Debt on one side of the ocean is little different from debt on the other. But most investors don’t seem to see it that way. Instead of learning from the tribulations of their cousins in Europe, they greet the news from the Old World with alarming complacency.
This is too bad. Because the European story tells us something important about the way a debt crisis works. And it gives us a “heads up” about what will happen on a much larger scale in America.
Debitum delenda est: Debt must be destroyed. And the process of destroying – defaulting, hair-cutting, writing down, writing off, going bust – is as painful as it is unavoidable.
The millstones of debt may grind slowly…but they are relentless. This week we watched them do their work on Greece. Sometime in the future, we’ll see a sequel to the Greek story. It will be set in America. Greece has never been a reliable or faithful borrower. Instead, it has been a deadbeat – borrowing and then defaulting. It has been in default, in one way or another, during half of its history as an independent, modern nation.
But in the heady days following European unification and the introduction of the single currency, Athens seemed as good a credit risk as any other. Previously, lenders had been wary. They feared the Greeks would default, often by devaluing their currency, the drachma. So, lenders demanded higher interest rates to offset the risk of loss. This, of course, raised the cost of borrowing for the Greeks and generally held their spending in check.
But the Greeks joined the Eurozone. And it looked as though the risk had been removed. Loans to Greece were denominated in euro; lenders no longer feared a devaluation of the currency. Lenders asked little more in yield from Greece than they did from Germany and France. Interest rates were “harmonized.”
A sour note was sounded when Europe’s banks tottered in the credit crisis of 2008. It quickly became obvious that the Greeks were still Greeks. They had borrowed too much. They had spent too much. Now their ability to repay their loans was seriously in doubt. Yields on Greek debt rose. This made it harder for the Greeks to keep servicing old loans as well as adding new debt. And it called into question the solvency of large European banks, which held billions of Greek debt.
This caused the EU, the ECB and the IMF to intervene. If the free market would not lend to the Greeks at a sufferable rate, the authorities would have to do so. The ECB came up with €90 billion for the Bank of Greece. This was bold.
Perhaps foolhardy. The Greek central bank was reported to have had only €815 million in capital – or less than 1% of the amount it borrowed. Naturally, the ECB – led by the Germans – attached conditions. The Greeks were supposed to put their financial house in order so they might have some hope of repaying the loan – or at least not asking for another one.
Athens made a show of it. But try as it might, it couldn’t turn Zorbas into Helmuts. Taxes went uncollected. Workers didn’t show up. And people rioted – attempting to burn down the finance ministry – when their government tried to force austerity measures on them.
This left Greece in breach of the terms of its bailout. It also left the IMF and ECB with a bigger problem. Because now Greece needs more money. It cannot borrow from the free market. So it needs another bailout.
If the rest of Europe had their wits about them they would say to the Greeks what President Ford told New York City when it was in a similar situation in the 1970s: “Drop dead.” The city realized it could not continue borrowing and spending. It had exhausted all other options; it had to do the sensible thing. NYC flourished as a result.
But there is more to the story in Europe. If they tell the Greeks to drop dead, many large European banks – including the ECB itself – will have cardiac arrests too. Athens may have borrowed and spent recklessly and wantonly. But Paris, Berlin and Brussels were foolish to lend to them. And now it is difficult to separate the fool from the knave.
The ECB didn’t just cough up €90 billion for Greece. It also lent €106 billion to the Irish, €44 billion to the Spanish and €48 billion to the Portuguese. If these loans go bad, the ECB will face insolvency.
Fool? Knave? As you can see, the ECB is both. Perhaps it once lent to save the world. Now it lends to save itself.
What will happen when the credit runs out? That’s the trouble with the kick-the-can-down-the-road approach to debt. You end up down the road; and there’s the can! If the borrowers cannot make good on their debts to the ECB, the bank will run out of money and have to issue capital calls to its member national central banks.
The Germans, for example, will get a bill for 27% of the necessary funds. Other central banks will be asked to put in lesser amounts. But many of the member banks are the same as those that desperately need financing from the ECB. They won’t be able to meet the capital call; they’ll be making capital calls of their own. This will probably force Germany and France to shoulder larger percentages of the bank’s financing requirements and may force the weak banks (and the nations they serve) out of the system all together.
European officials have called this outcome “unthinkable.” But it is also an outcome that seems more and more likely. In the meantime, expect a combination of fraud and spin…as the authorities attempt to disguise and delay the inevitable default.Regards,
Bill Bonner,for The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.
Greece owes much Debt. Greece don’t have enough taxes to pay debt. Greece must therefore sell assets.
