendum is that it’ll either authorize Tspiras to take the latest EU “last offer”, but not have the words “traitor to his country” written on his tombstone. That’s if the referendum approves the EU offer. More than likely it will turn the offer down (which has been made far more likely that it was anyway by the IMF pulling the rug out from underneath Greece’s banking system and causing a national panic this week) which will signal the beginning of the end for Greece in the Eurozone. With his countrymen’s baking – Tspiras can move forward and end Greece’s us of the Euro as money. This is the route they have to go, in my opinion. It won’t be pretty – but Greece is out of options. If nothing else -Tspiras and his people will face the hardship in front of them together. That is worth quite a lot – in my opinion.
If Greece exits the Eurozone the will have rough road to travel. But they have a rough road to travel anyway, so when you compare the two – who’s to say which is worse? When back on the Drachma as money prices of imports will skyrocket as the currency falls due to Greece’s adverse situation and that will put the brakes on spending in every corner of the economy. It will also redirect business to suddenly lower cost domestic sources which will in turn help unemployment and boost GDP. And that’s why devaluing a currency does what Milton Freidman says it does for a nation in financial turmoil. (And for those of you who don’t know, Freidman predicted that the Euro monetary union would face this problem, and he was obviously right) But getting out of the Eurozone and reclaiming national sovereignty over their currency and monetary policy gives Greece the power to deal with their basket case of an economy – which they can’t do while in the Eurozone. It’s realistically the only option than have to continued, and disastrous austerity measures. It’ll come with a heavy price of inflation – but realistically its’ their only other choice.
It’ll be interesting to see what Greece does about debt if they exit the Euro because that will be the end of EU leverage over Greece to pay up. Don’t forget what’s happening in Argentina. In the end a month’s worth of interest could be a drop in the bucket of losses to the IMF.
John
i guess the grecian people will have to go back to wearing togas . that will be all they can afford
My wife recently tried to make an appointment with a dermatologist in our community. She was told that the next appointment would be in January 2016. She is a current patient of the doctor, and not a new patient. She tried to make an appointment with a doctor in another close by city; same answer only a longer wait.
The number of service providers has not expanded to serve the new patient load from Obamacare coverage. Now established patients have to wait in line in order to see their doctors. God help us if one comes down with a serious illness.
Well Mike I tend to agree with you and Greece may be making the smartest decision for them. All the stock markets were overvalued by as much as 26% in my opinion and this is an opportune time for them to use Greece as a reason to make much needed corrections. Before the dust settles, I would not be surprised to see a bottom of 30% over the next 2 months and also a rise in interest rate boost by the Fed in September and November.
hi greece will be fine with 0 debt lots of investers now pigs may be next when the world figures out our real #s are worse than greece our debt is more than the world put together we may not be king dollar much longer counterfiting DONE this is the beggining of something of something serious thats been kicked down the road way too long !!!!!!!!! BOB
My wife belives that after Obamacare settles down.Congress should
take a section of each part an make it liveable.
I f you want a real gamble in the market, buy GREK, the Greek ETF. I understand it was down 16% today, and if something gets worked out after all, it should bounce back nicely.- maybe more than making up the difference. Considering the news, a 16% decline actually doesn’t sound as though the markets are terribly worried.
the polls in Athens are pro Euro.The greek premier knows it.He broke up the Friday meeting that went well.Why?He does not want a pro Euro result.Why did he not set the referendum date prior to 30th of june?Next week he will lose with greater certainty.He wants the loss as it clears him of the lack of success.He quits as a gentleman at a time when the markets likely bottom.There is success in failure.Leave it to the Greeks.
The big correction in the market today was probably “more” due to Puerto Rico debt than about Greece, which probably will affect us little. I’m sure Obama will say: “We must bail out Puerto Rico as they are an important neighbor.” Why not? Obama wants to break the country financially in order to keep the liberals in power. The second reason for the correction of the market was an over hyped market by greedy brokers. Sickening… because all the spoiled people in this country could care less. It’s all about me, me, me, wanting more “things” than my neighbor.
