06/17/11 Baltimore, Maryland – The financial press is enjoying itself.
With words!
One headline says the atmosphere is “toxic.” Another warns of “contagion.”
“Politicians fiddle while Athens burns,” says The Wall Street Journal.
They all agree: Europe is going to Hell…just as soon as it can find a handcart!
But you remember our comments yesterday? Got a catastrophe? Great!
The authorities have tried to avoid disaster. They’ve done a good job of it. That is, they’ve avoided small disasters. And they’ve laid the foundation for a big one. So, bring it on!
According to one press report, “Europe is waiting for its Lehman moment.” Get it? It’s that moment when all Hell seems to break loose in the financial markets – like September ’08, after Lehman Bros went broke. Bloomberg:
The euro lost more than 2 percent against the dollar in the past two days and the cost of protecting corporate bonds soared to the highest level since January, with credit-default swaps anticipating about a 78 percent chance that Greece won’t pay its debts. Equities declined around the world, while a measure of fear in fixed-income markets jumped the most since November.
On the streets of Athens, riot police armed with clubs swing at protesters, also armed with clubs. “Greece was plunged into political turmoil…” began the report in The Financial Times.
But what is really going on?
Greece, a small country with a small GDP and no oil…whose strategic export is olives…and whose last real military victory was the Battle of Jhelum in 326 BC, in which Alexander the Great defeated an Indian Rajah named Porus. But Greece is also as deep in debt as the US. But unlike the US, lenders don’t want to lend Greece money. They’ve read the history books. They know what happens when you lend Greeks money. You don’t get it back.
On the other hand, they also know that the European Central Bank and the financial authorities worldwide are afraid of a “Lehman moment.” They fear disaster. They hate catastrophes. They think their job descriptions include avoiding calamities of all sorts.
Investors don’t know quite what to think. The danger is high. But there are rewards too. Greek debt with a 3-year maturity is yielding 28%. If the authorities pull off another bailout, speculators stand to make a lot of money on the long side of Greek debt.
But as we said earlier, it is because officials are so good at avoiding calamities that we find ourselves confronted with so many of them now. If they’d let Greece go broke 3 years ago, the problem would be behind us instead of in front of us.
Avoiding disasters hasn’t worked. At least, not avoiding debt disasters. No matter what tricks the authorities do – monetary, fiscal, or unconventional – the debt is still there. And since all those tricks cost money…it gets bigger and bigger.
So how about this: Give disaster a chance to show its stuff. Let calamity have a go at the problem. Let’s all put our hands together and welcome catastrophe.
It’s coming, whether we like it or not.
So why not like it? Look, who really cares if a few big banks go broke? Who cares if Greece, Portugal and Spain – if it comes to that – are forced out of the EU? Who cares if the bankers don’t get their bonuses…or the speculators don’t get their pay-offs…or pompous officials don’t get to claim they ‘saved the world economy’?
Not us.
Of course, we don’t really know what would happen if disaster were allowed to settle up things on its own. If the EU doesn’t come through with another bailout, Greek banks – including its central bank – will be insolvent. And the European Central Bank may be insolvent too. It has an outstanding loan for $49 billion to Greece. It has a lot of other debt on its books too – from Spain, Portugal and Ireland. What that debt is worth today, you can find out by looking in the financial pages. What it will be worth after Greece defaults is unknown…but surely a lot less. And when the losses are toted up, they are likely to be more than the ECB’s capital.
Then, the scheisse will really hit the fan.
What will happen? No one does. But we want to find out.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Europe will fall, resulting in global depression.
It is going to be an interesting ride.
Holding VXX waiting for the drop, once the calamity is near the bottom, after the liquidity trap, buy into commodities…. then run for the hills?
“It’s coming, whether we like it or not.” Yep so forget investments, gold, silver, the market. Just make friends with your neighbors. You are going to need them.
Yes, let’s find out what happens in Greece.
It all qualifies as good entertainment.
Since most of us have our physical needs taken care of, Maslow’s heirarchy suggests we are at the stage where we now crave entertainment. Sports, facebook, blogs, tornadoes, earhquakes, riots. It’s all entertainment. Unless it hits too close to home.
Be honest, while one person close to you dieing is a tragedy,a million people that you don’t know and who live far away dieing or going broke is closer to entertainment than tragedy in our emotions. Admit it.
Shawn – your fortune cookie non-wisdom has become tedious and banal.
Here’s yet another Toonie to spend in Vancouver … now scram.
“The authorities have tried to avoid disaster. They’ve done a good job of it. That is, they’ve avoided small disasters. And they’ve laid the foundation for a big one. So, bring it on!”
This could be very entertaining.
Would you like a drug test with that?
the ships have failed to come in and it is time for the greeks to pay up, and return their pound of flesh to the imf’s scapel or die trying. The result will be violent convulsions as the heart of hellens is dissected from it, a mess for europe generaly, and another greek tegedy for the world to mull upon for sometime. Still Its good to see the hellens showing the way once again, even if it is down the gurgler.
There is certainly something to be said for the “Who cares if the bankers don’t get their bonuses or the speculators don’t get their pay off” approach….Iceland went that route a few years back and is certaintly looking a lot better than Greece right now.
They’ll manage to kick the can down the road a while longer. Eventually Mr Market the big bully will give them the beating they so richly deserve but it’s a ways off yet. I can’t wait until the US gets its comeuppance but unfortunately that will have to wait too.
“I can’t wait until the US gets its comeuppance”
you’ve heard of fratricide, right? familiar with the concept of blowback? secondary effects? wheat and tares?
The only thing I crave is comfortable shoes and a warm place to go to the bathroom.
If the EU bails out the banks in Greece who really benefits in the end? Our bailout here has created wealth for who? Oh yeah and so many jobs have been created too… yeah right.
Nero fiddled while Rome burned. He, and eventually Rome, came to a bad end. The corrupt DC Boyz have given away the sustenance of old America and still fiddle with musical chairs seeing who can keep their head in the trough long enough. More vote-eligible citizens take transfer payments from the Guv’ment than pay in. Don’t bet on Amerika any more. The ocean level is up over her steerage window lights, and she lists 16 degrees as her stern rises showing her motionless propellers, but how dear the music of the trio wafts over the upper deck and the band plays on. I am cold, nearly freezing.