Copyright 2015 by John T. Reed
The Eruozone finally showed it had a spine. Who knew? The Eruozone banks will lose hundreds of billions because of the delay in finding that spine. They made idiotic loans to the Greeks in Greece, who are a bunch of deadbeats going back centuries.
He is also known as founder and principal funder of The Peter G. Peterson Foundation, which he established in 2008 with a $1 billion endowment. The group focuses on raising public awareness about U.S. fiscal-sustainability issues related to federal deficits, entitlement programs, and tax policies.
No deadbeat, he. He is a former Commerce Secretary, CEO of Lehman Brothers, etc., etc., He and a group of other prominent, successful Greek Americans went to Greece to offer their advice. They were put in a room by Greek politicians and ignored.
Greece can go to hell, and apparently is now doing just that.
This past weekend, June 27 and 28, 2015, the Eurozone finally said no more to Greek demands for more loans that they refuse to pay back.
The 6/29/15 Wall Street Journal top-of-the-front-page cover story has this quote from a retired Greek government employee,
How can something like this happen without prior warning?
Without prior warning!?
Apparently, he did not read my book How to Protect Your Life Savings from Hyperinflation & Depression, 2nd edition.
The first sentence on page one is
It could happen tomorrow.
I was referring to the U.S. In Greece, he could not have had much more prior warning! The papers have been full of warnings about Greek expulsion from the EuroZone for years, along with frequent warnings that Greece’s failure to clean up its government fiscal financial act would probably lead to the resurrection and hyperinflation of the old Greek Currency: the drachma.
The actual “this” the Greek retiree was referring to was a “bank holiday” in Greece. His warning about that was chapter 6 of my book. That chapter is titled “Government and institutional reaction to inflation/deflation.”
The first paragraph in that chapter is,
Governments and institutions react to financial crises in stereotyped, predictable ways. By knowing and anticipating those reactions, you can deploy your assets and liabilities to avoid being hurt by those reactions. Also, you must realize no institution is trustworthy. They have all been unwilling or unable to pay their debts at times, and misbehave to save themselves. When the financial going gets tough, their attitude is “Tough luck for the little guy.” The common theme of the reactions is to hold you in place while the government or institution steals your money.
There are nine index entries about so-called “bank holidays” in my book. President Franklin Roosevelt declared one on his first day in office in 1933. It simply means the federal government orders the banks to close and stay closed until the government says they can reopen.
Where in the U.S. Constitution does it say the president has that authority? Nowhere.
I don’t know about the Greek constitution, or if they ever have one, but like Obama, they don’t care what it says if there is one.
In a recent Facebook post, I said the smart Greeks were withdrawing their money from their Greek bank and moving it out of the country. And that the dumb Greeks were not and that they would soon be royally screwed. Here is a further quote from the retired Greek government employee.
I want [Greek president] Tsirpas to tell me how I am going to make it through the week with 10 euros in my bag with rent coming up.
I’d call that royally screwed.
“But we’re not Greece,” many say.
You mean our federal government is not spending more than we take in in taxes, not borrowing more to cover the deficit, and not “printing” money to avoid borrowing from real lenders like the bond market?
The hell we’re not! We have been deficit spending every year since 2001—when we had a surplus only because of the goofy dot-com boom which collapsed in April 2000.
Our debt-to-GDP ratio is now 103%, a rate never before seen in U.S. history except for 1944 to 1947 when we had massive World War II spending. Now we are doing that without a war.
Did we get hyperflation after World War II? No. Wars end. Tens of millions of Americans got pink slips in 1945, including my father and uncles. The entitlement spending driving the U.S. and Greek financial difficulties are not going to end—voluntarily, just as Greece now refuses to cut entitlement and government employee spending. Rather, U.S. entitlement and government employee spending are surely going to increase astronomically. No one is getting a pink slip. We are heading toward a cliff and accelerating.
Initially, politicians increase taxes to fund their vote buying via more and bigger entitlements—in both Greece and the U.S. and Venezuela, Argentina, and all the other countries where they have run into thesesame troubles.
Then, when increasing tax rates further causes tax revenues to fall as people cheat or avoid the behaviors that trigger the rates, the politicians have to borrow to keep the checks going out to retirees etc. That is how we got the 103% debt-to-GDP ratio.
Then, when the federal politicians can no longer get tax or borrow to get bottomless-pit amounts of money to keep the vote buying checks going out, they start to “print” the money. This has been given the euphemism “Quantitative Easing” in the U.S. Japan and the Eurozone and other countries have also been doing it.
“Printing” more money than the growth of the economy requires at first risks, then causes, hyperinflation. In hyperinflation, the currency of the country in question becomes worthless.