Russian joke: Ivan had a goat. Boris did not. When Boris was asked what he wanted, he said he wanted Ivan’s goat to die!
Before the War of Northern Aggression, Louisiana and Mississippi were the 2 richest states in the Union; since, they have perpetually been the 2 poorest in the Empire. And non-Southerners say they’re better off. So it is with all the programs of the Imperium promoted to make us better off.
The Yankees didn’t help, but Louisiana and Mississippi were reduced to poverty by the boll weevil and cotton from India.
Greece? I’m not worried because I got into short term treasuries a week ago in advance of Monday’s blow off when I read Mike Larson’s comments. I definitely believe we are now moving into a bear market cycle.
I think Greek PM Tsipras made a very smart move. He knew that politically, he could not accept the the plan on the table, and that given his past intransigence, if he walked away, the EU would not cut him any slack. So he threw a referendum out there, not to take place until his people had a chance to suffer for about a week. They will then accept the plan just to get back to some semblance of normal, and he will say, “They elected me, and they say to go forward, so even though I don’t think it is in Greece’s best interest, I will adhere to my people’s decision.”
The solution for Greece is to default, leave the E.U. and the Euro, and print a LOT of Drachmas to finance increased spending. The new spending will increase demand for goods and services, enticing employers to hire more people and increase domestic production. As well, exports will rise and imports will decline (both due to the depreciation of the Drachma compared to the Euro). The increased exports will allow Greece to pay for for at least some imports (instead of financing imports by loans from abroad). At this stage, it is not clear what will happen to the Greeks’ standard of living since imports will decline and it is unclear whether domestic production will increase more than the increase in exports.
At some point in the future, when GDP will stop increasing, continuation of printing new Drachmas will lead to rising inflation. Inflation will replace the current high unemployment as the Greeks’ main problem, but its burden will fall on the whole population while unemployment hurt only specific groups (e.g. the young). This will be a more equitable situation. at that stage, the inflation will reduce the standard of living; however, In time, printing money should be reduced and replaced by cutting government expenditures AND raising taxes.
This analysis suggests that it is likely that the Greeks’ standard of living will decline compared to the old good days when Europe financed Greeks’ consumption. But this must happen if Europe does not want to allow the Greeks to live beyond their means. The above scenario is preferred for Greece (and actually for the E.U. too) than the continuation of handouts from Europe IF they come with demands for lower government expenditures (to finance pensions) and for higher taxes.
Do you think Greece was wise or foolish to launch a referendum? Wise the Greeks should decide their future and if they vote against their PM’s proposal he should go.
Will the result matter, or is Greece doomed to get kicked out of the euro regardless? The result does matter: If they vote YES Â to Europe’s last and best offer they will remain in.
What immediate and/or lasting effects do you foresee for U.S. stocks and bonds. Nothing. Greece is such a tiny player in the world stock and currency markets. I don’t really understand all this world wide panic!
They’re dong the right thing (to call for the referendum). The views if their people matter a lot in this – best to get the most updated view of that before making any massive decisions.
It shouldn’t be a world panic, but news has a way of being overblown. But the issue is less about Greece than about the stability of the Eurozone as a whole. They are not the only nation in financial trouble, including all of the other PIIGS countries. Spain is by far the largest of the nations in major trouble, but Ireland, Portugal, and Italy (4th largest economy in Europe and the largest of the PIIGS nations by far) are all on thin ice. So a domino effect is a worry for Europeans.
