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SOVEREIGN MAN

A fight broke out for my dinner tab in Greece

July 13, 2011
Thessaloniki, Greece

I went to dinner last night in an upmarket area of Thessaloniki. It wasn’t a touristy part of town at all, nearly everyone there was local.

As we walked down a narrow cobblestone path flanked by traditional Greek restaurants, all the various hostesses and proprietors ran out to greet us and pitch their menus.

“We have the freshest seafood!”

“We have the cheapest prices!”

“We offer free drinks and dessert!”

Within seconds, outright calamity ensued with each thrusting menus in our faces, pulling at our shirtsleeves, and shouting over the competition. Then a shoving match… and then finally an all out physical altercation, literally coming to blows over what amounted to a $20 dinner tab.

Now, aggressive behavior is common in this part of the world; it gets even worse in Turkey and North Africa. But there is an element of desperation that I have not yet seen before here. Given the graveyard of former restaurants gone bust nearby, it’s clear that last night’s owners are trying to stay afloat at any cost.

Later in the evening, I dropped by the city’s ancient agora ruins. Inside I could see a number of stray dogs marking their territory as they saw fit, and it was the perfect metaphor.  This place has literally gone to the dogs.

Coincidentally, the Greek government held a ‘successful’ bond auction yesterday, unloading 1.6 billion euros of six-month bills.  This sounds like a lot of money until you figure that it just barely covers this month’s interest payments on the roughly 340 billion euro debt that they already owe.

Just last month alone, the Greek budget deficit was 2.2 billion euros. Greece must continue indebting itself not only to make interest payments, but simply to keep the lights on. Meanwhile, the principal balance owed keeps rising while tax revenues are falling… making the situation perpetually worse.

Bailouts can’t fix this problem. Think about it like this: say your best friend is swimming in debt, paying $5,000 per month in interest. His best job prospect is $1,000 per month, so he’s in the hole $4,000 per month and rising.

If he receives a new $10,000 line of credit, would this fix his problems? Not at all. He’d be staring at bankruptcy again within 3-months.

Living bailout to bailout while going deeper into debt is simply an unsustainable Ponzi scheme. And given the Greek government’s current cash position and bond auction calendar, the next do-or-die bailout should come to a head this summer.

Europe will have to make a decision: (a) continue financing Greek largess and hope that taxpayers don’t care or notice; (b) take cover and allow the Greek government to default; or (c) an ‘orderly restructuring’ that combines loan workouts,  haircuts for bondholders, and strings-attached cash injections from the ECB and IMF.

The most likely is the third option, but no matter how you dress it up, it’s still a default.

We’ve seen this play out once before in Dubai. The emirate underwent a steep restructuring period on roughly 50% of its $59 billion debt load in late 2009 and 2010, and it caused a deep recession and losses in the local market. Two big differences, though.

First, Dubai had a wealthy big brother in Abu Dhabi. Europe has angry German taxpayers.

Second, Dubai was isolated. Europe has a number of insolvent countries whose collective debts far exceed the capacity for any bailout.

If the market is allowed to function, the consequent derivatives chain reaction from default will cause a wave of bankruptcies among a number of large financial institutions, triggering even more government intervention (read: taxpayer bailouts) and a deflationary sell-off in financial markets.

Barring a miraculous, no-strings-attached emergency bailout, I think we can expect the opening salvos within the next few months.

So why should you care if you’re not Greek? Because the ensuing capital controls, raids on public and private pensions, and social chaos met with overwhelming police brutality will be a preview of things to come when the rest of Europe and the United States arrive at their financial reckoning days.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • http://twitter.com/AlvinSan Alvin-San

    Hi Simon. Thank you for the fantastic info & heads-up you consistently bless your subscribers with. Since time is short; I have one, direct question(s): WHO is Greece and all the other countries you mention here (and many you have not) indebted TO?

    .. and WHY?

    Meantime: http://www.rexresearch.com/articles/ocultech.htm#1
    (my sharing this link in no way indicates that I “believe” all of what is offered therein; shared in the spirit of “FYI”.)

    Thank You.  :>

  • http://www.facebook.com/people/Mike-Nicholson/1461673958 Mike Nicholson

    But what will happen when these fears grip other countries?

  • http://www.facebook.com/people/Mike-Nicholson/1461673958 Mike Nicholson

    Having worked in Greece, If you are going East visit a small town Paranesti there is a beautiful river there and two large Hydroelectric dams built with EU funds. Or the Shipping port of Kavala on the way there there are ruins of Philippi in Macedonia. Not that I am of  greek heritage, but they are all very worried about the future.

  • Nelson

    Alvin, these national governments are indebted to their own populous–by way of entitlement programs such as pensions, healthcare, and welfare–foreign investors, foreign governments, foreign financial institutions, and even, at times, their own municipal governments.

    When no one under 20 and no one over 50 works, and you promise those people full-fledged social benefits while also promising foreign investors, financial institutions, and governments juicy returns on the investment necessary just to keep those aforementioned promises afloat, you eventually end up owing damn near everyone…

    And those between 20 and 50 can’t possibly cough up enough tax “revenues” to offset the madness.

    Thus, at some point, you must default on all that debt.

    • http://twitter.com/msosnowski Marc J. Sosnowski

      Or we may opt to forgive the debt.

  • http://www.plinky.com/people/five23 ice nine

    ability is a most portable currency that never erodes and cannot be legislated out of existence, except from one’s own negligence

    in that sense, i prefer to invest in myself than in any stock, bond, or commodity — because i intend to outpace them all

  • friend

    I would like to see more pictures in posts, expectantly if you mention it in text (e.g. thous dogs in agora ruins).

    If you come to Split, drop an email to me I would like to meet you.

    • amerikanka

      friend, this story reminded me very much of Split and the islands – especially the mention of freshest seafood, since the Adriatic is perhaps the one part of the Mediterranean that at this point still has fish and shellfish. My friends on the Greek islands often complain there’s no fish left!   

  • Frank

    Which is more efficient in the long run:  Central Economic Planning (CEP) or the Free Market (FM) that involve risk, supply & demand?  In the short run, it might appear to be CEP.  But there are always bad unexpected consequences with CEP that tend to fester despite the best efforts to “paper over” the problems.  Better to allow the FM to undergo a normal sharp correction & put back into balance risk, supply & demand than to allow the problems to continue & the inequalities in these areas build up.  Unfortunately, Central Bankers & misguided (or corrupt) politicians are good at shielding themselves from risk and fooling the people & the government into thinking everything is all right & under control.

  • http://www.michaellockyear.com michael lockyear

    Surely they should just default and be done with it.  What is the worst that could happen…no further debt? 

  • http://www.facebook.com/sharakat Taj Khan Kalash

    I walk pass the the ancient agora every night…I didn’t see any dogs in the ruins.

  • http://twitter.com/msosnowski Marc J. Sosnowski

    It is time to resort to the ancient concept of the Year of Jubilee.  Is there any other way out of the economic tail spin? 

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