What happens when greece defaults?

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bonniemousis's picture
bonniemousis
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What happens when greece defaults?

I just came back from Greece, very depressing seeing friends and family waiting from you to give them some kind of hope or good message from America! Most are lost and falling apart because they do not know how to protect themselves or thprotect the little savings they have in the Greek banks.
My question is if greece defaults and you have your savings invested with dollars on mining stocks with a Greek bank, or you have dollars instead of euros in the Greek bank do you lose everything? Will they be effected in the same way if you have invested in mining stocks with euros?
Should you withdraw your savings and buy gold and silver?
Should you sell your investments now?
If you have euros should you withdraw and have cash in your home?
What do you do if your country defaullts?

Trying to understand what is happening!!!

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The whole game is rigged

With central banks running almost every country on the map, we people have little to no power left.  What I did a year prior to the stock market crash was to get my money out of stocks and into cash.  That prevented me from losing 1/2 of my retirement like the rest of America did.  In the short term, gold and commodities will be the only things you will be able to make money on.  However, if they decide to confiscate gold like they did in the past, is gold really a good investment?  I also think they will have a bank holiday in 2012, where we won't be able to get out money out of banks.  All of this debt is causing the US dollar to collapse, and that is our biggest worry.  I am personally looking into out of country banks to put my money in..possibly Swiss.  At least I will be somewhat liquid when all of this comes crashing down. 

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jumblies
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bonniemousis wrote: Should
bonniemousis wrote:

Should you withdraw your savings and buy gold and silver?

My opinion would be that in the case of Greece, buying 1oz physical gold and silver coins that you hold in your hand (not in a bank deposit box etc) is the best bet. I would suggest also buying easily recognisable coins such as Krugerands and silver dollars. If any banks or the banking system itself closes/fails for any reason you will have protected yourself. Personally I would avoid the stock market entirely since it is part of the system. I would keep perhaps 2 weeks worth of cash in Euros. And stock up with food (eg. big bags of dry pasta), torches and batteries too because when Greece defaults it is entirely likely that there will be a panic and shops emptied. And if you have a car fill up a couple of those emergency petrol cannisters and keep them in your house (not in the car in case some comedien siphons/loots your tank).

In the interests of time I would go and do the above now whilst taking time to absorb the info here.

Incidentally, on the subject of gold confiscation I would keep a good amount of silver too. And when someone asks for my gold I'd say I don't have any. Because if you do have any gold and silver you didn't tell anyone you have it, right? You kept it and its location a secret, right?

 

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As for a Greek failure on a

As for a Greek failure on a larger sense, it could start a cascade of bank failures around Europe and possibly other places.  The European Central Bank has a fund for this very reason.  The problem is, as Chis often says, "Complex systems are hard to predict."  Many of Europe's banks are in bad shape and if the people get spooked from a Greek collapse, they may start moving large amounts of money out of Europe's banking system.  In this case the problem would be too hard to contain, and America is intertwined in the European system and would suffer, too.  That has always been my opinion that the collapse of the whole system will start in Europe and spread to here.

I don't know whether it was on here or somewhere else that i read you can't even find a safe deposit box in Germany because they are all full of PMs.  The situation bears watching closely.

Ernest

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from the John Mauldin newsletter...

The Consequences of Austerity

The markets are pricing in an almost 100% certainty of a Greek default (OK, actually 91%), and the rumors in trading circles of a default this weekend by Greece are rampant. Bloomberg (and everyone else) reported that Germany is making contingency plans for the default. Of course, Greece has issued three denials today that I can count. I am reminded of that splendid quote from the British ’80s sitcom, Yes, Prime Minister: “Never believe anything until it’s been officially denied.”

Germany is assuming a 50% loss for their banks and insurance companies. Sean Egan (head of very reliable bond-analyst firm Egan-Jones) thinks the ultimate haircut will be closer to 90%. And that is just for Greece. More on the contagion factor below.

