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SOVEREIGN MAN

What happens when a nation goes bankrupt

September 14, 2011
Cape Town, South Africa

Three years ago today, my best friend called me and told me to turn on my television. I remember the way he described it– “Lehman is finished.”  The TV showed guys packing up their desks on Sunday afternoon, moving out of their offices forever.

That was the precipice from which financial markets plunged the following day, taking the global economy along for the next three years.

We appear to be at that moment once more.

Greece is out of cash. Again. The Greek Deputy Finance Minister said on Monday that his country only has enough cash to operate for a few more weeks.

As I write this note, French, German, and Greek politicians are all on a conference call, feverishly trying to figure out a way to avoid default.  Everyone seems to understand the consequences at stake… given the chain of derivatives out there, a Greek default will completely dwarf the Lehman collapse.

Unfortunately for the bureaucrats, dissent against the Greek bailout plan is spreading across Europe… and leaders can no longer ignore the growing wave of opposition in Finland, the Netherlands, Austria, and Germany.

It’s no wonder, when you think about it.  Why should a German hairdresser who retires at age 65 stick his neck out so that a Greek hairdresser can retire at age 50? This, from a continent that was perpetually at war with itself for over a thousand years.

Europe’s great benefactor over the last several months has been China, whose treasury has been buying up worthless European sovereign debt to ensure that Greece doesn’t default.

It’s a testament to the absurdity of our failed financial system when the highly indebted rich countries of the world have to go to China, a nation of peasants, for a bailout.

Speaking at the World Economic Forum this morning, Chinese premier Wen Jiabao delivered a stern message: there is a limit to Chinese generosity, and it will come at a price.

The Chinese will undoubtedly use any further investment in European bonds as leverage to influence western politicians. They already bought Tim Geithner. The US government refuses to label China a ‘currency manipulator’. Similarly, European politicians will now be forced to acknowledge China as a ‘market economy’.

Ultimately, this charade will fail. It’s a simple matter of arithmetic. China could buy every single penny of Greek debt and it still wouldn’t solve the underlying problem: Greece would still be in debt! And more, still hemorrhaging billions of euros each month. Throwing more money at the problem only makes it worse.

Then there are those Greek assets for sale… like state-owned Hellenic Railways Group. It lost a cool billion euros last year. Or the notoriously inefficient, highly unionized, traditionally lossmaking Greek postal service, Hellenic Post. Any takers?

These are not exactly high quality assets… nor can Greece expect to get top dollar in what’s clearly a distress sale.

Over 200 years ago, Napoleon was forced to sell France’s claim to 828,000 square miles of land in the New World in order to cover his war expenses. US President Thomas Jefferson happily obliged, paying the modern equivalent of around $315 million (based on the gold price), roughly 59 cents per acre in today’s money.

According to US census records, there were around 90,000 people living within the territory during that time who literally woke up the next day to a different world.  This is the sort of thing that happens when governments go bankrupt.

With the Lehman collapse, a lot of people got hurt… but it was mostly a financial and economic issue. When an entire nation goes bust, the pain is felt much deeper: the most basic systems and institutions that people have come to depend on simply disappear.

Argentina’s millennial debt crisis is a great example of this… suddenly the power failed, the police stopped working, the gas stations closed, the grocery stores ran out of food, the retirement checks stopped coming, and the banks went under (taking people’s life savings with them).

European leaders (with Chinese help) can postpone the endgame for a short time, but they’re really just taking an umbrella into a hurricane. It would be foolish to not expect a Greek default, and it would be even more foolish to not expect significant consequences. The only question is– how are you prepared to deal with what happens?

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

If you liked this post, please click the box below. You can watch a compelling video you’ll find very interesting.

Will you be prepared when everything we take for granted changes overnight?

Just think about this for a couple of minutes. What if the U.S. Dollar wasn’t the world’s reserve currency? Ponder that… what if…

Empires Rise, they peak, they decline, they collapse, this is the cycle of history.

This historical pattern has formed and is already underway in many parts of the world, including the United States.

Don’t be one of the millions of people who gets their savings, retirement, and investments wiped out.

Click the button below to watch the video.

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.

  • http://elevationgroupvideo.com The Elevation Group

    As the Federal Reserve looks for ways to justify QE3, it makes you wonder if they will step in to ‘help’ Greece and the E.U., and saddle us with even more debt.

