Friday, June 15, 2012

Someone Is Lying: How Can Greece Bring Down The Global Economy?

It was noteworthy that George Soros, the world's most successful currency speculator, was revealed this week to have tripled his position in gold in the first quarter of this year. That he is a man who knows his currencies is without question. That he chooses gold speaks volumes.   - David Galland, Casey Research
I'm confused.  I'm not really sure why the world should be in fear of a Greek systemic collapse and exit from the EU/euro LINK .  So, while most of the world's hoi polloi chooses to accept news that is fed to them like hungry ducklings with their beaks open waiting to be fed by momma duck (the elitists), I prefer to look under the "hood" of a proposition that, prima facie, seems absurd.  Furthermore, unless I'm missing something, the world is being willingly fed a gigantic lie by the elitists.

The proposition is that if the Syriza party wins Sunday's elections, the Greek austerity programs required for and EU bailout of Greece would be abandoned, Greece would exit the EU and reinstate the drachma as its currency.  The sum of these events would cause global systemic chaos.

Let's examince the situation.  According to wikipedia, Greece is the 32nd largest economy in the world based on GDP and the 37th largest based on purchasing power.  Seems somewhat insignificant so far.  Greece's nominal GDP is $312 billion.  As a percent of total EU economic output - $12.6 trillion in 2011 - Greece represents a miniscule 2.4%.  As a percent of total EU+US economic output, Greece represents 1%.  80% of Greece's economy is service based, the rest is agriculture, fishing and industry.  Greek sovereign debt is around $450 billion.  The U.S. stated Treasury debt outstanding is close to $16 trillion.  The U.S. Government issues an additional $450 billion in debt every 3 1/2 months.

Now I'm even more confused.  How could the collapse of such a seemingly economically insignifant country in comparison to the rest of the world cause global systemic/financial turmoil?  Before you read on, please see this report regarding Greek derivatives:  LINK

The Truth of the matter is that the situation with Greece is being used as the cover-job to mask the truth about the catastrophic derivatives exposure of the world's biggest banks.  I demonstrated a couple days ago how looking at just Greece in isolation could lead to tens of billions in losses for the biggest banks - primarily JP Morgan - if Greece leaves the EU and reinstates the drachma as its currency.

The fact of the matter is that if proper OTC derivatives regulations and oversight had been in place - more importantly, properly enforced - then the situation in Greece would barely be newsworthy.  Zimbabwe went through a financial/monetary collapse a few years ago which culminated in a "do-over" for its curency and most people in the world probably never even heard of Zimbabwe or could tell you where it is.  What's the difference between Greece and Zimbabwe?   Off-balance-sheet OTC derivatives.

Once again - just like the 2008 bailout of the U.S. Too Big To Fail Banks - we are being fed a gigantic lie by the political and banking elitists.  The global financial system is in extreme peril because of the catastrophic loss-exposure embedded in the near-quadrillion OTC derivatives positions of the world's biggest banks, which are primarily U.S.-based.  JP Morgan, Citibank, Goldman Sachs, Morgan Stanley, Bank of America,  Deutche Bank, HSBC, Credit Suisse, Barclays and Society Generale.  Those are your culprits - not Greece.

And the Greek situation - just like the Lehman collapse provided a cover-story for the massive mult-trillion dollar bailout of Wall Street's finest in 2008 - is nothing more than an insidious cover-story to enable the Fed/ECB/BOE to print up and inject several more trillion in paper fiat currency in order to bail  out the big banks listed above out of their catastrophic insolvency, rendered largely by moral hazard-enabled investment failures made worse by the layering of 10's of trillions in derivatives over the bad investments.

That's the bottom line and that's the Truth that you will never hear about from any politician or any mainstream media source. And here's what the non-western Central Banks are doing about the political/financial disaster over which they have no control:  LINK  You'll note that since 2008, the BRIC Central Banks and other peripheral Asian/South American countries have become big net buyers of physical gold (not GLD and not CEF/GTU).  The charts in that article do not include China.  China not only does not allow the export of the 300+ tonnes of gold internally mined, it is now the world's largest importer of physical gold bullion.  In other words, China is aggressively and voraciously accumulating physical gold.

I think the message in that link and the message conveyed by China's actions pretty much tells us all we need to know about the future of the U.S. dollar as the world's reserve currency and the future direction of the price of gold.  As the article mentions, gold represents less than 15% of the listed countries' Central Banking reserves.  What it does not mention is that one way to make that number a lot larger is for the price of gold to rise substantially in price.  Please note that in 1933 the U.S. - with its currency backed by gold - revalued the price of gold by 75% from $20/oz to $35/oz for the specific purpose of instantaneously increasing value of its gold reserves and increasing the ratio of gold as percentage of its total reserves.

I would suggest that eventually we will see a globally coordinated event (which may or may not include the U.S.) that will accomplish the same purpose as was undertaken by FDR in 1933, but on a much larger scale.   Please take another look at the opening quote to put my comment in proper context.  Have a great weekend everyone.