Greece is a bit different from the U.S. in that they cannot yet “print” money to pay their bills. They are members of the Eurozone which means their currency is the euro (EUR) which means the European Central Bank in the only one who can “print” more euros. But now that the ECB refuses to “print” any more for the Greeks, they will be forced out of the euro and will have to return to their old Greek currency, the drachma—or start a new one. Either way, they will be in control of how many are “printed” and they will “print” too many.
The Greek covernment says the banks will be closed for one week.
Ha! That’s a damned lie. They are out of cash. They cannot reopen because their depositors would demand their money and the banks in Greece do not have it to give them. They lost it or invested it in long-term assets, many of which are bad, like Greek government bonds that they were forced to buy.
What the hell is going to happen in the next week to change any of that? Nothing! This is the same as U.S. President Franklin Roosevelt did in 1933.
In fact the banks did not all reopen a week later in the U.S. in 1933. Many never reopened. And the Federal Deposit Insurance Corporation was created while they were closed to end the bank runs (large numbers of depositors simultaneously withdrawing their money so that the bank’s vault was emptied).
Greece cannot create an FDIC because they are not in charge of the euro, which is the currency the depositors are trying to withdraw. Greece simply does not have the euros to let everyone withdraw their savings.
So they have to create a new Greek currency, or resurrect the old one: the drachma. Then they will order all euros in Greek banks traded to the government for the new currency AT A REALLY SHITTY, WELL-BELOW-MARKET VALUE CONVERSION RATE! In other words, the Greek federal government will steal the value of the euros between their true market value and the actual true market value of the new drachmas. In other words, the “official” value of the new drachmas will be much higher than their actual free market rate. In Argentina, this screwing of the citizens is reflected in the blue market.
When Franklin Roosevelt took office in March 1933, he issued Executive order 6102 which forced all U.S. citizens who possessed bullion gold—gold that is worth its weight in gold, not more which is the case with rare coins and jewelry and art. At the time, the U.S. had gold coins in circulation, that is, in everyone’s pocket and used on a daily basis for buying stuff. The rate at which the U.S. government bought the gold from the citizens was $20.67, the same price as a hundred years before, but it was less than the market value of the gold. That is, the U.S. government stole the difference between $20.67 and the current market value of gold at the time.
So count on it. The Greek government is about to introduce a new or old currency and declare that each drachma or whatever is worth X number of euros. And it will force all Greek banks to credit all the citizens’ euros to the Greek government while crediting the Greek citizens with drachmas at the “official” rate. When Greeks then try to withdraw the drachmas and convert them to euros, the market will laugh in their face and maybe offer some far lower price for them.
Furthermore, these capital control laws as they are called, will prohibit Greek resident from possessing bullion gold or any foreign currency. That is why I have told my readers to hold your gold (which I oppose owning) and foreign currency outside of the U.S.
I have Swiss francs (CHF) in a safe deposit boxes in Canada. I was just in Europe for two weeks and came home with a lot of Swiss, Danish (DKK), and Swedish (SEK) cash which are three of the six currencies I recommend. The other three are Canadian (CAD), Australian (AUD), and New Zealand (NZD) dollars which I hold as savings in savings accounts in those countries. Search for those countries within my web pages and you will find all my articles on how to do it.
Getting accounts in Switzerland, Denmark, and Sweden is too hard for Americans, plus they charge negative interest and in some cases actually have deflation. Holding cash in a safe deposit box is actually better when the country in question has negative interest rates and/or deflation. I bought the Swiss francs, and Danish and Swedish kroner there—by sticking my Charles Schwab bank debit card into ATMs—because that is the cheapest place to get them. Schwab is one of the best debit cards for that purpose because they are one of the few that does not charge a percentage for converting currency. Ditto the Capital One credit card which does not charge a percentage for purchases in another currency. Don’t use that for ATMs though. Now I need to go to Canada to put my new CHF, SEK, and DKK into the safe deposit box there so I do not get FDRed or Greeked by our government if and when we tip over into the kind of mess Greece is in.
When governments get into these sorts of trouble, they always enact five laws “without warning.” This is first discussed in my book on page 3. The five laws are:
• capital controls [ban possession of bullion gold or foreign currency for residents, limits withdrawals—to 60 euros ($66) per day per account in Greece after the banks reopen, if the banks reopen, and limit withdrawals for the purpose of foreign travel to Motel 6/McDonalds amounts]
• price controls
• financial-repression laws (Greece had already instituted these before; they force people and banks to directly or indirectly put their money into overpriced, risky, federal government bonds; one of the reasons Greek banks are bankrupt is they were forced to put money into Greek federal bonds which will now probably been paid back is far less valuable drachmas)
• anti-hoarding laws [these essentially ban possessing more of rationed products than you would be allowed to buy on the first day of each rationing period; I expect goods you bought before rationing was instituted, like the food Mormons store, would be exempt if you can prove you bought it before rationing was instituted; my book recommends that you have 6 to 24 months of long-shelf-life food stored in your home and that you scrupulously keep the receipts; and that you hide it from the maids and other visitors so they don’t rat you out or steal it when the ’flation hits the fan]
So Greece already put the financial repression laws in before, now they will have capital controls. When they switch to the drachma and print too many of them, they will have hyperinflation and will enact price controls, rationing, and anti-hoarding laws in rapid succession. Just watch over the next few weeks.
