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We’re All Greek Now — Some Just Don’t Know It Yet

Let’s see…a heavily-indebted country can’t pay its bills, engages in a long series of failed attempts to manage a partial, controlled default, sees most of its capital flee to safer venues, and then, in a final act of desperation, imposes capital controls.

But it quickly realizes that it’s too late. Capital controls, to the extent that they ever work, have to be imposed by surprise, while there’s still some capital to control. If you wait until everyone expects them, the banks empty out in anticipation and you’ve locked a barn sans horses.

That’s pretty much what Greece is looking at in the next couple of weeks. Though a bailout remains possible, the markets have decided that it’s no longer a sure thing and capital is streaming towards the exit:

Greece bonds, stocks collapsing as the market re-panics

(MarketWatch) – This time we’re really panicking. That’s what some markets seem to be saying this morning on the heels of failed talks over the weekend between Greece and its European creditors.

Those discussions lasted anywhere between 45 minutes to an hour, with the breakdown a painful reminder of the fact that the International Monetary Fund bailed on its own talks with Greece last week. The can has now been kicked all the way to the last-stand June 25 European Union leaders summit in Brussels, where some say Prime Minister Alexis Tsipras has all his hopes riding.

But there’s also a meeting of Eurogroup finance ministers on Thursday, and many are looking anxiously for Athens to come up with new reform proposals ahead of that. June 30 remains the big line in the sand as Greece has a 1.6-billion-euro ($1.8 billion) payment to the IMF looming, after it bundled all its four June repayments into one.

The question is, what will markets do in the meantime? At least as far as Greek bonds and stocks are concerned, maybe just keep panicking. The yield on the 10-year Greek bond pushed above 12% in Europe’s morning, on track for its highest close since late April. It was up 90 basis points at 12.72%, according to electronic trading platform Tradeweb. The yield on 2-year bonds surged 3.9 percentage points to 28.66%.

Let this continue for just a few more days and Greece will be, financially as well as socially, a smoking ruin. It will also be a glimpse of the future for the rest of the developed world. The fact that the US, Great Britain and Japan can create their own currency allows them a bit of flexibility that Greece doesn’t have. But just a bit. As debt continues to rise faster than GDP, the gap between what’s owed and what can be repaid is becoming a chasm, with consequences that are both inevitable and inescapable.

Viewed this way the difference between Greece and the rest of us is cosmetic and very temporary. Where Greece negotiates with the IMF and ECB, the big debtor nations negotiate with the financial markets via QE and other kinds of debt monetization. The goal in both cases is to placate creditors without changing the behaviors that caused the problem. In both cases it has worked, for a time.

The fact that Greece is blowing up while the printing-press-endowed countries are not just means that the stock and bond markets are easier to fool than the ECB and IMF. But no one is permanently credulous. Everyone catches on eventually, and the soaring volatility in stocks and bonds around the world imply that Greece isn’t the only con artist about to be exposed. In bonds, for example:

Bond crash is so crazy BlackRock Inc is ripping up its risk models

(Financial Post) – With US$4.8 trillion in assets — or about the size of Japan’s economy — no one manages more money than BlackRock Inc. So, it’s worth paying attention when the firm says it’s time to cast aside its trusted models for assessing risk in bonds.

The $1.2 trillion meltdown in just three months is an early sign that it will not be easy to wean the world off six years of zero rates — and central banks have used up their arsenal. The gyrations gripping the world’s fixed-income market are so great that it’s almost impossible to make sense of them on a historical basis. In Germany, for example, yields on 10-year securities have surged from almost nothing in late April to about 1 per cent last week — a move so swift that some strategists are likening it to a once-in-a-generation event.

“The German bund market is incalculably volatile,” said Scott Thiel, BlackRock’s deputy chief investment officer for fundamental fixed income in London. “It doesn’t make sense to measure it in traditional respects.”

Across Europe, investors are ripping up their old models to analyze the US$100 trillion global bond market that dictates how much consumers and companies pay to borrow. Volatility is soaring as central-bank policies diverge, whiffs of inflation emerge and new regulations cause big banks to back away from their traditional role facilitating buying and selling. Continue reading here.

28 thoughts on "We’re All Greek Now — Some Just Don’t Know It Yet"

  1. Good God Almighty!! Doesn’t anybody else get the FACT that NOTHING of any real measurable value was ever borrowed in the first place, and therefore nothing needs to be repaid? Is everybody else so damn brainwashed from the public fool system and other mental institutions, that they cannot see even the most obvious things right in front of their face?? Let me put it quite succinctly this way; THERE ARE NO FRIGGIN’ DEBTS ANYWHERE!!! It’s all just made up numbers on computer screens and have no more value to them than that!


    1. When it drains your bank account you will change your tune. This affects millions of people and years of hard work are on those screens.