“The existence of a ‘Plan B’ underscores German concerns that Greece’s failure to stick to budget-cutting targets threatens European efforts to tame the debt crisis rattling the euro. German lawmakers stepped up their criticism of Greece this week, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country’s progress.

“ ‘Greece is “on a knife’s edge,”’ German Finance Minister Wolfgang Schaeuble told lawmakers at a closed-door meeting in Berlin on Sept. 7, a report in parliament’s bulletin showed yesterday. If the government can’t meet the aid terms, ‘it’s up to Greece to figure out how to get financing without the euro zone’s help,’ he later said in a speech to parliament.

“Schaeuble travelled to a meeting of central bankers and finance ministers from the Group of Seven nations in Marseille, France, today as they face calls to boost growth amid increasing threats from Europe’s debt crisis and a slowing global recovery.” (Bloomberg: see http://www.bloomberg.com/news/2011-09-09/germany-said-to-prepare-plan-to-aid-country-s-banks-should-greece-default.html)

(There is an over/under betting pool in Europe on whether Schaeuble remains as Finance Minister much longer after this weekend’s G-7 meeting, given his clear disagreement with Merkel. I think I take the under. Merkel is tough. Or maybe he decides to play nice. His press doesn’t make him sound like that type, though. They are playing high-level hardball in Germany.)

Anyone reading my letter for the last three years cannot be surprised that Greece will default. It is elementary school arithmetic. The Greek debt-to-GDP is currently at 140%. It will be close to 180% by year’s end (assuming someone gives them the money). The deficit is north of 15%. They simply cannot afford to make the interest payments. True market (not Eurozone-subsidized) interest rates on Greek short-term debt are close to 100%, as I read the press. Their long-term debt simply cannot be refinanced without Eurozone bailouts.

Was anyone surprised that the Greeks announced a state fiscal deficit of €15.5 billion for the first six months of 2011, vs. €12.5 billion during the same period last year? What else would you expect from increased austerity? If you reduce GDP by as much as Greece attempted to do, OF COURSE you get less GDP and thus lower tax revenues. You can’t do it at 5% a year, as I have pointed out time and time again. These are the consequences of allowing debt to get too high. It is the Endgame.

[Quick sidebar: If (when) the US goes into recession, have you thought about what the result will be? A recession of course means lower GDP, which will mean higher unemployment. That will increase costs due to increased unemployment and other government aid, and of course lower revenues as tax receipts (revenues) go down. Given the projections and path we are currently on, that means even higher deficits than we have now. If Obama has his plan enacted, and if we go into a recession, we will see record-level deficits. Certainly over $1.5 trillion, and depending on the level of the recession, we could scare $2 trillion. Think the Tea Party will like that? Governments have less control than they think over these things. Ask Greece or any other country in a debt crisis how well they predicted their budgets.]

The Greeks were off by over 25%. And they are being asked to further cut their deficit by 4% or so every year for the next 3-4 years. That guarantees a full-blown depression. And it also means lower revenues and higher deficits, even at the reduced budget levels, which means they get further away from their goal, no matter how fast they run. They are now in a debt death spiral. There is no way out, short of Europe simply bailing them out for nothing, which is not likely.

Europe is going to deal with this Greek crisis. The problem is that this is the beginning of a string of crises and not the end. They do not appear, at least in public, to want to deal with the systemic problem of too much debt in all the peripheral countries.

Without ECB support, the interest rates that Italy and Spain would be paying would not be sustainable. I can see a path for Italy (not a pretty one, but a path nonetheless) but Spain is more difficult, given the weakness of its banks and massive private debt. These are economies that matter.

How do they get out of this without a debt crisis on the scale of 2008? By coming to grips with the problem. Germany is apparently doing that this weekend, by preparing to use the money it was going to pour into Greece to shore up its own banks. That is a much better plan. But as a well-researched report (by Stephane Deo, Paul Donovan, and Larry Hathaway in the London office – kudos, guys!) from UBS shows, solving the problem will be very costly. The next few paragraphs are from their introduction.

bonniemousis's picture
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Thank you all for your responses!