Surely the Greek government has some choice land and beaches that can be sold?
And what about ancient artifacts? Sell, sell, sell. Sell it all.
I can’t wait for the Greeks to get kicked out of the Euro. The Greeks have always had very cool looking coins, and to a lesser extent cool looking banknotes. Of course the curreny may have always ended-up worthless for commercial purposes, but at least the meduim exhibited the best in circulating art work anywhere in the world. And this has been true since about the 5th century BC when Athens was striking what were the best coins in the world. The Euro denominated coins are some of the most hideous looking things to change hands in ages. Even the Bulgarians and Romanians did better under the thumb of the Soviets with coinage design.
Bonds in a democracy will always be a problem. A politician loves bonds. The current politician issues bonds and gets to spend money on himself and his supporters. Payment on a 20/30 yr bond is not a problem. The politician will be out of office before the bill comes due, probably living on an estate next to Tony Blair in the Bahamas.
So what is the point of working hard to reduce government debt. You don’t get to spend money on your favorite projects and you are just making the balance sheet stronger so the next liberal elected can then easily issue plenty of bonds to finance a bunch of liberal projects that will get more liberals elected.
In the end we are all dead!
The ECB, like the FED of the US is deliberately trying to bankrupt the whole of Europe, while encouraging investment and propping up of the Eastern countries. No sane banking system would even contemplate doing what they are doing, therefore it make sense that they are trying to destroy Europe deliberately. When a limb has gangrene you need to amputate it from the rest of the body to save the entire body, not keep “feeding” it !
“No sane banking system would even contemplate doing what they are doing, therefore it make sense that they are trying to destroy Europe deliberately.”
my own conclusion as well. they have steered us towards a wall and are stepping on the accelerator. the only question remaining is … who are they?
“…who are they?” I don’t claim to know who “they” are but their agenda is becoming very clear, we are headed for some type of unified world economic and political governance. It will become very apparent after the final crash.
“who are they?”
The banking cartel mostly composed of multi-generational banking families. They’re pushing for a fiscal union of the EU, beholden to them via their eurocrat puppets in Brussels. More power & control is their goal.
These same people are the ‘owners’ of the Fed. They’re working to implode the system on this side of the Atlantic.
Then they step in and “save’ us all with a unified currency and a new world order.
Lord help us.
God save the queen.
Pingback: Joshua A. Jacobi
Pingback: good read
Pingback: how to play golf
Pingback: build android apps
Pingback: how to win the lottery book south carolina lottery
Pingback: tendonitis in shoulder
Pingback: Zalando Gutschein
Pingback: small scale business ideas
Pingback: alyssa milano hottest
Pingback: empower network blog
Pingback: try ageless male be irresistible
Pingback: man health
Pingback: casino bonus senza deposito
Pingback: RKXeroFlGi RKXeroFlGi
Pingback: slot machine bar
Pingback: check this website
Pingback: Visit Website
Pingback: Buy Facebook fans
Pingback: carmichal moore
Pingback: need money fast no credit check
Pingback: rihanna pics
Pingback: da Vinci prostatectomy
Pingback: how to learn french
Pingback: paleo diet living
Pingback: zamunda net
Pingback: Click Here
Pingback: North east drainage
Pingback: seduccion de mujeres
Pingback: local seo orange county
Pingback: mlpTue3Htx mlpTue3Htx
Pingback: Click this
Pingback: skup diamentow
Pingback: jenna dewan hot
Pingback: anushka sharma hot
Pingback: kylie kendall jenner
Pingback: dallas tv advertising
Pingback: virtual tour real estate software
Pingback: reputation management services solution
Pingback: how to delete your name from google search
