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Greek voters could set off the chain reaction today (update 2)

Update: June 22, 2011
Well, there goes any hope for realism. Papandreou narrowly survived the vote in Parliament, suggesting that lawmakers either ignored or didn’t hear from Greek voters on whether or not to oust the key leaders. Another shining example of democracy in action, ironically in its birthplace.

Would the result have been the same if the votes had come directly from the people?

June 21, 2011
Oxford, England

One of the reasons I love southern England in the summer time is because the days are so long. At 5:16pm British time (12:16pm Eastern) today, the earth will reach its maximal inclination toward the sun, marking the day of the year with the longest period of daylight in the northern hemisphere.

(conversely, this is the day of the year with the least amount of daylight in the southern hemisphere…)

All over the world, and especially in Europe, today is celebrated with holidays, parades, and festivals to commemorate the earth’s renewal to a season that brings  warmth, light, and growth.

It is no small irony that the ill fated Greek government is facing a vote of [no] confidence today, potentially representing a renewal itself. The vote is essentially a referendum on Prime Minister George Panandreou’s plans to implement severe austerity measures in a country that is literally running out of cash.

Greece’s cash position can now be measured in weeks. If the vote fails and the government is ousted, it is highly unlikely that the rest of Europe, the ECB, and the IMF will maintain their financial support, and a Greek default would be imminent.

If the vote succeeds and the government stays, it is still highly unlikely that they would be able to see through all the necessary austerity measures to trim the budget.

Here’s the underlying problem– the Greek government is so heavily involved in the economy that direct public spending accounts for nearly half of Greek GDP. Deep cuts are going to shake the foundation of Greece’s economy, including its generous entitlement benefits.

If recent history is any guide, it’s pretty safe to presume that most Greeks simply won’t allow that to happen. They’ll protest, they’ll riot, and they’ll cry out, “why should we pay for the political mistakes of the past?”

As such, even if the current government passes this no confidence vote, Greece will only be kicking its problems down the road.  The deep austerity measures that are truly needed to reduce its debt are simply unrealistic in a society that has become accustomed to such generous public spending.

Quite literally, the financial system as we know it may hinge on how parliament votes today. If they vote against Papandreou (and effectively against austerity), a Greek default will set off a financial chain reaction.

Greek banks would become insolvent. Many other banks with significant Greek exposure across Europe, especially in Germany and France, would suffer catastrophic losses. Even the European Central Bank, which has over 50 billion euros of exposure to Greek debt (and rising) would suffer terrible losses.

Other weak nations in the eurozone would likely follow the Greek example and default, not only causing another wave of losses to be realized, but also putting pressure on the fate of the euro itself.

Needless to say, political leaders in Europe will stop at nothing to ensure this doesn’t happen. So far they’ve managed to rob taxpayers, inflate the currency, and outright lie to the public. They all understand the consequences of default, and no one wants to be the guy in charge when the music stops.

They’d rather keep robbing taxpayers and throwing good money after bad to keep the party going. The wealthier nations in Europe, however, are getting sick and tired of supporting the debtors (not to mention US taxpayers are still the largest contributors to the IMF).

As their support fades, the long-term prospects of Greece emerging from this crisis without defaulting go to zero.

For the sake of Greece, Europe, and the rest of the world, we should all hope for failure in today’s vote. The sooner this system collapses, the sooner it can reset itself and be renewed.

Otherwise, this ridiculous soap opera could drag on for another 2-years, resulting in billions upon billions being flushed down the toilet of a foregone conclusion.

Precious metals, particularly when short against the euro, remain an excellent speculation… until, that is, it becomes illegal again. More on that later.

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

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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.

Comments on this entry are closed.

  • Ez7331

    Don’t you mean short the Euro against Precious Metals not vise versa?

  • Ismaelyws

    Hi Simon, at the end of your post you mentioned gold. Can you address the issue of Kitco being investigated by Revenue Quebec. I am from Montreal and this sort of thing actually took me by surprise but doesn’t surprise me. The Quebec Gov. is really not business friendly. From my point of view this is an attempt to close down one of the biggest retailers of gold. It is not an issue of tax fraud. I’d like you input.

  • Cdubyuh

    I think Simon means “Precious metals, particularly when LONG against the euro, remain an excellent speculation…..

  • http://twitter.com/MichaelPorfirio Michael Mason

    “One of the reasons I love southern England in the summer time is because the days are so long.”

    Me too.  Was just there.

    However, I prefer the Spanish Coast more.  You know, topless girls and all.

    – MPM

  • Diogenes_

     It’s astounding how each day now seems to bring some big piece of historic level news. It’s plain as day this is a period of global historic change from one type of globally dominant political-economy system to another. I think the change is from global neoliberalism to one of a free market/big brother dichotomy.