Greece is doing the right thing to resist the EU Banksters and default on debt they are unable to repay. Then I think their best way back to prosperity would be to work on an oil pipeline with Russia. In fact all the BRICS Nations would fare better siding with the new Eastern Powers of Russia and China and leave the Western Central Banksters to swill in their own debt. The ways of the Western world have led to nothing more than debt slavery and impoverishment for the people and concentrated wealth where it does no good for the economy, in the hands of the greedy one percent. Its time for a change and it starts with REVOLUTION!
ur rite but there wouldnt b any revolution because i dont think its possible now,and things are moving to the right direction,turmoil,chaos,ww3,famine,desises,the NWO,all things leading to the arrives of what one great the most greatest book humanity known ever told us looong period ago,about the antichrist! its written there all,the only chance this humanity have is to repeal of its sins and return to real faith ,return to its God the creator of the universe ,of this earth and of this humanity!we all have a brain we know that humanity failed all along its history,thats my statement! trying to explain as better as i can coz im not an american or an englishman so my english is limited …ty Jean,hope u dont mind!
Jean, totally agree default is a viable option for Greece. Also like you, I don’t understand why East Bloc countries failed to chart their own course, independent of NATO. But I disagree they should align with Russia and China. Instead they could have formed their own common organization for both economic and security needs. Who would want to shoulder EU debt, pensions and other obligations if they didn’t have to? They could then set themselves up as mid-stream partners/brokers of the flow of energy, goods and capital between East and West. Trade with Russia and China, but not as an aligned region….one big free trade zone with the fiscal and political independence of a Switzerland.
The faulty legal engineering of the Euro contract (The Europeans are known for such legal carelessness.) makes no provision for the member countries (creditors) to legally remove a member country. Only a country can itself “apply” to leave the Currency Union. Also the Greek Finance Minister says that Greece will sue if they were to be removed against their will. If back in 2010 the same politicians (Merkel) had decided to assist Greece to leave the Euro and return to the Drachma it would have been much cheaper and easier for all concerned. Since then the amount owed has skyrocketed, and it will be very difficult for the politicans to explain to the voters why the federal balance sheets are now showing a tremendous liability instead of the originally proclaimed asset. So my guess is that after the referendum on the 5th the creditor politicans will find a way to delay the final decision leaving their successors in office with a gigantic mess, most of which could have been avoided if they had taken the appropriate action five years ago.
It’s an internally politically smart move for Tsipras to hold a referendum. If it’s a no, it’s not his fault when Greece falls into complete chaos and the new drachma is worth 10% of the €. If the vote is yes it gets him out of his election promises and able to accept what is some painful medicine for the country.
The dominos are beginning to fall.
im a european,love Greece,they must say NO to euro and this chit called EU,they must say YES we want out of this biiiiiiig chit!!nobody asked the peoples of europe if they want or not to have this chit called euro,they just put it!!there r many links…its an orthodox country ,an amazing country with exceptionals peoples…u can check the history book for yourselves,as i said too many sory to say about it,but its all the illuminatis mind and desire to built this fxxxxing new world order…its not the purpose of this comment here now but i want Greece out of this biiiiiiiiiiiiiig chit called euro and EU,i want ALL the 27countries(Greece is the 28th…) to get rid and get out soon as possible from this totally unfair and satanic …system!its a humiliation for all europeans were we are today…things will not stop here anyway…theres more countries to be destroy it like it or not believe it or not tysm for letting me saying these few words! best regards (the hell will break loose soon,nobody can do anything about it,the faith of humanity was already decided by a few hands of criminals….)
If Greece leaves the Eurozone their economy will face an uphill battler for a long, long time. The common currency zone has enormous advantages for members and has been an enormous help to Europe’s economies. But a nation has to give up some control over it’s monetary policy to get in – and Greece (and other PIIGS countries) have not kept gov’t spending in line with requirements of the EU. If all Eurozone countries would just live within their means (which the many of them do) none of this would have happened.
i want to say something about Obama if u dont mind…i think ,as a non-american,and being outside not inside America,that this …president(just an illuminati garbage btw!)since he comes to the White House in 2008(wot biiig hopes then for the americans!) all he did and does was only to destroy step by step and lil’ by lil’ this-once!-great nation!!its astonoshing for me to see that and unbelievable to understand that,and seems nobody cares coz nobody but alsolutely nobody couldnt stopped him!!! he did a great job for the illuminati coz America …the only way to destroy this fabolous nation was from inside ,not outside coz no nation from this earth can compete with America!or destroy it-militarily speaking….but by cowerdice of this worse american president,America has changed dramatically worse,heading versus selfdestruction!! the next president will only continue Obama’s work,dont u dare to think u can choose ur own president!! sleepy nation,sleepy people! best regards from europe,whoz falling down,down,down….down!
