Monday, May 14, 2012

The Media is Finally Admitting that Greece Will Withdraw

I have hit on this theme several times in the past.  I wrote about it last fall.  I wrote about it a few months ago.  It is inevitable that Greece will withdraw from the euro zone.  The country will no longer be part of the European Union.

The media and the establishment (that is partially repetitive) are finally admitting this fact.  Some of the people in the media may be dumb, but I can't imagine they all are.  The elitist politicians, lobbyists, bankers, etc. are not that dumb.  Some of them may be, but most of them are more evil than dumb.

The headlines for the last couple of days in the financial markets is screaming that Greece may depart from the grand experiment that is called the European Union.  It was another step forward for the one-world government promoters.  Now they are seeing their dreams shattered.  The ironic thing is that their own socialist/ fascist policies have helped lead to the break up.  I assume that since the establishment is admitting that Greece may leave, that it will happen quite soon, maybe in the matter of days.

Look at what the interest rates were on one-year and two-year bonds from the Greek government.  The yield on the one-year went over 1,000%.  It is no longer tracked, presumably because it went into default.

All of those bailouts from Germany and others and where did it get them?  They basically just propped up the Greek system for a little longer than it needed to be.  It was wasted resources.

If and when Greece leaves, one of two things will happen.  The government has made promises in the past that simply cannot be kept.  It can deal with these by directly defaulting on them (just as they will do with their official government debt, also known as bonds).  It can also default on them by printing money.

Greece does not control a printing press right now.  It is much like the state of California.  That is why their day of reckoning has arrived sooner than others (like Washington DC).  When Greece leaves the euro zone, it will go back to its own currency.  It will have its own central bank again.  It will be free to use money creation as a tool to pay off some of its promises.

I hope that Greece does not do this second option.  It will lead to severe price inflation and will only continue the great malinvestment.  Greece needs to start with a clean slate, or at least as clean as possible.  Maybe they won't cut off the welfare checks for people in their 80's.  But anyone with government pensions, early retirements, and other government handouts should be cut off, almost immediately.  It is harsh, but the alternatives are worse.  I understand that many of these people worked hard in previous years to "earn" these pensions.  But it was the government that made these promises and current residents should not be forced to pay.

If Greece drastically cuts back spending, regulation, and taxation and has a reasonably stable monetary policy, then growth can return there.  On the other hand, if Greece continues in its ways and continues its big government policies and central planning, then we can expect massive price inflation and an economy that continues to deteriorate.  It will mean a lot of poverty for a lot of people.  Let's hope the people decide on the first option.

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