Saturday, 21 February 2015

Another Greek Panic Recedes Once More

Yet another Greek Crisis has been averted, another kicking of the proverbial can. Syriza has seemingly sold out its election pledges to keep the status quo intact. Should it be a surprise? What were the options?

Greece's largest creditors are members of the EU and the European Central Bank. Greece is broke. They have two options, to stick or to twist. Stick involves keeping on the side of their EU creditors. The twist option would be one of even more potential disaster. One only has to look at Venezuela for what happens when a country goes broke. Empty Shelves, rampant inflation, crime waves, brain drain emigration and no foreign investment. Greece could have decided to break from the EU but this would have involved the whole countries banking system becoming insolvent. Capital would be wiring instantly out of the country. A National currency would have been established to replace the Euro. Only the Government is broke. No foreign capital would come forth and with little genuine domestic capital would have resulted in the inevitable currency devaluation accompanied with crippling inflation. Syriza, now in power, realise this reality. They had to get a deal.

The real question how many crisis will we get? France, Belguim, Spain, Italy - you could name any of the EU countries, they all have terrible fundamentals. There will be other issues elsewhere, but all will be papered over, kick that can - thats what I can be sure will happen. How long can that "can" be kicked for? As I've said until the centralised central policy makers - IMF, Central Banks, Governments - can't fix the problem. In other words events go beyond their control. Currently they have the illusion of control. But in time they won't. We are in the midst of a super bubble, the bond bubble. I knew it would go bad but I didn't think it be this bad. 

It may sound like a doom rant but it was the same back in 2006 when I said similar (housing, Government Deficits etc). People not only didn't want to know, they think you to be some sort of loon. Then 2008/09 hit with everything going into a tailspin. Its going to be the same once more, only this time worse. I still believe we have some years to go. Interest Rates will go lower. Stocks will go higher. All this will fool everyone to believe all is well. But don't be fooled. The bond bubble will burst with catastrophic consequences. Currencies will be decimated. Chaos will ensue in financial markets once more, worse than in 2008/09. Governments and Central Banks will be helpless. It will be an economic event that we will all remember and tell our Children and Grandchildren about. 

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