     The free market is making itself heard in the space between nations, which is currently the weakest,freest point in the neoliberal hegemony. The space between nations is where the multi flag entrepreneur operates, and he or she is the natural creator of tomorrows liberty and prosperity.

     The Greeks say they don’t want to pay for yesterdays political mistakes, and they are right. Why should a 20 year old pay for what politicians did when he was growing up? Or those who never signed a contract for such political plans. Of course in the mob rule of democrary, there is no voluntary contract with the state, everyone is forced to be dealt with as a group in many intimate areas of their life.

     And the same reasoning applies to the US, why should young people be held responsible for the physically impossible to pay debt of the US governments military,social security and other welfare? What both the Greek and US people don’t understand, is that no longer receiving welfare is Not the same thing as being made to pay for past government debts. Both the right to receive welfare and the governments tax and inflation financed debt, should Both be repudiated world wide, and in fact, Is being repudiated by reality.

    What’s going to ultimately result is a 2 class global political-economy system: those who are ignorant slaves of the big brother system they will create with their own demands that money for welfare appear out of thin air, and those who take responsibility for themselves, and reject dependence and submission to such big brother tyrannies. The greater one can avoid and reject dependence on bb’s welfare, like fiat money, ‘public’ infrastructure or services of any sort, and nationalistic hatred of others, the safer and better off one will be.

    It was really surprising that Merkel recently caved to helping the Greek statists. I would have thought the German people would have understood better than to allow that to happen, even if they love their own welfare. That in combination with today’s vote, which I would have to think will go against austerity, is going to hammer Germany until they get enough sense to not keep sending money to prop up another countries dole.

    • Aryan Nomad

      There is no fiancial reason for Germany to be in the EU at all. The European Union is/has always been a big fat German subsidy to France and Europe’s backwaters. Why? Power, my friend, power. Germany is essentially defacto ruler of Europe. They know what they’re doing…

      • Diogenes_

         That makes perfect sense. I had momentarily forgotten the fundamental principle of welfare-that’s it’s handed out to enslave people. The payback is power for the German government and politicians. As long as there are governments there will be war and welfare, it’s All and Always about pure coercive power for powers sake alone.

  • Chuck B.

    “Precious metals, particularly when short against the euro, remain an excellent speculation… until, that is, it becomes illegal again.”

    I read today that Forex.com & other US brokerages may close all positions in retail commodities derivatives on July 15th because some wording in the Dodd-Frank bill could be interpreted as making retail trading illegal? If this is true, I’m sure the US will try to “persuade” other nations to go along with this as well. Why are western nations going in the wrong direction after a time of hardship? Excessive regulation, high taxes, high unemployment – sounds like a 3rd world socialist state in the making.

  • http://twitter.com/filip_rabuzin Filip Rabuzin

    So what now that the vote of confidence has been a success? Even the bbc is writing that at some point Greece will default.

    Btw Simon, even if the system does collapse what do you think are the chances of the new elites in charge being any better than the old ones? Especially in Europe… (call me a cynic)

    Politically, if the socialists don’t have a chance at privatising the economy and cutting down the public sector then who does? Do you honestly believe a free-market orientated government can survive anywhere is southern europe?

  • Daryll

    I would not worry about supposed consequences of Greek default. What I humbly believe you guys and gals are missing is this: there is a story being put out by the government about how much money they have printed, and then there is a reality. In reality, there is much much more printed and is stored ready to be secretly given to those banks. This is all off the budget and off the accounting books. Few trillions here, few there, and there is no problem. Billions or tens of them aren’t even seriously considered money this days. Chump change. The only consequence will be inflation.

    There is also this notion that bailed out banks are sitting on the money and therefore so far at least there is no inflation. This is monkey-nomics. What about the counter-party that won big? They are spending it, while the other side has zero loss, which equates to the same old thing as if you just drop the money out of helicopters. It is amazing what kind of balooney can pass for economic assessments these days.

    There is an another thing here, people say how come inflation isn’t hitting as hard as it should then. And here we go back to the point that too many believe government accounting. If statistics says there is 100 trln dollars out there to be devalued by extra 1 trln, people just believe this, like if the government was their own mom. It’s more of a pimp or a drug dealer, you have to be street smart and see behind the curtains a bit. There is probably three times more money out there, over what is publicly stated, and this is why the inflationary impact is only a third of what hard money folks correctly calculated based on official stats.

    Diogenes_,I am with you. The best way for us to destroy the socialism is to refuse pay the debts we did not signed up for. Greeks would be smart to say no way and crush the state. I only wish my parents generation had some balls and did this, so that we could be living in the freedom today. But alas, they sung of bravery, but they were just slaves and getting ready to sell us into the slavery for their benefits. That’s the real truth about our near ancestors. This is why we are now here, discussing where to flee from the gigantic fascist states they fought and died to build. Thanks a lot!

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