Of course, if you had read my book, you would already know all about all this, and hopefully protected yourself by moving your rainy-day money out of United States dollars (USD) and into hard assets and foreign currency. You need the latter for liquidity. You can’t buy food or gasoline with real estate.
I commented on being a tourist in Greece when this hit the fan recently on Facebook. Told you so. One of the articles in the 6/29/15 Wall Street Journal is titled “Crisis Puts Cash-Poor Tourists In a Bind.”
What I said on Facebook and in my book is that tourists are treated like kings in hyperinflated or about-to-be hyperinflated countries like Greece. But you must have foreign cash. Note the phrase “Cash-Poor” in the article title. It is about American and other tourists who were planning on getting cash out of ATMs each day during their stay in Greece. But banks are closed for them, too, although I expect as this progresses that banks will be open for foreign tourists. Like I said: treated like a king. Had I gone to Greece, and was still there, I would now be treated like a king—or robbed—because I was carrying mucho CHF, DKK, and SEK as well as some USD.
I would not recommend being a tourist there for the next several months as the shock of the crisis hits the Greeks and they get used to it. In that period, some of them may kill foreigners in a rage over how foreigners are treating them. But soon, they will learn that foreign tourists are the best thing than can happen to them.
Stores in Greece now refuse to take credit cards; only cash.
But the government is letting persons with non-Greek credit cards use them. They are also exempting foreign visitors from the “60 euros per day,” ATM withdrawal limit. Tourists and foreign businessmen can withdraw as much as they want. But some foreigners feel bad about doing that in a long line full of desperate Greeks who can only get the 60 euros. U.K. is warning its citizens to take cash to Greece and also warning them to take extra precautions against robbery. A German tourist organization is urging Germans to take multiple different payment methods.
I actually had a little problem where my doing that saved me last month in Europe. A train ticket machine would not take my Capital One card for some reason in Copenhagen. It did on other occasions. I tried Amex, but it wanted a PIN which I had not brought. Shame on me. Then I tried my Schwab debit card which worked. There was no booth at which to buy the ticket. Just machines.
I suggest the Greek banks provide special places for foreigners to withdraw currency to eliminate the aversion to being in the same line with desperate citizens and to avoid robbery. And they probably will. 17.3% of Greece’s GDP has come from tourism; more will now that they are in crisis. And 19.4% of Greeks work in tourism.
Tourism is one of the few remaining sources of real money to the country of Greece. They had better treat foreigners like kings with discounts and no restrictions on getting access to money to spend there. And the history is all countries who have hyperinflation do just that—falling over themselves to get tourists and foreign businesmen to come to their country and spend their real (non-Greek) money.
One of my reasons to go to Europe was to scout it out as a place to take refuge in the event of possible U.S. hyperinflation. Ironically, once things settle down a little, Greece may be one of the best places to take refuge because if they go back to the drachma, and hyperinflate it, your cost of living will be much lower in Greece AS LONG AS YOU HAVE NON-HYPERINFLATED MONEY TO SPEND—like the AUD, CAD, CHF, DKK, NZD, and SEK I have urged you to acquire. If the USD is hyperinflated and you have nothing to spend but USD in Greece, they probably won’t even let you into the country.
You don’t get treated like a king for being an American or being a foreign tourist. You get treated like a king when their money sucks and yours is good. At the moment, Greeks think American dollars and euros are good. In the grand scheme of things, you’d be better off with the six currencies I recommend because the USD and EUR are also at ristk of becoming hyperinflated.
My book has a long section about “The Day the Dollar dies.” Sunday June 28th was sort of the Day the Greek Euro Died. In that section of my book, which starts on page 61, I said credit cards would immediately be canceled and no longer accepted. Exactly that happened in Greece over the weekend. As you watch the news from Greece in the coming days, you will see virtually all the horrors I depict in that part of my book come to pass in Greece.
The last paragraph of the Journal article about tourists quotes a Greek souvenir shop owner as saying “I offer the [foreign tourists] discounted prices.”
Told ya. Like a king.
But in short order, although you will still be treated like a king, it will be illegal. This is the case in Argentina now and probably Greece tomorrow. Basically, you are not allowed to pay locals in USD. They will not be allowed to possess USD, remember. Rather, you can only pay them in the local currency and you can only trade USD for local currency at the official rate—legally. To be treated like a king, you have to break the law and trade USD at the black-market rate—blue market in Argentina.
John T. Reed