    • Trevor

      They can’t keep the game up forever. The further the can get kicked the bigger its going to explode when it finally comes time.

  • http://www.bzemic.com/impossibleInstinct/ steve ward

    im not for the most part, i do have part of the plan in place and active at the moment but that around 30% to 40% we will feel much better at around 60%.

    • Betcsbirds

      Huh?

  • Andre G

    “At least once, everyone should have to run for his life, so he will know that eggs don’t come from stores, that safety does not come from police, and that ‘news’ is not something that happens to other people.” –Robert Heinlein

  • Scott

    Paraphrasing what Yvonne Chouinard of Patagonia said, we always talk about moving forward. What if we stopped, turned around and took a real step forward. The world needs to stop printing money but won’t because it’s too difficult for them to turn around and take a real step forward, toward economic prosperity.

  • Brian Clay

    Is it likely that the Chinese are hoping to pull A “Louisiana Purchase”, only on the entire world?

  • Charleydan

    Government can sell what they have and it may be the land your sitting on. Waking  up the next morning with new collector of taxes?

  • Tom

    A nation is not growing bankrupt, a corporation (called the UNITED STATES) is going broke. In fact its been operating in bankruptcy since 1933. The Nation (united States of America) on the other hand is alive and well.

    • Wyn

      I agree. People don’t just stand still. I saw the documentary about how the Argentinians (notably those living in Buenas Aires). They bartered. So will Europeans. So will we. Government will become local because in our case, the Federal bureaucracy won’t have the money to buy stamps much less enforce our gazillion arcanely stupid laws.

    • WASP

      Maybe, but we, the people, and next several generations, are going to be paying the bill. Alive but not well.

  • David

    That is such a pathetic article!

  • Serendipity Seraph

    Yeah fine, Tom.  Try saying that like a mantra when the IRS knocks at or knocks down your door.  While I think they badly need to be diabused of the notion, the government is convinced that its debts are yours and mine.  

  • Johnny Bronx

    This is a republic. The government’s problems are OUR problems. SOMEbody voted for politicians who are giving us EXACTLY what they were voted into office to do.

    Was it a surprise when Obama gave us socialized medicine? Was it out of the blue when Obama gave us two stimuli? Was it really all that smoart to mput a man in office who was going to spend MORE money, not less, when we were already groaning under debt?

    Nobody in this country ever took power by accident or by coup. Their doing EXACTLY what the citizenry of America wants them to.

    I read about people who are whining that they themselves didn’t misspend their money so, even though there’s no money left, they STILL want their social security checks, and whatnot. Well, if you spend money you dont have now, isn’t that misspending? Doi! ANd what will you kids say when their money has been spent on you? “Hey, I didn’t misspend it…blah, blah, blah.”

    Wake up, America! This is a Republic. The governement’s not the problem. YOU ARE!!!

  • http://twitter.com/issue313 Christopher Connolly

    Napoleon was very wise to sell the Louisiana territories, America would just have invaded them, and it would have been an expensive war to fight and Frances inevitable defeat would have been humiliating. At least Napoleon got some value out of it, and America got to look magnanimous and shrewd.

    No one seems to realise it, but America fought with everyone, the Brits, the French, the Indians, the Spanish, the Mexicans. Historically, this was not a peaceloving nation.

  • Missdarkness1967

    NO GREECE IS NOT ASKING TO GET THEIR PENSION AT THE AGE OF 50…THE3Y ARE ASKING TO LIVE IN A CIVILISED WAY AND NOT LIVE ON 300 EURO A MONTH….

  • Awesome

    China, a nation of peasantswatch it simon, you’re a peasant too you know…

  • Dejavu

    Its not a pathetic article this is the direction of our worlds future “Out of chaos comes order” is exactly what IMF wants the only countries that are not in the IMF pocket are Iran, Iraq or it use to be, syria, egypt, and few other very small nations that dont pose any threat. Once Iran and syria get on board. they will not bail out greece, and there you have it government will be forced to give power to the bank to step in and fix it. bank will say for every doller you had saved up i will give you $25cents on the new currency issued something to that affect. I have lived this life before this is all a repeat.

  • Aizadw

    how about print more money?

    • wakawaka

      inflation…

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