      1. BWAHAHAHA!!! Do you really think that with me knowing all that I do about this fraud, that I would be so stupid as to leave any digits in any bank account, if I even had one?? YOU are going to wake up one fine day, and you will be one of those many millions who will be wailing and gnashing their teeth over all this crap going down. I have no “tune” to change because I already know how it ends!
        To all of the fools who put their faith and trust in the fiat paper currency system, and will totally lose EVERYTHING that they worked so hard for over all those years, all I can say is you’ll only get what you deserve! FOOLS!!!

  2. The only ” Investor” that can move so much so fast is the ECB & Fed. At 0 % they have no ammo left, WHEN Greece defaults, so they have reversed the buying of bonds, for a while so they can ” SAVE” the world..again. ( Qe27 )
    I do Expect some large bank failures very soon,as some one must have lost billions in collateral value that is still marked at full value.
    First in those countries that have already joined the ” people bailing out the banks” club.

    The banks have already been Robbed dry, so good luck with the next stress test.
    Check your bank account, and try to see if they let you with draw some of it, or at least transfer it to a 2 nd bank as in diversification.

  3. The negotiations with Greece at this point must also consider how to punish (sanction if you will) Greece acceptably, so as to discourage an ‘extortion template’ of Greece’s bailout. Oh, what a terrible web they’ve weaved!

    1. You mean something like the Nazi reprisals during WW2?
      Wipe out a whole village if some German big shot gets assassinated!
      Don’t start turning this into a morality play,…good guys against bad guys.
      The Greeks may be Extortionists running a confidence game,but they are no worse then the decadent Embezzlers,& Plutocrats who run the EU Establishment.Greece & the rest of the poorer EU nations will be sucked dry by Austerity,the attempt to steal the wealth of nations & impoverish their people.Austerity is a desperate attempt to pay the leveraged debts of the the establishment elites by financially eviscerating the poorer member nations.
      So yes,the Greeks are running a con game on the bankers & oligarchs who run the EU.But on the other hand the loan sharks who run the EU & the IMF deserve what they get for giving Greece credit which was never intended to be paid back!

  4. Great article John, my favorite takeaway from it is—”The fact that Greece is blowing up while the printing-press-endowed countries are not just means that the stock and bond markets are easier to fool than the ECB and IMF.”

    At the core of all of these meltdowns—Iceland, Cyprus, Greece, Puerto Rico soon to come et al—we will find the hand of the Wall Street bankers who have learned to identify soft targets in these “finance ministries”, accomplices who will autorize extraordinary debt loads, AAA ratings—whatever is needed to capture interest flows with no regard to the long term effects, After all, none of them are concerned about anything beyond their next bonus. This will only stop when the people take action, It really is that simple.

    1. The people will only take action after they are forced into gnashing their teeth. The folks on Main Street are absolutely clueless. Well, OK, 3.5% might be reading deeper into the news. The MSM has fooled the vast majority. But when the folks finally realize the depth of the damage as it destroys their personal wealth, well, this batch of politicians will be as hated as cockroaches. Our current batch of politicians are in power to inform and protect and lead! They’ve done nothing.

      1. It’s not the current batch, it’s the current system that we’ve created over many decades. It’s what makes voting meaningless. The politicians use the MSM to keep our attention focused on the emotional, hot-button, issues like gun control, immigration, gay marriage, and sport’s steroids. These will be footnotes, at best, in the history books a century from now. As you say, it’s working just fine.

  5. Greece was never going to be able to repay debt, that’s been obvious for 2 years. That country is only the size of Illinois. This big press hype-fest is really about whether the german government (via the EU) will bail out german investors (via the EU) or let them swing in the wind.

    Unlike TARP in 2007, the EU is doing “The Right Thing”., and letting the investors take a hit. And this will put Europe on a much better long-term footing than America is on right now …

  6. I love it. SHTF soon may be too good to be true, but who knows – and only as long as the financial “big wigs” get totally pancaked. Otherwise who cares.

    I can’t tell you how much I’m routing for the Syriza party and Tsipras to persevere and force the EU to suck it (money) up/lose or pay for keeping Greece in the euro nightmare.

    I can afford to dream… but man!….

    1. In the long run Greece has no real choice but stiff the banks,…neither does any of the other EU nations! Austerity will eventually kill them even if they manage to raise the money to stay in.It’s a question of which form of financial poison they are willing to take!

      1. But the banks will not be stiffed – not any longer – because the whole debt restructuring charade by the EU transferred the debt to euro zone taxpayers. Greece should have defaulted back in 2010 and made the banks pay then. The only reason the banks/EU care about a Greek default is that it will destabilize the “euro project” and leave Greece available for Russia to gain ports on the Mediterranean Sea and an excuse for hanging around “the Continent.”

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