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When the money dries up, it’s “Game Over.” And that’s what Greece is facing now that bank runs are accelerating rapidly!
Consumer and business depositors have reportedly yanked 1.85 billion euros from the Greek banking system in just the last two days. That’s more than 115 million euros PER HOUR, assuming two eight-business-hour days.
More than 2% of all the private money held in Greek banks has now vanished in just the last week. The only thing standing between banks and insolvency is the European Central Bank, which is providing them with emergency liquidity assistance (ELA) since they can’t raise money in the private capital markets.
Unfortunately, their needs are rising at an ever-increasing rate. Case in point: The ECB just raised its ELA limit by 1.1 billion euros on Wednesday. But because so much money fled the banking system, it had to raise that limit again today (though by less than the 3 billion euros Greece requested).
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| The ECB is standing between Greece and insolvency. |
If we’ve learned anything from this whole sorry process, it’s that policymakers will obfuscate, clam up, or outright lie about what they’re doing or saying behind closed doors just to keep people calmer than they would otherwise be. But that wall of silence is now breaking down.
Reports emerged yesterday that European officials are openly wondering whether Greek banks can open their doors on Monday. Capital controls – such as strict withdrawal limits – may be required within days, just as they were in Cyprus when that country’s banking system collapsed.
Despite all of that, Greek Prime Minister Alexis Tsipras is still spouting happy talk. He said today that he’s optimistic euro-zone officials will cut him a deal when they meet for an emergency summit Monday. The summit precedes by a few days the expiration of Greece’s 245 billion euro bailout program on June 30, and a required 1.54 billion euro payment due to the International Monetary Fund.
Me? I wonder what he’s been smoking! It seems like the Greeks have badly overplayed their hand, not realizing that Europe is fed up at this point. They seem much more ready to just cut Greece loose, come what may in the markets or the economy. That’s because private banks, hedge funds, and other market players have literally had years to prepare for a Greek default.
My recommended course of action remains the same: Take some profits. Maintain a healthy cash cushion. Avoid long-term government bonds.
| “Market players have literally had years to prepare for a Greek default.” |
Then focus on stocks and sectors that have already been beaten down dramatically, like energy. They are so cheap they have some insurance against further Greece-driven declines. Pair those with other stocks that are the “cream of the crop” in strong sectors, from aerospace to consumer non-durables to health care.
Then buckle up and see what happens over the weekend and early Monday – and stay tuned here for the latest guidance on what to do next!
While we all wait, let me know what you think about the Greek bank run. Are depositors going to be lined up 100 deep on Monday at ATMs around the country before long? Or will Greece manage to wrangle a last minute deal out of Europe and the IMF? What kind of spill over impact will we see here in U.S. markets? What steps are you taking to prepare yourself, if any? Hit up the website and let me know ASAP.
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The Greek situation is coming down to the wire, that’s for sure. But the Fed’s actions this week also spurred a hefty amount of discussion at the website.
Reader Frebon said rising rates would actually help the economy by drawing global funds to our shore – money the politicians could then spend! The comments:
“If the Fed finally comes to their senses and lets rates normalize, they wouldn’t have to worry about the national debt. Almost all the money in the world would flow here seeking the higher rates, which would allow the politicos to spend even more money — especially in an election year. Inflation would rise well above the Fed’s target, which would have them raise rates again and repeat the cycle.”
Reader Fred1 said not to read too much into short-term market moves in the wake of “Fed days.” His take: “It seems the market always goes up for a couple of days after the Fed utters their nonsense. I would not put much into it. Besides, they are always looking at data that is from last month, last quarter, last year, whatever. They look backward.”
Reader John noted the Fed is purposefully conducting “open mouth” operations because it wants to avoid taking real actions. His view:
“The Fed is ‘talking’ a good fight – something smart Fed Chairs have done for a long time. That is because getting any kind of result by ‘talking about it’ beats actually taking actions, which often have the potential for unpleasant consequences. So fighting the battle with words is eminently the more intelligent way to go. And Yellen seems to be doing a good job of it – which IS her job.
“As far as inflation goes, that danger has been on the horizon for some time. I don’t think anyone at the Fed fails to understand that the danger of inflation has been shadowing monetary policy due to actions taken in response to the financial crisis of 2008-09. A lot of people are in denial about the danger of inflation because they claim that ‘they don’t see any’ looking at the numbers.”