Trying to help friends and family in Greece prepare.

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bonniemousis, Good luck with

bonniemousis, Good luck with helping them.  I have visited there and found it to be a wonderful country.  Perhaps they will come out on the long end of the stick.  They seem to know how to live a low impact (non-growth and low oil) life.  It's one place I would like to be when the present system collapses.  I know it will be hard for them for a while with the "modern" world with its' fingers still in it, but once that is over they will be better off than here.  They should just go ahead and default on ALL their soverign loans, hold their heads high, and rebuild.  I may sail there when it is too expensive to fly.  Best of luck, Ernest

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If I lived in Greece I would

If I lived in Greece I would pull everything out of Greek banks.  My money would be in Gold, Silver, foreign banks, and in cash.  As for the cash part I would want German or French Euro notes and US or Canadian dollars.   Having cash is a must because when Greece defaults the banks/ATMs might be closed for some time.

Check the serial number to see what country the note is from = http://en.wikipedia.org/wiki/Euro_notes

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Excellent advice
NY28 wrote:

If I lived in Greece I would pull everything out of Greek banks.  My money would be in Gold, Silver, foreign banks, and in cash.  As for the cash part I would want German or French Euro notes and US or Canadian dollars.   Having cash is a must because when Greece defaults the banks/ATMs might be closed for some time.

Check the serial number to see what country the note is from = http://en.wikipedia.org/wiki/Euro_notes

NY28's advice is excellent.  I would avoid the foreign banks though, even the Swiss.  This crisis has the potential to take down many of them, and freeze the system in the process.  I'd get out of the banking system entirely if I was in Greece, and maybe anywhere in Europe.  I was not aware of the serial number showing the country of origin.  That is very interesting.

Travlin 

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Absolutely, do not be in

Absolutely, do not be in European Banks.  There is no  way to know how many bad assets are on their books.  When the new head of the IMF suggested that their be a stress test of the banks and raise more capitol, she was over-ruled by staffers, and the capitol requirements were lowered.

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Two Articles - Not From ZeroHedge

For anyone living in Greece right now, here's what I'd have been doing: converting my euros into dollars and physical gold (both are a little risky, but not as risky as being in Greek-issued euros). At least a year ago, I'd have already moved in with relatives to save on rent or mortgage if I couldn't find a job out of the country.

Here are two articles that I think are insightful: One about what may happen. The other about looking at potential value investments.

The Euro Debt Crisis Has Engulfed Europe’s Banks As Bank Regulators Dreamed Delay Was A Solution
"At some point Greece will default. It’s just my hope that EuroZone leaders will use any time they’ve gained by this latest delay to more useful ends than they accomplished during the last delay. Hope. But I doubt it. If we get a relief rally in developed markets in October, enjoy it. But raise cash. Look for bargains in safe havens such as gold and high dividend stocks. Wait for the next move down to put money to work again. I think there’s one more big disappointment after a rally that doesn’t hold required to wash out the market. If we get a rally, don’t think it marks the end of this crisis."
http://jubakpicks.com/2011/09/13/the-euro-debt-crisis-has-engulfed-europ...

Could Greek Stocks Rebound Like Argentina In 2002?
"With most expecting Greece to default on its debt in the next few weeks, value investors are already anticipating whether any stock bargains will be emanate from the eventual re-structuring. After Russia defaulted in 1998 and Argentina defaulted in 2001, both countries had bargain stocks that value investors scooped up for pennies on the dollar. First, I went back and researched some blue chip Argentine stocks that were absolutely crushed after the Argentine government defaulted. For example, Telcom Argentina (TEO) went from $45 to $0.65 in 2002. However, the price quickly rebounded to over $10 a share after Argentina defaulted."
http://www.gurufocus.com/news/145195/could-greek-stocks-rebound-like-arg...

Poet

 

 

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Default

I am not sure what all the implications of the Greek default are.  The few things I do know are:

1) It probably will not be a complete default.  I have read about proposals to restructure their debt where some debt holders will get a haircut of up to 50%.

