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Palouser
Senior Advisor

Greece/Argentina

The EU will have some decisions to make soon. Greece will be out of cash after meeting its obligations to date. Running Greece out of cash and liquidity means failure if Greece inplodes after all. This was the choice Argentina faced and they decided to default immediately rather than bleed dry without financing. In short, they were going to bleed dry on their own terms. They've been dealing with the consequences ever since.

 

The question arises, when you get in deep and either way out (default vs being bled dry with no access to financing to improve the economy) why not default right off? Although the Greek economy is tiny (like Maryland class?) what does the EU get if it goes into default anyway?  What do the Greeks get in terms of believeing in a future?

 

Meanwhile the countries with cash flow go to QE and at least limp along.

 

I don't think this is a black swan by any means but it will dominate market news. Just curious what the EU will do?

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12 Replies
BA Deere
Honored Advisor

Re: Greece/Argentina

haven`t been following it, but Greece is small potatoes, they`re expendable.  It`s up to Germany if they want to bail them out, but Greece basically gave the EU the middle finger in moving hard left, electing a guy that says "we don`t have to pay on our stinking debts".

 

If Greece gets their own currency, who will accept it, it will be "Zimbabwe dollars". However if Greece gets away with it, that could be the first of a long line of other exponentially larger dominoes

 

Argentina has 40% inflation to wallpaper their mess, that will somehow be what happens here after we are worked over with this deflation.

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hardnox
Advisor

Re: Greece/Argentina

Thinking now is that that the risk has been offloaded from the northern banks and onto the ECB/IMF and thus a grexit is managable.

 

As you say, it was never a huge sum, the question was who was holding the paper and when it was systemically important financial institutions it was a big deal nevertheless.

 

I'd say it is lining up more like the trainwreck is still ongoing, just reduced to slow motion and new factors entering in.

 

First, the rest of the PIIGS are effectively on the hook for their proportion of a Greek default (even if it's bonded out with ECB QE) so all that happened is that the German taxpayer is still on the hook but there's some plausible denial for the politiicians- it has to go through bankrupting the rest of the paupers first.

 

Greece should have never been admitted but that aside, what occurred was that in order for Germany to run continuous primary surpluses, somebody had to run primary deficits. And in order for that to happen, Germany had to cosign the loans- so to speak- interest rates for all of Club Med were much lower than they would have otherwise been (and remain so).

 

So while most will naturally find right on the side of the those deemed mightier and more prudent, if I had a neighbor who was a very large and efficient farmer but had cosigned notes for the elevator and packinghouse that buy his stuff in order to get a wee better price, I don't think I'd find that wise. In fact if he was outbidding me on rent because of that advantage I'd probably feel little sympathy if the chain reaction got him.

 

Other thing entering in is the UK election, which greatly elevates the possibility of a Scottish secession and moderately increases the possibility of a Brexit.

 

Biggest challenges since their founding to NATO/EU. Probably not positive US ag in the intermediate term (1-5 years), hard telling short and long term.

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timetippingpt
Honored Advisor

Re: Greece/Argentina

Great information Palouse. The first to give up and start over will always have an advantage. Take Ireland as a recent example. Or Austrailia/New Zealand in ag policy.

 

Personally hope Greece collapses, exits, and gets its own currency, making it real cheap for me to take the wife on a Greek holiday.

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hardnox
Advisor

Re: Greece/Argentina

Ireland is probably a very poor example- they assumed the external debts incurred by the banksters who robbed them. A very modest recovery is held up as an example of the wonders of neoliberal economics but mostly they just did what Ireland has always done- enough people left for it to stabilize a bit.

 

Iceland is the interesting example- they did walk away from external debt incurred by banksters, are seriouslyly pursuing some prosecutions and are considering some revolutionary monetary reforms along the MMT (Modern Monetary Theory) lines.

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Palouser
Senior Advisor

Re: Greece/Argentina

Regardless of who they elected they HAVE been paying their obligations but now they are out of cash.

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BA Deere
Honored Advisor

Re: Greece/Argentina

As I understand Greece, there`s alot of tax fraud and the more that is known about the trouble they`re in there is still less incentive to "throw good money after bad"...starve the beast, if you will.

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Palouser
Senior Advisor

Re: Greece/Argentina

But, if the economy collapses from lack of liquidity - then what?

 

This is related to some of the weirdest thinking in terms of our own economic policies regarding markets. The dumbest, IMO, was the 'let it all slide into the abyss and it will come back sooner' - which worksw if 'coming back' means to the 'stone age' in terms of markets and social upheaval. Especially when the wealthy class will be even further in the saddle while the middle class hits the skids.

 

If the policy is turning your back on Greece then what is the ultimate purpose of international cooperation?

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BA Deere
Honored Advisor

Re: Greece/Argentina

Pal, to talk about this country, the trouble is there is nationally a increasing majority of active voters that have learnt to pick the taxpayer's pocket by means of the ballot box. The party and politician that promises the most, gets elected. There is no slowing that down once the ball is moving, more entitlements and a slow of the increase of spending is called a "spending cut".... under such circumstances the only way to heal is to actually run out of money so that no more promises can be made. Then perhaps decent statesmen with the best interest of the country can be elected.

*one caveat is once we run out of Christmas presents and Santa Claus, just so communism doesn't fill that vacuum.
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OKdon
Senior Contributor

Re: Greece/Argentina

Using your logic the election of 2014 which gave the republicans a majority in both the US House and senate, must mean the repubs offered people more stuff.

 

I think sometimes you ought to think before you post that balderdash!

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