Pingback: invisalign how long
Pingback: new york vending machines in schools
Pingback: jennifer lopez hot wallpapers
Pingback: smart circle
Pingback: upfront reputations reviews
Pingback: Michelle Mons
Pingback: pure garcinia cambogia
Pingback: Easwar Elumalai
Pingback: Marcelina Peschong
Pingback: Alonso Cruthird
Pingback: Upfront Repuations
Pingback: dentist san diego
Pingback: Amado Moag
Pingback: Larae Sidorowicz
Pingback: taxi service lexington ma
Pingback: Evan Aini
Pingback: Christopher Delatrinidad
Pingback: Melissa Certain
Pingback: Sabina Scudero
Pingback: Drucilla Leiby
Pingback: Alton Bissette
Pingback: Sonya Dickson
Pingback: Sherman Racanello
Pingback: Isidra Hyatt
Pingback: Deandrea Vatterott
Pingback: Kristina Gordey
Pingback: Kum Krinov
Pingback: make money online from home
Pingback: best electric cigarette
Pingback: xplocial scam
Pingback: the jenner family
Pingback: pediatric cardiologist in los angeles ca
Pingback: elastic exercise bands
Pingback: Casie Kocurek
Pingback: Sal Carnicelli
Pingback: Jayson Schuhmacher
Pingback: Malcolm Curto
Pingback: Katherina Seuss
Pingback: Wally Kissler
Pingback: Buy Facebook Likes
Pingback: cell phone tracker
Pingback: Facebook Buy Likes
Pingback: buy likes for facebook
Pingback: jakie audio
Pingback: Tanner Vaughn
Pingback: vision wheels
Pingback: Push Gifts
Pingback: kurs zlota
Pingback: e cig free shipping
Pingback: buying likes on facebook
Pingback: pure raspberry ketones
Pingback: refinishing hardwood floor los angeles
Pingback: read more
Pingback: dog training Leicester
Pingback: forfait esqui año nuevo barato salardu baqueira beret 2014
Pingback: buy likes facebook
Pingback: reader barcode
Pingback: popup domination
Pingback: Follower Instagram
Pingback: Wypożyczalnia samochodów Gdańsk
Pingback: Carpet Cleaning Utah
Pingback: buy 25 facebook likes
Pingback: buy 100 facebook photo likes
Pingback: real estate investment companies atlanta
Pingback: exchange backlinks !
Pingback: gay boy tube
Pingback: get followers on twitter
Pingback: buy followers
Pingback: the mountain
Pingback: phone gps tracker
Pingback: mobile spy
Pingback: barretts metaplasia candidiasis
Pingback: seo company orange county
Pingback: gta 5 download
Pingback: online reputation management
Pingback: online reputation management costs
Pingback: Comprar seguidores en twitter
Pingback: e cigs chooser
Pingback: web design
Pingback: Card Processing Solutions
Pingback: work at home
Pingback: oxyelite pro
Pingback: paintless dent repair
Pingback: dmv record search
Pingback: Conceiving A Girl
Pingback: Whitley Price
Pingback: binary options broker
Pingback: boutique for girls
Pingback: business consumer
Pingback: make money with clicksure
Pingback: scarsdale diet unhealthy
Pingback: Zayn Malik
Pingback: Paul Gallant
Pingback: ofertas de empleo en murcia
Pingback: get bigger breasts
Pingback: free hip hop music
Pingback: watch video
Pingback: Online Shopping
Pingback: how to use car audio
Pingback: kostenlos casino ohne einzahlung
Pingback: kate middleton surgery
Pingback: gioca slot machine online gratis gallina
Pingback: China Tour
Pingback: flowers minsk delivery
Pingback: cchr movies
Pingback: citizens commission on human rights
Pingback: Jeremy Watson
Pingback: dlaczego ryby
Pingback: audio visual production brisbane
Pingback: high quality logo
Pingback: get rid scars
Pingback: linkedin account
Pingback: Best Website designing company in England, cheap accountants
Pingback: path of exile power leveling
Pingback: orange county car rental
Pingback: Divorce Attorney Mesa AZ
Pingback: mdansby advanced software
Pingback: 5linx review
Pingback: Dog Behavior Leicester
Pingback: financial help
Pingback: dog products
Pingback: dog food
Pingback: marvel hero power leveling
Pingback: Tube Launch
Pingback: Las Vegas Chiropractor
Pingback: click here
Pingback: diablo 3 power leveling
Pingback: cheap payday loan
Pingback: eq2 power leveling
Pingback: data entry jobs online
Pingback: my website
Pingback: wow power leveling eu
Pingback: Randy Allen Developer
Pingback: guitar tuner
Pingback: best software to make music
Pingback: Instagram Followers