i want to say something about Obama if u dont mind…i think ,as a non-american,and being outside not inside America,that this …president(just an illuminati garbage btw!)since he comes to the White House in 2008(wot biiig hopes then for the americans!) all he did and does was only to destroy step by step and lil’ by lil’ this-once!-great nation!!its astonoshing for me to see that and unbelievable to understand that,and seems nobody cares coz nobody but alsolutely nobody couldnt stopped him!!! he did a great job for the illuminati coz America …the only way to destroy this fabolous nation was from inside ,not outside coz no nation from this earth can compete with America!or destroy it-militarily speaking….but by cowerdice of this worse american president,America has changed dramatically worse,heading versus selfdestruction!! the next president will only continue Obama’s work,dont u dare to think u can choose ur own president!! sleepy nation,sleepy people! best regards from europe,whoz falling down
I hope you realize that Obama can not run again. FYI
unfortunately, the ACA was not an ideal plan. However, it certainly got the conversation rolling on our for-profit health care system. The idea that we,,as the leaders of the free world, have health care only for the relatively well off is ridiculous. People in poor health are unable to contribute their best to the growth and strength of our economy. The past has already proven how badly market force health care has served our poorest citizens. There is a better way, and it works. It is time to begin an HONEST discussion on how to deliver health care to all. And I don’t think it takes $30 million a year executives and CEOs to figure it out.
Yes, the for profit health system leaves much to be desired. It neglects the needs of many people who can’t afford the cost in money. But Socialism has its own faults. Steve Jobs didn’t develop the Mac out of altruism – he did it because it was an intellectual and physical challenge, it might be useful to people, and because he hoped it would make him rich. A doctor studies and practices medicine because it is an intellectual challenge, because she/he hopes it can help people, and because it may make him/her rich. If you remove the possibility of making people rich, you remove one of the prime reasons for any endeavor. Socialized medicine is ultimately something like slavery for the practitioners, and they will do a half-assed job of it. Ninety odd percent of people are in jobs with little or no hope of becoming wealthy. Is it any wonder so many of us do half-assed work at whatever we do?
I am surprised the U.S. financial media are saying little about the debt crisis in Puerto Rico and whether that situation adds to the ripple effects of Greece (“spillover.” as Janet Yellin puts it.) As usual, everything is cloaked in secrecy. All we are told is that Obama put in a call to Angela Merkel (or what it vice versa?) And it did leak out that a few U.S. hedge funds have made heavy bets on Greek debt. With Greece’s short-term bonds paying more than sub-prime credit cards, I wonder if it really is just a “few” U.S. speculators.
I fully expect that the referendum will say NO, thus i expect new negotiations to start. Recognize that Russia and China are waiting in the wings..
What are Russia and China waiting in the wings for? I can’t see their relevance in the Greece situation. They surely are smart enough not to lend money to Greece… at least I think so.
Does it really matter what happens in Greece on Sunday? If they vote yes and continue to stay in the union how do they pay back what they owe? If they vote no and get out of the union how do they pay back what they owe? It is a no win situation. Be interesting to see what happens to world markets on Monday. And, waiting in the wings are Italy, Spain, etc. Will they follow suit? China is a whole different story. Will their stock market recover? If not will the rest of the world follow? My very, very long term indicator on the U. S. stock market has just rolled over and said “SELL.” This is an accurate indicator and takes a long time for either a buy or sell signal to develop. It won’t get you in at the bottom or out at the bottom. Will it be accurate this time as well? I guess we’ll see in the coming weeks.
Only fools think it won’t matter… oh and mainstream financial advisors.
