Thursday, June 16, 2011

Greece is the Word, the Final Act or Beware of Europeans Baring the Gift of Default.

To say that the markets and the rating agencies were not impressed with Wednesday’s chaos in Athens would be an understatement. The DJIA closed down 178.8 points, resuming its six week slide after Tuesday’s brief uptick. The down grading of Greek debt to CCC was quickly followed up with warning that major French banks were overexposed of Greek bonds and were likely to be downgraded as well and Barclays Bank finally admitting that it had “serious problems” in its European operations.

It had been anticipated that Wednesday’s scheduled vote in the Greek parliament was going to be difficult at beast but as events unfolded by the end of the day it could only be described as a disaster of Promethean proportions. With the ruling PASOK party having fallen apart like a cheap suit it looks like Greece is now faced with the reality of a nonfunctioning government.

The above chart shows how that it is the US taxpayer that is the key player (perhaps biggest victim would be a better term) in the unraveling farce known as the Euro Zone. It could not be clearer that that the $600 Billion in QE2 US funny money has been transferred entirely into European banks. It’s not just the European banks that have had their accounts padded so as to absorb the oncoming shock wave. From the chart it’s pretty clear that US banks have been holding back reserves as well to cover their own exposure to the European debt contagion. All of this money, every single dime, has been provided by the US Federal Reserve and represents nothing more than the debt obligation of the US taxpayer for generations to come.

So now the curtain on the final act is about to be raised, and it’s all according to plan. Germany gave us a peek under the edge on Thursday morning with their suggestion that any implementation of “restructuring” of Greek debt be put off until September, knowing full well that Greece will run out of money long before September gets here. Default is thus assured. Before anyone speculates that Germany is just trying to buy some time perhaps in order to come up with an alternative solution is naïve at best or stupid or a liar at worst.

With a zero probability of an orderly debt restructuring in Greece why would there or could there be any expectation that Portugal, Ireland and Spain will continue on with their own struggles down the same path of destruction? Why would they think that they could finish in a different place than where Greece is now? Why would they wish to inflict the same chaos, uncertainty and turmoil on their populations that the Greek government has done? The simply answer is they won’t. Any why should they? With the monies in place the PIIGS all get to go into default and return to their own currencies, the insurance companies that issued the Credit Default Swaps go belly up (AIG round 2), the banks absorb the shock and remain solvent (at least that’s what they will tell you), and the US taxpayer gets stuck with the bill.

It’s almost like World War Two played out again in some sick, twisted alternative universe. Europe engages in decades of foolish behavior, petty sanctimony and self-indulgence, ignoring the corruption in their midst. Then when the consequences of an implosive self-destruction become inevitable and unstoppable the US rushes in to rescue them from themselves all at the expense of unborn generations of US taxpayers. Think of it as like we put the Marshall plan in place before the destruction came. Only this time Germany ends up as the nominal strongman of Europe, yet having to keep a wary eye on a reemerging Russia, on whom it remains dependent for energy supplies. The US then gets left as the odd man out having absorbed once again the costs of European self-indulgence, but this time also having been stripped of the productive capacity that might allow the burden to be paid off.

So what then happens when the American people recognize the mess they have allowed the so-called experts, politicians and bankers to get us into? Will we think, oh let’s just declare default ourselves and pass it off to the Chinese? Will we again listen to some fool politician who will tell us that all of those Treasury bonds held on the FED’s balance sheet is just money we owe to ourselves?

We better think again. We have been played for fools. We just got put on the hook to bail out the very banks that own the Federal Reserve and they will now be stronger than ever. Their answer will be same question the Greeks have been staring down; sell you national assets and sell your sovereignty back to the very elites whose bacon you just pulled out of the fire. You didn’t think that they were really going to let themselves get stuck with the bill for their own corruption now did you? That’s what the naïve bumpkins, otherwise known as the US taxpayers are for. You’re not really going to take up arms against your European masters again are you? OR ARE YOU?



  1. I say to hell with them, the bail outs have got to stop somewhere. Let Greece burn and all of Europe too for that matter. On the bright side,... real estate in Athens can probably be picked up for a song right now :)

  2. I understand the sentiment, but I think you miss the point. It’s not a matter of simply stopping the bailouts. They are just the surface camouflage that disguises the underlying agenda of powerful banking institutions that use debt as a lever to dismantle the very concept of a sovereign nation that is not beholden to them. And if they can get us to foot the bill for our on destruction all the better for them. There is nothing in the Constitution that says our money must be a debt instrument of a private bank. Alexander Hamilton is screaming out from his grave that he had the solution 225 years ago.

  3. I see where you were going and I don't disagree with you. The recent financial meltdown should be evidence enough that unregulated banks and powerful financial conglomerates are truly weapons of mass destruction. The bottom line is that no matter what we write here, nothing will change until it all completely unravels. Americans are reactionary,.. at least they riot in other parts of the world when they don't get what they want.

  4. Be careful what you wish for. Mobs begat violence, begat demagogy, begat dictators. Ask yourself how well it worked out for the French in the 1790’s or the Russians in 1917 or the Germans in 1933 or the Cubans or the Venezuelans. The list is far to long already. That kind of chaos is just the excuse our would be neo-Marxist are looking for too seize what few liberties we have left.

  5. Not to worry, we have Hope for Change. Good stuff DW.


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