Pingback: ufc 166 live stream
Pingback: view more
Pingback: Halloween Costumes For Couples
Pingback: male enhancement pills reviews
Pingback: binary option
Pingback: Online Resume Writing Service
Pingback: locksmith in houston
Pingback: 3BAR Blue Cheese Martini Olives
Pingback: on demand call center software
Pingback: Aspect Call Center Software
Pingback: Best electric shaver for men 2013 top rated
Pingback: moving company tampa bay
Pingback: married women
Pingback: free ringtone download
Pingback: lotro power leveling
Pingback: swtor power leveling
Pingback: klicken Sie hier
Pingback: diablo 3 Power Leveling europe
Pingback: informatique ordinateur
Pingback: thailand bucks and hens
Pingback: hens night in Phuket
Pingback: Orlando Commercial Video Booth
Pingback: runescape 3 power leveling
Pingback: rs 2007 power leveling
Pingback: fifa 14 coins play station
Pingback: archeage gold
Pingback: helpful site
Pingback: diablo 3 gold asia
Pingback: churrasqueiras e fornos de pizza
Pingback: Rock and Roll
Pingback: two tone military leather shirts
Pingback: AION Power Leveling
Pingback: descontos netshoes
Pingback: poe power leveling
Pingback: Asia dive travel
Pingback: Commercial Gas
Pingback: cliquez ici
Pingback: Age of WuLin Liang
Pingback: traineeship and apprenticeship
Pingback: gay realtor denver
Pingback: fifa 14 Coins
Pingback: KAL Online Geon
Pingback: Healthy breakfast
Pingback: similan liveaboard
Pingback: komodo liveaboard
Pingback: ï»¿FF11 è‚²æˆä»£è¡Œ
Pingback: guild wars 2 gold eu
Pingback: Diablo 3 è‚²æˆä»£è¡Œ
Pingback: wow power leveling
Pingback: ãƒ‰ãƒ©ã‚´ãƒ³ãƒã‚¹ãƒˆ è‚²æˆä»£è¡Œ
Pingback: FF11 è‚²æˆä»£è¡Œ
Pingback: FF14 è‚²æˆä»£è¡Œ
Pingback: sell home
Pingback: sell house
Pingback: ArcheAge è‚²æˆä»£è¡Œ
Pingback: rs 3 power leveling
Pingback: MHF è‚²æˆä»£è¡Œ
Pingback: Private investigator
Pingback: ãƒ©ã‚°ãƒŠãƒã‚¯ã‚ªãƒ³ãƒ©ã‚¤ãƒ³ è‚²æˆä»£è¡Œ
Pingback: business cash advance
Pingback: loans for businesses
Pingback: èˆžç¿”ä¼ è‚²æˆä»£è¡Œ
Pingback: TERA è‚²æˆä»£è¡Œ
Pingback: AION è‚²æˆä»£è¡Œ
Pingback: ãƒ¬ãƒƒãƒ‰ã‚¹ãƒˆãƒ¼ãƒ³ è‚²æˆä»£è¡Œ
Pingback: fut 14 coins pc
Pingback: ãƒ¬ã‚¸ã‚§ãƒ³ãƒ‰ ã‚ªãƒ– ã‚½ã‚¦ãƒ«ã‚º è‚²æˆä»£è¡Œ
Pingback: diablo 3 gold hardcore
Pingback: medical billing and coding jobs from home
Pingback: best suction dildo
Pingback: PSO2 è‚²æˆä»£è¡Œ
Pingback: FF11 RMT
Pingback: FF11 ã‚®ãƒ«
Pingback: æˆ¦å›½ixa è‚²æˆä»£è¡Œ
Pingback: çœŸãƒ»ä¸‰åœ‹ç„¡åŒ è‚²æˆä»£è¡Œ
Pingback: diablo 3 gold eu
Pingback: FFXI è‚²æˆä»£è¡Œ
Pingback: Diablo 3 RMT
Pingback: FFXIV è‚²æˆä»£è¡Œ
Pingback: WOT Power Leveling
Pingback: runescape minigame help
More than a decade ago, Addison Wiggin helped co-found the Daily Reckoning with Bill Bonner. Today, he recalls this life-changing experience, and explains how - despite being rooted in the world of finance - it is and will always be about much more than money. Read on...
Halloween is tonight! And just in case you waited until the last second to think about what you're going to wear, here are four costume ideas you can easily put together in about 10 minutes or less. With these costumes you'll be the hit of your friend's party - provided you're friends with a bunch of economists. (Downloadable masks included...) Happy Halloween!
The financial news is full of misinformation - reported by unreliable pundits and taken at face value by an easily swayed public that doesn't really no better. That's why today, Bill Bonner relays the four basic truths he's discovered during his 30 year career in the financial industry to help you make sense of it all. Read on...
For those who doubt the effectiveness of the Swiss Gold Initiative, Grant Williams has a few startling charts to show you. Today, he relays just how popular this movement is, and how you can actually influence the outcome... no matter where in the world you call home. Read on...
For most of the year, no one wanted small cap stocks in their portfolios. But over the last three weeks, few sectors of the market have performed better than small caps. Greg Guenthner explains how to use this to your advantage... and what to expect for the rest of 2014. Read on...