The European Union stands to gain if a Grexit can be avoided for three reasons: (1) any trend for the Euro to appreciate against the US Dollar will be dampened – this helps European (primarily German) exports, (2) the risk that the rest of the European Union unravels and the financial markets worldwide keel over will be avoided and (3) a Greece outside the European Union will be too vulnerable for political reasons – Europe does not want a weak country go rogue in that strategically important geographic location – forget a possible alliance with Russia, think of Greece as a potential gateway for terrorists from the Middle East.
Greece, on the other hand, only stands to gain if agreeing to the financial plans imposed by Germany is accompanied with debt forgiveness – a hair cut. Greece gains little if its debt is stretched out and if it gets more money. Whether they are to blame for their indebtedness or not, Greece cannot repay the debt they have and getting more money will only make the situation worse. By now EVERYBODY with a brain knows this whole thing is a charade. The problem is almost cultural: Germany is not willing to offer a hair-cut that reflects reality as part and parcel of the austerity plan. It scolds Greece for its fiscal irresponsibility while it has not blamed its own banks for having lent money that should not have been given Greece in the first place. Now that the German taxpayer assumed all those bad loans, the German government acts tough, posturing as the defender of the its people – knowing full well that millions of German taxpayers can afford to take a small hit resulting from debt forgiveness whereas only a few banks could have afforded to take that loss without creating a huge risk to the financial system in Germany, Europe and beyond. Had the European Union offered Greece that it will forgive the amount of debt that Greece will NEVER be able to repay in exchange for accepting the terms of the bailout that was offered before Tsipras announced the referendum, I contend we would not be in the mess we are now. I can understand if Germany does not want to take the haircut today – but they could have offered it as prize to be gained in 6 or 12 months if the Greeks signed the bailout plan as offered. Merkel did not do that, presumably concerned about setting a precedent for Spain, Italy and France. I believe that the Germans are more offended about Tsipras’ courage to show the world that “the emperor has no clothes”, i.e. saying that the Germans know the debt cannot be fully repaid and that kicking the can down the road is not going to do the job. They are appalled that Tsipras is a student who is not willing to play the game by rules imposed by the teacher. When Tsipras announced the referendum, they were truly offended. Don’t they see that the outcome of the referendum is not going to work in Germany’s favor either way? If tomorrow the Greeks vote “YES” (to the bailout plan – without a haircut -even though the majority believe they are voting against Greece leaving the Eurozone), the Europeans may finally get rid of Tsipras. That, however, will take some time. Meanwhile they will have to deal with an economy that will continue to deteriorate or truly unravel until a new government is vested with the power to negotiate – and nothing assures the Germans that a new government, interim or otherwise, is going to be more flexible and acquiescent than the current one. The situation may become so untenable that the Europeans will be forced to expel Greek from the Eurozone. If the vote is a “NO”, Tsipras will stay in power with an affirmed mandate and force the Europeans to accept a haircut – or also force them to kick Greece out of the Eurozone. The whole thing is politics, a massive display of denial, a clash of cultures, one that is often cited as the reason why the European Union will eventually fail, egos and poor communications on both sides.
I believe Greece will eventually stay in the Euro. It will, however, only be to its advantage if debt forgiveness is involved. If there is no haircut, a Grexit wont be the end of the world. Let the Greeks be Greeks and get the government they want and deserve. They will keep their sovereignty and identity, enjoy their music and perhaps live more happily than the Germans, who sourly live to work hard to have a decent retirement – and spend their happy vacations in sunny and friendly Greece. In a Greece outside the Eurozone there will be hardship and poverty, no doubt, but by far not as much as the pundits want us to believe. The brunt will be taken by the foreign exchange rate. The Drachma will reflect what Greece is worth to the rest of the world. Tourism will flourish, export oriented industries will grow and, to the extent that the existing or a new government exercises some fiscal prudence, direct investment will pick up. Do not look back, Angela Merkel, look forward and do the right thing. If you take the hit, so will Tsipras!