Lastly, Reader Chuck B. said the Fed’s easy money ultimately will drive inflation higher here – but not as much as in the past due to global wage competition. His opinion:
“The money the Fed has printed has been tied up in the banks. But it’s slowly working its way into the economy, with resulting price inflation.
“However, it is doing so in the face of an economy that is hamstrung by the decline in American production, due to the politicians forcing production overseas with their harsh economic policies. That is why we are on our way to second, or even third world status among nations.”
Good observations all around, and I appreciate you sharing them. The Fed has definitely had less impact on the real economy with all its pump-priming in this economic cycle. But given how much easy money it has thrown at the system, the consequences of the eventual unwinding process are likely to be much more severe than in the past. That’s why we should all expect much more volatility going forward.
If you want to add more to the Fed discussion over the weekend, here’s where you can do so.
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Chinese stocks have been incredibly volatile over the past several weeks, and this one was no exception. The Shanghai Composite Index plunged more than 6% Friday alone, bringing its weekly loss to 13.3%.
That was the worst week for Chinese domestic shares since October 2008, the midst of the global financial crisis. But the bubbleicious market has still more than doubled in the past year.
Have you invested in any of the recent crop of IPOs? What do you think of China’s market turmoil? Anything else I haven’t covered here that has you ready to sound off? Then here’s the website link where you can share your comments.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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The situation in Greece is very bad. And their socialist leader behaves like OUR socialist leader…..more spending and more borrowing when the larder is empty. Well the end of the road appears nigh for Greece now and it looks like it will be time to pay the piper. No man, no country and/or no entity can continually spend significantly more money that it makes……And these bank runs will be just the first of MANY bad things coming for Greece. I just fear that the now $18 TRILLION + and growing debt in the USA will lead us to a similar point soon. And like Tsipras, Mr. Obama just keeps blindly borrowing and spending with not a care…….
Regarding the situation in Greece, the banks will just declare a holiday on Monday and NOT open the banks. They have done this in different areas over the last 15 years. The Greek government has its head in the sand about their financial crisis. From my experience with Greeks, they are very arrogant and believe they are entitled to get what they want.
For over one hundred years the Europeans have used Greece as a barrier against expansion from the East. First the Ottoman Empire, then the Communists. The possibility of the Russians or Chinese occupying Greek naval bases is unthinkable for them. This isn’t about economics but geopolitics. They will deny reality and figure out a way to kick the can on further down the road.
The European Socialists will deal with their massive unmanageable debt the same way American Socialists will deal with theirs. They see no down side in passing it on to future taxpayers, many as yet unborn. They expect our children and grandchildren to handle it. They don’t vote!
No one seems to mention that a Greek Government committee has concluded that their debt is illegal, illegitimate, and more importantly as it concerns future developments, ODIOUS. This leaves no doubt in my mind as to their next step. Before the end of the month when the bundled payment to the IMF is due, baring a complete reversal on the part of the creditors`, they will present their case before the tribunal that adjudicates such assertions and buy themselves months and months of time to either put up or fold. Quite frankly, considering that the moneys ” lent to them ”
went to the corrupt members of the previous government, banks, bond holders and such like instead of to the people, I hope it works out to the latter’s benefit in reduced debt, lower rates and longer amortizations.
If the Troika is too ridiculously dumb or arrogant to compromise, then the debacle that will follow is on their head, small consolation though it would be to the Greek people and the rest of we the 99%ers.
Mike, your naivety is astounding. American markets have already priced in a Greek default. It’s old news. The question is, if Greece does NOT default, how will it affect the markets? The Fed? Greece is a fairly small country (11 million people or so) and has little impact on most companies. It seems to me that the pressure now is all on Germany to make a deal. In most scenarios, the U.S. stock market will be largely unaffected by what happens to Greece. Buy the dips.
What percentage of the debt is fraudulent? In other word, the debts of the banks that was secretly forced onto the Greek people? In Iceland, an independent audit determined 93% of the debt was the BANKS debts forced upon the government of Iceland. Maybe they should see how much of this debt really is theirs and how much comes from the banks forcing the banks debts upon the Greek government. Why pay someone else’s debt? No one does that for me.
long live Greece – death to the totalitarian so-called EU