2) The US Fed Res and/or the ECB will move in and bailout big banks that would fail as a result.  French and Germany big banks will be bailed out.

3) The CDSs do not amount to a huge amount and whoever holds them will probably get paid and whoever has to pay (i.e. AIG) will get bailed out by the US Fed Res and/or the ECB.

4) A lot of planning is going on behind the scenes to make sure the super rich and others like corporate executives that might be exposed will not get much of a haircut if any.

5) The little guy will get a raw deal.

6) The Greeks will be better off in the long run if they default.

Greece is pretty easy because they are little.  The problem will be how to keep the other countries from doing the same thing.  The one to watch is Italy.

dws

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Greek Debt for Dummies....

What the Greek Debt is REALLY ABOUT...

Long into the European night, the talks to save Greece continue. In today's Daily Reckoning, we'll do something we can barely stand to do: we're going to write one more time about Greece. If you can stand to read it, you may come to the same conclusion we reached.

That conclusion is simple: what's going on in Europe has nothing to do with solving the Greek debt crisis and everything to do with preserving a corrupt system based on limitless debt and growing government power. The sooner you understand that the sooner you'll be able to prepare for what happens next. There are two options for what happens next, and we'll get to those shortly.

First, though, doesn't it strike you as strange that all of Europe can be brought to its knees by tiny little Greece? Greek GDP is just 2.4% of Europe's GDP. In economic terms, Greece doesn't matter. Its lack of growth or economic competitiveness shouldn't be factors that can destroy Europe's 13-year single currency experiment.

Yet Greece obviously does matter, or else markets wouldn't be anxiously waiting for tonight's announcement of a second bailout totalling €130 billion. The correct question, then, is why does Greece still matter? If you rule out the obvious things that don't matter, that leaves everything else. Or as Sherlock Holmes was fond of saying, "when you have eliminated the impossible, whatever remains, however improbable, must be the truth."

First, let's see why the possible explanations for Greece's importance to the world are actually impossible. Take the issue of debt reduction. As we wrote last week, the deal before Europe would reduce Greek debt to 120% of GDP by 2020. The IMF says that level is sustainable.

Back in a universe where common sense prevails, you can see that the plan is a joke, at least in terms of debt reduction. A plan to reduce Greek's debt to 120% of GDP...EIGHT YEARS FROM NOW...is not a serious plan about debt. Therefore the plan cannot be about debt reduction.

Will the plan make Greece more competitive in the long run? Well, probably not. In order to get more money by March 20th, the Greek Parliament had to agree to certain structural reforms. Some of those reforms might even be a good idea. But cutting the minimum wage isn't going to be popular. And with Greek GDP shrinking by 7% in the fourth quarter, years of austerity won't make Greece more competitive. The lifestyle of the Greeks will be destroyed and the debt will remain. Therefore the plan cannot be about making Greece more competitive.

Does saving Greece save the euro? Not at all. The euro would be better off without Greece and Greece would be better off without the euro. The Germans are even planning for a euro that doesn't include Greece. With its own currency, Greece could default, devalue, inflate and start over. Argentina did it in the last 10 years. It's not rocket science. Saving Greece is not about saving the euro.

If saving Greece is not about saving the euro, and if it's not about reducing Greek debt, and if it's not about making Greece a more competitive economy...then just what IS it about? Well, now that we've rule out what's impossible, let's look at what's left.

Saving Greece means preventing a technical default. But why is that so important to the European Central Bank (ECB) and the International Monetary Fund (IMF)? The current plan certainly looks like a default. Under the plan, €100 billion worth of Greek debt would disappear thanks to a debt swap agreement with private sector investors. The ECB has twisted enough arms to get creditors to accept a 70% haircut on their current Greek debt without actually calling it a default.

The final details of the agreement between private sector investors and the EU were supposed to be released before today's meeting. But they haven't been yet. This is one of those glitches that could still derail the whole agreement. For example, creditors could take legal action for being forced to accept losses without recourse to credit default insurance purchased in the event of a default.