  1. You nailed it. "The Truth of the matter is that the situation with Greece is being used as the cover-job to mask the truth about the catastrophic derivatives exposure of the world's biggest banks." So instead of flushing the toilet on these bad debts more and more fiat currency is printed. For me, I'm stacking gold, silver, international land purchases. In spite of all their manipulations you can't pile debt on top of debt without a day of reckoning. I can't wait for a nation to start a gold backed currency. Of course that might spark a call for the blue helmets and drone missiles. When this thing blows it's going to be earth shattering for those drones that believed in government salvation.

  2. Did Soros buy physical? Or ETFs? Hmm, would it make a difference in a global devaluation vs. gold scenario.

  3. Well, my best guess is that he's using GLD to "index" the performance of gold in his funds, although he owns enough shares to enable him to exchange his GLD shares for gold in the ETF.

    As I blogged a while ago, my bet would be that Soros personally has accumulated a large amount of physical that he safekeeps in Lichtenstein. Lichtenstein being the "new" Switzerland for the very wealthly.

  4. "What's the difference between Greece and Zimbabwe? Off-balance-sheet OTC derivatives"

    I'm afraid you're missing the point.

    The main point with Greece is that it has ramifications for what could happen with Spain and Italy. Italy has one of the largest dollar value national debts in the world, I believe they're in or close to the top 5 in the world at $2T behind the US, Japan, and India. And Spain is $800B.

    If shit hits the fan in an un-orderly conversion to the Drachma the Euro unravels because you now have to start discounting deposits in Spain and Italy. So a Euro in a Spanish bank will no longer be worth the same as one in
    German bank. Not to mention as soon as people get wind of capital controls in Greece there will be a massive outflow of deposits from other EZ countries. I'm sure you also understand how credit markets work. What do think happens to spanish and italian yields? The feedback loop will be unstoppable.

    If you want to also add in your tin foil hat conspiracy (i don't disagree that banks will lose $. everyone knows US banks have Euro exposure. I disagree with the conspiracy part) then yes it will make the situation in credit markets much worse.

  5. Not really. You missed the point about derivatives. If Italy's $2 billion in sovereign debt was devalued by Italy leaving the euro, it's a fraction of the derivatives liability the big banks have to just Greece per my post earlier in the week. Now throw in derivatives exposure to Italy and Spain and you have an unsolvable problem without more printing.

    It's about derivatives and saving the big banks' skin. It's not a conspiracy. Are dense? My blog and many others have catalogued the derivatives exposure of the big banks per the BIS/OCC quarterlies.

    Your attempt at an insult reflects poorly on you and your diminutive analysis

    1. And actually Greece should be allowed to collapse, along with the rest of Europe and the U.S. At least then we might get to see the "reset" button pressed and a real reconstruction/recovery in our lifetime

  6. Never said they shouldn't be allowed to collapse. I agree with you. But you're still wrong.

    "I demonstrated a couple days ago how looking at just Greece in isolation could lead to tens of billions in losses for the biggest banks"

    Italy's debt is $2 Trillion with a T. CDS losses in the 10's of billions is childs play if Spain or Italian yields blow out after Greece can't get their shit together. Of course CB's are scrambling to save banks though. That's not a revelation. Why do you think the ECB gave away hundreds of billions in 3yr LTRO $ in the last 6 months? Why do you think Spain bailed out Bankia? The collapse of the country and the collapse of the banks go hand in hand but there's no conspiracy theory here.

    Governments are saddled with debt they cant pay back, if they just flush the creditors(banks and others) the losses on the debt(and CDS) causes credit markets to seize and the Euro will be history. It's not much more complicated than that. There's no conspiracy. The US economy is in the crapper as well, that alone is good enough to get the Fed to extend QE3. They don't need a Euro collapse to get that done.

    1. No one ever said it was a conspiracy other than you. The bailout money is going from the Central Banks to the Governments back to the banks. There's no reason to bail out the banks. Let them collapse. Let the Governments collapse. Let the euro collapse.

      We need the have the "reset" button pushed in Europe and here. Otherwise this will get worse by the day and instead of horrible financial chaos for a while if the "reset" button gets pushed now, we're going to end up with "The Road." All bailout money does is bail out the banks, who continue underwriting even more derivatives and the executives pay themselves 10's of millions with our money.

    2. Furthermore, the point of my commentary today is that there is no reason that a collapse of Greece should cause global systemic chaos just like Zimbabwe's collapse did not cause problems. The problems caused are the big bank problems. Let them fail.

  7. I wear my tin foil hat daily to keep my gray matter pristine and to keep the bullshit out...I know where Zimbabwe is but Lichtenstein ??? lol
    When the smoke clears there wont be any gold left west of Moscow to revalue any new currencies against and any stashed away will be fair game...If only bullshit was worth something..

  8. Did I get it wrong I thought that the ISDA Committee had called a default on Greece CDS's sometime ago. The CDS had to be paid out and everyone was complaining because the ISDA Committee had fixed the value of the bonds during the "bailout" swap or was this just for the English law agreements? The CDS's don't payout twice and I thought that the holders were complaining that they hardly paid out at all.

  9. "(which may or may not include the U.S.)" this is a very bold statement and gives me pause. Despite a declining economic engine, the U.S. still commands a very strong military. One wonders how it might be used if not invited to the gold re-valuation party.

    1. Read "The Road" by Cormac McCarthy. It's a great piece of literature and potentially prophetic.

  10. Sovereign Risk Tied To Banking Sectors, Egan-Jones’ Egan Says