It gets kind of wonky here. But really, it's about who is making the rules in Europe and whether a name actually means anything. To you and me and everyone else in the universe where common sense prevails, a non-voluntary 70% loss on your government bonds is a default. If you loaned someone $1,000 and they paid you back $300 and asked you to be grateful, you probably wouldn't be.

But you and I don't get to decide what constitutes a credit default. That honour belongs to the International Swaps Derivatives Association (ISDA). The important thing to keep in mind here is that the ISDA is a trade group made up of banks and financial firms. Those are the firms that have the most to lose if Greek bonds default. It's in the interest of the members of the ISDA that a non-voluntary credit event in Greece NOT be called a default.

It gets even murkier here. The ISDA essentially represents the global banking system. In Europe, the banking system is full of government bonds. Those bonds are nominally assets. If Greece defaults, it sets a precedent for how other countries might deal with unsustainable debt levels. This imperils the collateral of Europe's entire banking system.

If you want to put it in simpler terms, let's say that Europe's banking system is full of rotting meat. Some investors bought that meat thinking they were going to get prime rib. But they can smell the stink of the meat from a mile away. They want to be compensated for the bad meat. The ISDA, which owns the freezer in which the meat went bad, says, "Well, we've decided the meat isn't bad after all. And you have less of it than you thought anyway, as of now."

This is a crude analogy. But you can see the basic problem: everyone else knows that if Greece defaults, the value of other government bonds in Spain and Italy and Portugal will plummet too. A Greek default wouldn't be important because of the size of the default (although French and German banks would stand to lose a fair bit). It would be important because it would begin the process of blowing up bank balance sheets all over Europe.

When you realise that the ISDA and the ECB and the EU are in league to save their financial skins, you realise that the Greek rescue plans is about preventing other countries from realising that default is an option. In fact, it's not even about preventing the realisation. It's about making it impossible for a country to default on its obligations...even if it means selling the population into servitude for years to come.

If the centralised European Welfare State model is to survive, banks must not take losses on their government bond holdings. Individual and private investors, on the other hand, will be forced to take losses through a "collective action clause". This clause allows your securities to be revalued without your consent if a majority of other bondholders agree to it.

Now we're coming to the real nuts and bolts of what's at stake. The technocrats in Europe are at war with private investors. The members of the ISDA are in league with the technocrats to preserve their system. That part is easy to understand.

The technocrats are employed by government and get to spend your money. This system is good for them. It's good for the members of the ISDA too. Loaning money to the government is good business. Collecting rent off the expansion of credit is easy money. They want the system to last as well.

Who is the system not good for? Everybody else who's on the outside looking in. Investors who want their capital to be productive are out of luck. And taxpayers who question the value of austerity measures and debt reduction plans that don't really reduce debt are also out of luck. No wonder they are angry.

We've come a long way, then. Greece isn't about saving Greece. The only reason something so small and insignificant can matter so much is that it matters in a way no one is willing to say. It's about the subversion of sovereignty and democratic processes by removing decisions from people and giving them to trans-national financial elites. It's about preserving a global system that's based on the accumulation of debt and growing government power because there are two groups of people who benefit tremendously from that system, even if most people don't.

Maybe we're reading too much into what's going on in Europe. It could be all about vanity. Europe's policy makers believe they can move Heaven and Earth and make even the most unworkable economic model work. They refuse to chuck their theory aside in the face of reality. They've spit the dummy.

Or maybe this really is a struggle over the power and influence of the financial sector and the government in our lives. Hmm. What do you reckon? Who's going to win? Send us your thoughts to [email protected]

Regards,

Dan Denning
for The Daily Reckoning Australia

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Spencer P.
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homestead's picture
homestead
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video on Greek debt crisis

 Hi Spencer P and welcome!   That link you provided to the video cartoon is just like you characterized it, funny and sad.  Thanks for pointing us to it.  

 Hope you find more things to share.  It's nice to have you here.

Best wishes,  Gma

 

 

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Damnthematrix
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the bank run

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